Should I Pay Off My Mortgage? Buy or Lease A Car? It's Mind Vs. Math

Ever wonder why your Roth “feels” slower than your 401(k)?   You're nearing retirement and want to be mortgage free.  But is that the smart money play?   You want to buy or lease your next car?   Should it be new or used?   These are our most popular questions when host Andy Keeler opens the Keeler and Nadler mailbag!   And he has reinforcements for this one: Abby Rose, CPA, CFP, Mark Beaver, CFP, and Jake Martin, CFP.  The whole gang is here to tackle real‑world money questions listeners and clients ask us every week.

We start by separating account labels from investment results, showing how contributions and scale distort what you see in your balances. From there, we map out a simple way to decide between pre‑tax and Roth 401(k) contributions using your current and expected tax brackets.  College planning gets a much‑needed demystification: FAFSA has three deadlines and filing early matters for grants and institutional aid. It is faster than ever thanks to IRS upgrades too.

Then we put numbers and behavior side by side for the mortgage payoff question. With low rates, the spread between your debt cost and a reasonable portfolio return can compound in your favor—if you can stick to the plan. We also look at gold with a cold, sobering eye: those marketing commercials are loud right now, but inflation protection is inconsistent, and volatility is high.    We also discuss long‑term health care as standalone policies have grown pricey.  

Let's also talk about a car for you and college savings for junior.   529 plans deliver tax‑free growth and the potential to roll unused funds to a Roth IRA for your child. And on the road, lease vs buy comes down to cash flow, mileage, high-tech, and your tolerance for surprise (!) repairs.

If this helped you make a smarter money move, follow the show, share it with a friend, and leave a quick review so more people can find these practical, problem-solving conversations by Keeler and Nadler Family Wealth.

The opinions expressed in this program are for general informational purposes only and are not intended to provide specific advice or recommendations.

It is only intended to provide education about finance, tax, retirement and related planning topics. To determine which investments or strategies may be appropriate for you, consult your financial, tax or legal advisor prior to implementing. Any past performance discussed during this program is no guarantee of future results.

Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.

Keeler & Nadler Family Wealth is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Keeler & Nadler Family Wealth and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Keeler & Nadler Family Wealth unless a client service agreement is in place.

Transcript

Mailbag Kickoff And Common Confusions

SPEAKER_00 0:02

Today on Financial Opportunity is Uncovered, we're throwing a party in the mailroom. We're opening the mailbag and answering some of the most common questions we receive from clients and prospects. Some of them are darn good questions, questions just about everyone has asked or been afraid to. Helping me dig through the mail are some of our regulars from the advisor team, Abby Rose, CFP, CPA and Director of Tax here at Keeler and Adler, as well as Mark Beaver, CFP, head of our investment team, and Jake Martin, CFP. Welcome, lady and gents.

SPEAKER_04 0:35

Thank you.

SPEAKER_00 0:36

Good to be here. As I said at the outset, I think a lot of these questions have crossed the mind of every listener at some point in time. But the answers either eventually came out naturally or they were too embarrassed to ask. I've been financial planning for over 30 years now. And the first question will often vary in specifics, but the concept is the same. Questions like, would my investments grow faster if I combine the accounts? Or would my investments grow faster in the Roth versus the IRA? Basically, confusion around investment account types versus really the investments themselves. For example, I've gotten the question: my small Roth IRA isn't growing as much as my 401k. Do I need to change the investments? So, Mark, what's the root of this question?

Account Type vs Investment Returns

SPEAKER_03 1:24

Yeah, this is actually one, like you said, we we've heard it a lot uh over the years, and it's not all from one type of client, too. You know, so it could be a younger client or an older client. Yeah, I think some confusion of it is thinking of numbers and scale versus percentages. You know, our minds thinking percentages a lot. Drives my wife crazy when we're just having dinner conversation, and I'm like, that's 34%. What who thinks like that? Who thinks like that? Well, we do, yeah. So um, not everybody's thinking that way. So sometimes they might have you know an IRA that's$500,000, and they have a Roth that's$5,000. You know, so if the Roth IRA grows by 10%, doesn't really look that significant. Doesn't move the needle much. You know, so that's only a$500 increase versus their half million dollar IRA goes up 10%. It's$50,000. Yeah, you know, so it's the same percentage growth, it's just in nominal terms, as we would say, a small amount. Uh so that confusion I think happens quite a bit. And then, like you mentioned, another similar confusion around the types of accounts that people have. Uh, so I think they're just getting some of those things confused, saying, Will it will my Roth grow faster or will that grow faster than you know, a brokerage account or some other type of account? And all else equal, you know, we can invest them exactly the same way across those different accounts. So the Roth itself isn't really growing, it's what you do inside of the Roth that's gonna grow at a certain rate. And we can probably invest it really the same way as we could any other account. So makes sense. It's not really the accounts that are different.

SPEAKER_00 2:55

Gotcha. In my observation, it's it can be about the sophistication of the person that's asking the question. But as you pointed out, we will hear it from some older folks that have had investments for a really long time, and we'll hear it from younger folks too. And you kind of might expect it from a younger person. Um, as I said at sort of at the outset, a lot of these questions pretty much everybody asks at some point in their financial life. Um, so it's really a question of when do they get the answer? And then they kind of know.

SPEAKER_04 3:25

They hear it a lot from people who are contributing to their 401ks too, where they're contributing to the 401k, but not necessarily like a brokerage account or a Roth. So they're like, it's growing so much faster, but yeah, you have the growth plus the contributions. So it's not really an apples to apples comparison.

SPEAKER_03 3:41

Yeah, and like you were saying, some of these folks that are asking these questions are are very educated, they're very smart people. They're just very educated in something else than this. They're not living every day in investments and accounts and things like we are. So it's just not part of their regular day.

Roth 401(k) Or Pre‑Tax Strategy

SPEAKER_00 3:58

So, Abby, this next one is for you. Here's the question: My company 401k offers a Roth option. Should I contribute to the Roth or is the pre-tax option better?

SPEAKER_04 4:08

So I'm gonna start with the kind of general rule here is gonna be it depends. I think that's gonna be our answer to almost everything. But for folks that don't know, talking about what is the pre-tax 401k versus the Roth 401k, the pre-tax, you get the tax deduction for putting the money in, but it's taxable on the way out versus the Roth, you don't get the tax deduction at the front end, but it's completely tax free on the back end. So that's important because when we talk about should we do Roth versus pre-tax 401k, it really depends what your tax bracket is now versus what's your tax bracket going to be in retirement, for example. So general rule of thumbs here, you know, 10% bracket, 12% tax bracket, Roth all day, every day. You're likely going to be in a higher tax bracket than those in retirement. So someone in the 10% or 12% tax bracket, the Roth makes sense because you're likely going to be in a higher tax rate in retirement. Right. Um, so it makes sense to get that tax-free distribution at that point. If you're 32% or above the pre-tax, the pre-tax 401k makes the most sense now because you're getting the biggest bang for your buck with the deduction there.

SPEAKER_00 5:14

You may or may not be in a lower bracket when you retire. But if nothing else, you might be in the same bracket.

SPEAKER_04 5:21

Right. Right. So you're really benefiting from the deduction on the front end. Right. Um, so there's a there's a chunk in the middle that I didn't talk about, and that's what we call the gray area. That's the 22 and 24 percent bracket where it depends. So that's really looking at what other assets do you have, what other sources of income do you have. And sometimes it's a combination of pre-tax and Roth at that point. So it really, it really depends.

SPEAKER_03 5:44

And that's a very large income range with those two tax brackets. So a lot of people are in that it depends zone.

SPEAKER_01 5:50

Right. It also depends a little bit on what you think future tax brackets are gonna do, right? If you if you believe that taxes are gonna go up, then that might uh lead you toward doing more Roth up front. If you think taxes are gonna go down, it's the the reverse. Aaron Powell Sure.

SPEAKER_04 6:03

And you know, another thing to talk about, which is kind of top of mind for a lot of folks right now, is starting this year, catch-up contributions have to be Roth. So if you're over a certain fifty thousand, um, so that could affect a good amount of people, where you know, even if you want to do the pre-tax, you have that catch up limit, which is$8,000 for folks that are 50 and above, unless you're in the super catch up, which is 60 to 63 years old. Um, then you're forced to do the Roth at that point.

SPEAKER_00 6:32

So this question, this isn't a mailbag question. No, it's a rabbit hole question. This is an ADP in the rabbit hole question. So that 150 is that per taxpayer, not per it's it's per employee. Correct. Otherwise, the employer would have no way to track it.

SPEAKER_04 6:49

Yes.

SPEAKER_00 6:50

So if your salary as say the wife is 150 or over, your catch up has to go under the Roth.

SPEAKER_04 6:57

Correct. And another thing to note, and I don't think it's I don't think it's going to be a big deal because I think a lot of 401ks do offer Roth nowadays more than they used to. Right. But if Roth is not offered in your 401k, you just don't get a catch up. There's no option. You just get the standard, you know, deferral and catch up is just left out. So I think a lot of employers have added Roth over the years, so I don't see that being a big deal, but it's something to keep an eye on. Yeah.

SPEAKER_00 7:22

I would imagine employees that are losing the catch up or could potentially lose the catch up because they don't have a Roth as an option are going to ask the employer to add it.

SPEAKER_04 7:31

Yeah.

SPEAKER_00 7:31

And that might cost the employer 300 bucks to add. So, Jake, in episode 31, you shared with listeners the SGO tax credit for those kids in schools K through 12. So I thought of you for this next one. Here it goes. I recently received notice that the FAFSA filing window has opened, but I'm confused. It says the deadline to file is June 30th, 2027. My son graduates in May of 2027. So how is the FAFSA helpful if he will have already graduated?

Catch‑Up Contributions And Plan Rules

SPEAKER_01 8:00

It's a really good question. I think this requires a real quick crash course in how the FAFSA works. So bear with me here as I just kind of explain how these deadlines work. Um, so first of all, the the FAFSA window opens about nine months before the school year starts. So generally it's about September or October that it opens for the following school year. Okay, so so that's when you can first start filing the FAFSA. Now, technically, there's actually three different deadlines to be aware of. And then the one that this uh listener mentioned is is the federal deadline, which is true, it's all the way until the end of June. Um, but the other the other deadlines to be aware of are um schools that your students are applying for have their own deadlines. Just as a local example, OSU, I believe, for their priority applications, the deadline is February 1st. So you you can't wait until the the federal deadline, if you want to um be eligible for some of the uh grants and scholarships that the school you're applying for might give you. Um, similarly, you the state that you're in may have some aid available. Um, and specifically, um Pell Grants and other state, state funded grants are oftentimes first come, first serve. So if you wait all the way until the federal deadline, you might just miss out because most of the most of the grants have been uh have already been made. Now, I I do want to mention um there there's no income or age restrictions on filling out the FAFSA form and it's free. So there's really no downside to doing the FAFSA other than the time that it takes to fill it out. Um, on average, it actually takes less than about 30 minutes to complete. And the biggest reason that that has improved is that now they actually require that you import all of your data directly from the IRS. So it used to be a much more burdensome process where you're kind of manually entering all this data. Now it actually just comes directly from the IRS and they require it. So it's much faster. Um, and so I just recommend whether you think your income is high, you know, too high or not for aid, it's still worth doing it because most students do qualify for some sort of aid.

SPEAKER_00 10:02

Okay, so Fed opens up the door on the FAFSA in September of say 2025 for the 2026-2027 academic year. So Ohio State, for example, wants your FAFSA in February of 2026, which is before the beginning of that academic year and before you would have paid tuition to Ohio State for that year. So that makes perfect sense. But one of your last points, if you did wait until let's say September of 2026 to file the FAFSA, you may have missed out on some of the benefits. So I think the point here is it's free to do. Anybody can do it. So do it and do it as early as possible. Correct. Yeah.

SPEAKER_01 10:52

And it's always pulling um your tax data from two years prior, not this past year. So you the the argument that I don't have all my tax information together yet doesn't matter because they're looking at two years prior. So those tax returns should be done. If you're not sure if your student is eligible for student aid, you can actually go through there's a federal student aid estimator to find out how much you might be eligible for. And can just give you an idea of whether it's worth your time to fill out the FAFSA. Um, but it but in general, getting it done early and getting it done is the smart way to go.

FAFSA Timing And Deadlines Explained

SPEAKER_00 11:24

So here's a timeless question, usually, but not always asked by empty nesters. Folks eyeballing retirement. Should I pay my mortgage off early? I'm gonna take this one because it's always fascinating to me. There are usually a couple of reasons that folks ask this question. The obvious one is to satisfy the psychological need to be debt-free. But the second reason that those nearing retirement have is the thought that by eliminating their monthly payment, they will be in better shape financially in retirement. Their monthly expenses will be lower. To answer the question, as Abby said earlier, it depends. Most importantly, what is your current interest rate? So to level set, a balance sheet has two columns, assets and liabilities. Let's assume that the rate on the mortgage is 3%. So this is one of those really low mortgages that nobody wants to walk away from, but this client is asking anyway. Should I pay it off? It has a$250,000 current balance, which is the liability. But we're assuming you also have$250,000 in assets that you could use to pay off the mortgage. So on paper, they cancel each other out. Let's assume you decide to keep the loan and continue paying the principal and interest. So the mortgage balance accrues at 3%. We're keeping it simple, ignoring the fact that the principal to interest ratio does change over the life of the loan. Meanwhile,$250,000 in investments on the asset side of the balance sheet grows at 6% net of fees and everything else. The asset, the investment account, is growing at double the rate of the liability or loan. After five years, you have a mortgage balance of around$222,000. So you've paid it down from$250,000 to$222. And yeah, you've paid$35,000 in interest, but your investment would have grown from$250,000 to over$335,000. Net of the interest you paid on the loan, you are ahead by roughly$79,000. So at any time you could change your mind, pay off the mortgage, and have money left in your pocket.$79,000 if you waited five years.

SPEAKER_01 13:30

And it is so interesting. Let me just ask a quick follow-up question on this. What if you decided to pay off your mortgage immediately, but then had the discipline to keep investing that principal and interest payment that you otherwise would have been making? How does that compare to just keeping the mortgage and investing the 250?

SPEAKER_00 13:48

You must be a CFP. Leave it to a CFP to ask this question. But you said something very important there, and you said, if you have the discipline, and that is a big if, but let's assume that you do. So after you've paid the mortgage off, you immediately turn around and set up a systematic investment plan from your checking account to your investment account. It grows at 6%. After five years, you still would have been$5,900 ahead had you just left the$250,000 initial chunk in the investment account. And after 20 years, you'd be ahead by almost$120,000. Now, there is another question that a CFP would ask. If you pulled this$337,000 hypothetical value of your investment account out, you're going to pay capital gains on it. And that is absolutely right. You'd still be ahead by$69,000. So at the end of the day, it does kind of end up being a bit of a psychological issue. I just want to be done. I don't want to pay it anymore. Um, whether you're going to invest the principal and interest payment or not, you know, we it's our job to point out the percentages and the pluses and minuses.

SPEAKER_03 15:06

Yeah, Andy, a lot of times we have a conversation around this is a very, very popular conversation, but it could be another financial, big financial transaction that they're looking at. Sometimes I'll describe it as if you think of this particular question, you know, I kind of draw a line down the page, and on one side it's the math and the academics, and that's what we're talking about. We can figure out is this a good decision or not? Uh, and then on the other side, it's the very personal psychological side of it. Like you said, I just really don't want to have any debt when we go into retirement. And there is a value to that. Everyone's got a different value. Some of the value is zero, they don't care one way or the other. Just tell me what to do. Um, but some people do have a fairly large value to not having that debt. Uh, but you just have to figure out is it enough to override the math side of it? Sure. In some cases it is, in some cases it isn't, but that's something that we guide people through.

SPEAKER_00 16:00

And and the column on the left is the left brain. That's the uh kind of analytical dollars and cents. Just give me the numbers. The right side is the emotional side that says, eh, it doesn't feel good. So, Mark, we covered gold in a previous episode, and maybe I shouldn't bring that to everybody's attention since gold was up like 65% in 2025. But people are asking, what are your thoughts on investing in gold?

SPEAKER_03 16:27

Yeah, gold always keeps coming up. Uh, and and I think that's what's interesting about gold in particular as an asset, is I think it gets advertised more than any other asset I can think of. What other investment or asset has TV commercials drilling you to buy it over and over again? Sometimes there's you know an investment company promoting themselves, but not like directly stocks. What's the motivation of that? Like what's why are the they advertise? Well, I think that's a great question, you know, to think why would they be selling this? That's because somebody's making money out of that, or they wouldn't spend the money to get you to do something about it. So that kind of raises a little bit of a red flag uh in some ways, but that gets into the whole different ways to buy gold and and those sorts of things, which we won't get into. But I just think that's interesting. And then it also kind of creates a following almost that you have a group of people that are gold lovers out there and some that are gold haters, and you know, they kind of go back and forth at why you should or shouldn't be buying it. Um, but yeah, I think it's good to ask, you know, why is why is it so prevalent that people are trying to sell me this thing over time? But back to your question, you know, should should you be uh buying in gold and should you be investing in it? There's a few different reasons people buy gold. Uh, one of them is that it's considered a store of value or some sort of protection against inflation. But when you really look at that in particular, it's there's a lot of inconsistency with that. Gold isn't necessarily been a consistent inflation beater uh over time. Actually, interestingly, if you look at you mentioned how gold did really well last year and the last couple of years really has been pretty strong with gold. If you look at it before then, the inflation adjusted price of gold from 1980 through 19 or 2022 is flat.

SPEAKER_00 18:13

Really?

SPEAKER_03 18:14

So it just got back to its inflation adjusted price from 1980 all the way forward to 2022.

SPEAKER_00 18:21

So now you're are you saying that the real return on gold during that period was zero? Yeah. Okay.

Mortgage Payoff Math vs Psychology

SPEAKER_03 18:26

So that would say that's not a great inflation beater if you went 40 years without it actually having real return. Now, a lot of that return that it's had is again been in the last few years where it's really popped. Um, but if you look at even some more specific examples, we had some more inflation recently. So 2021, 2022, we saw spikes in inflation. In 2021, gold was down a little bit, in 2022, it was up 2%. So it's definitely not doing it in real time to say boom, there's a spike in inflation, gold just shot up right with it. It's not really doing that. So maybe you could argue that it is over decades of time, but it's not doing it in the immediate inflationary period. So that's one uh thing that gets talked about a lot that I don't know that it holds up really well. Another one is that it's sort of a fear asset. If things get crazy, you you know, you want to have gold. That's also pretty inconsistent. Uh, it's not always when you know markets are crashing or economic uh factors are crashing that gold goes up. Just mentioned how there was 40 years where it basically didn't do anything. So there was definitely crises in in that period of time. So that's another one that's kind of inconsistent. And I think if you think about it, if things got really crazy, is there a big line of people trying to buy gold from you? Probably not. And actually, it can be difficult to offload that gold in in those situations. So it's not really uh living up to the the fear asset either. So I think thinking about it, we see it as more of a commodity asset, supply and demand dynamics. It's worth more to. Tomorrow because someone will pay more tomorrow for it. That's the hope, right? We hope that there's more demand for that uh asset in the future. In the last few years, there has been more demand. So it's been helpful in that regard, or that it maybe can play a role as a diversifier against other assets. Again, that kind of goes in and out of favor, but it can have some diversification benefits to it. So I think it's important when you're thinking about gold as an investment to have all of these things in perspective to say, okay, it might not really be the store of value that I thought or the fear asset that I thought. It has a lot of volatility to it. So when we look at, well, how is it actually done? You know, is it worth purchasing? Uh, over the last 20 years, it has averaged about 11% a year. Okay. Most of that being the last three years. Right. Um, but it's had a volatility of 18%, a standard deviation of 18%. So that means most of the returns are plus or minus that average by 18%. Yeah. That's a pretty big swing. Uh, when you think of stocks, on the other hand, that's got an average return of over 10% with a standard deviation of 14. So higher return, lower standard deviation. So that's what we like as investors to see that kind of dynamic. So a lot of a lot of variation in returns, uh, not necessarily very good at protecting us in inflation in real time. Those are a little bit of red flags for us. Is it worth considering in a portfolio? Yeah, it can be in the right scenario.

SPEAKER_00 21:28

So good stuff there. Lots of fun facts. Learned several things, actually. So, Abby, I know clients often ask if they should consider buying long-term care insurance. How do you answer that?

SPEAKER_04 21:39

What a fun follow-up topic to gold, you know, long-term care.

SPEAKER_00 21:43

Yeah.

SPEAKER_04 21:43

Um, it depends, which is, I know, a running topic, but um, I I usually touch on what the difference between current long-term care versus previously long, previous long-term care policies. So a lot of people talk about, well, my mom, my grandma had this long-term care policy that paid for so much of their care. I want something like that. Those policies are available today, but so expensive, it typically doesn't make a lot of sense. So if we can find them or if we find clients that have had them for a long time, we tell them to hold on to them for as long as we can and never get rid of them. Um, but a a lot in the more recent years, they've come out with hybrid policies. So they're life insurance policies with long-term care writers, is the way we describe them.

SPEAKER_00 22:27

So they're not a use it or lose it situation, which I think clients like where which the parents' policies were if they were able to, I shouldn't say able, but if they were in the unfortunate situation where they actually needed to use the long-term care, um, that's great. They got some of the benefit back. But if they passed away without ever using it, sure. All those premiums are gone. Sure.

SPEAKER_04 22:49

And if you're only paying, you know, a couple thousand bucks a year, it's not the end of the world. But when we look at them now, they're tens of thousands of dollars a year. So that's a big difference. So we get the question a lot. And, you know, it really depends if you can't afford it, is the first thing we look at. So we like to talk about can you self-fund long-term care? So somebody who has four to five million dollars, you likely can self-fund. You know, you have the assets there to self-fund your long-term care. Somebody under a million, it can still happen, but you don't have as many, as much assets to actually get the long-term care policy.

SPEAKER_00 23:23

And then there's the policy. Correct.

SPEAKER_04 23:25

Yeah. So they can't really afford to self-fund, but they also can't really afford the policy. So we kind of have to be a little bit more creative there. Um, and then there's the gray area in the middle where we really have to look at what assets do you have? What kind of you know, guaranteed income do you have? Can you still kind of self-fund? And then we supplement the difference. You know, we can be a little bit more creative in that situation. So, you know, some general long-term care facts that we hear from folks, typically you're in long-term care for two to three years. But if you've got family history where, you know, my grandma had dementia for 20 years and lived in long-term care for 10 years, that's something we want to talk about and look at. Um, but these hybrid policies are pretty special nowadays, I think. And I think it gives people the peace of mind. But then also there's the life insurance component, which makes it a little bit easier and they're a little bit cheaper.

SPEAKER_00 24:13

Because if they don't use the long-term care, their beneficiaries get the life insurance money more or less the initial premium back.

SPEAKER_04 24:21

Sure. Yeah. And it's similar conversation to like the mortgage payoff. You know, had you just invested that money and let it grow, you'd probably be in a better situation, but you don't have that potential, you know, long-term care that can support you on the back end. So um, it's all about the comfort of the clients too, and and seeing, you know, what brings them the most comfort to help them sleep at night. That has to be factored in for the long-term care side too.

SPEAKER_03 24:43

The family history part's a really good point. We had a a client that that did uh look into one of these hybrid policies because she said, like you were saying earlier, her grandmother had dementia for 10 plus years, her mother had it for 10 plus years. It seemed like a trend was forming there. And those aren't just you know a two-year stay, right? 10 years potentially, very expensive. Even if someone's able to self-fund, if you know they're going to need it for an extended period of time, it's hard to beat the insurance.

SPEAKER_04 25:11

Yeah, do you really want to self-fund?

SPEAKER_03 25:12

Yeah, the insurance is very tough to beat if you know you're going to actually use it. That's the big question, is we don't know obviously what the future holds.

SPEAKER_04 25:19

Yeah.

SPEAKER_03 25:20

Yeah.

SPEAKER_04 25:20

Some of the conversations I have with people, you know, if you're spending$10,000 a month of net expenses right now, you can probably that all those expenses would just kind of shift to long-term care. So it's not really, you know, a major change of expenses. I think people assume it's going to be an extra$10,000 to$15,000 a month, but it really is looking at what are your current expenses and would those just shift to the long-term care side of things. So there's a lot of unknowns to it, you know, with most things that we do.

SPEAKER_01 25:47

Abby and Mark, when you when I've run the numbers on some of these policies, a lot of times I it doesn't swing the success of the plan by more than a few years necessarily. But I what I really see the benefit of is you know, oftentimes it's that fear of those future health expenses is what holds people back from really spending and enjoying their retirement the way that they should. And so a lot of kind of throwing back to our mortgage question, there's a psychological benefit to knowing that I've got that coverage so that I can spend a little more freely now without worrying about do I have to you know hoard my money for some future event that may or may not happen.

SPEAKER_04 26:22

Sure. Yeah. I just talked to a client, you know, maybe fall last year, and they could have very easily afforded to self-fund, but I was like, it's also not gonna break the bank if we get this policy. So why not? If it helps you sleep at night and you can't afford it and it's not a detriment to the plan, yeah, we're all for that.

SPEAKER_00 26:39

Yeah, it's in a way, whatever the premium is, let's say it's two hundred thousand dollars, and that gives them a monthly benefit of whatever six thousand dollars a month or something. Um, that two hundred thousand dollars that they're moving to this hybrid policy, it's not like they're losing that money. If they had purchased one of the old policies, in all likelihood they would have bought it when they were in their 50s and they would have been paying premiums from 50 to 75 or even 80.

SPEAKER_04 27:10

Yeah.

SPEAKER_00 27:10

And if they didn't use it, that that those premium payments disappeared. It's auction, it's totally gone. Here, it's like Mark said, kind of why wouldn't you do it? And when you actually look at the math, if you turn it on, in my example, and I don't know if it was an accurate example, but six thousand dollars a month on two hundred thousand dollars one time for a significant period of months that they would pay that, if not for life, it's like that's a no-brainer. And and of course, the insurance company is almost banking on you never using it. Yeah, they're they're almost hoping we just get to earn interest on their$200,000. And then when they die, we give$200 plus a little interest to the beneficiaries 25 years from now.

Gold’s Hype, History, And Volatility

SPEAKER_04 27:59

But they've made out in the end.

SPEAKER_00 28:01

They've made out on the end. But as all of you're saying, there's uh an emotional component to it. And some insurance companies will call annuities and long term long-term care policies sleep insurance. And you know, if you can afford it, why not add that extra layer of layer of protection? So, Jake, here's another education-related question. Should I use a 529 to save for child's college, or can I use a brokerage account? I'm not crazy about the limited investment choices in the 529. And what if they don't go to college?

SPEAKER_01 28:33

Really great question. We get this one all the time. Uh, personally, I'm a huge fan of 529s for a number of different reasons. So let me just highlight the key pros of a 529, and then we'll talk about the downsides as well. So, number one, and I really can't over-emphasize this one, is the tax-free growth that you get inside of the 529. That's got to be like the biggest benefit of a 529, especially if you can get it started real early. So I try to encourage parents with young kids to get that money going as early as you can so that you can get that tax-free growth happening inside of the 529. So, just as an example, you know, if you start saving when your child is born, you have 18 years for that money to grow. That money can potentially double or even triple in that amount of time in the stock market. So there's just a tremendous amount of growth potential inside of the 529. So, number one, tax-free growth, you know, just a game changer. Uh, number two, most states, if there's an if you the state charges an income tax, you get an income tax deduction. So, for example, in Ohio, the top bracket right now is 2.75%. So you can deduct up to$4,000 per kid. That amounts to about$110 per year if you're maxing out that$4,000 contribution each year. Um, now I want to note you can put more than$4,000 a year into the$529. That's just the amount that you can deduct on your state taxes. So not a huge number, but just it is an added benefit over doing it in a regular brokerage account. Um, the other thing I'd say about 529s, you know, one of the biggest reservations people had about 529s was, well, I can only use them for college. And what if my kid doesn't go to college? Um, a lot of those questions have been alleviated by a few changes that have happened in the last seven or eight years. Uh one, you can now use them for key through 12 education. So if it's becoming clear that my kid's not gonna go to college, you can start to use it right now while they're going through school. Um, secondly, you can use it for education beyond a college degree, so like a master's or a doctorate degree, something like that. Um, and then finally, the you can now use it for trade schools, apprenticeships, professional credentials, and licenses. So this is generally gonna apply to anyone who is in, you know has any sort of professional degree where they they need to get some education. So there's almost always gonna be a use for the 529. Now, um Congress also created uh uh an option to get the money out if like all of those things aren't true, or you or your kid gets a full ride and they never use their money. Uh, what do you do if the money's still in there? Um you know one option is that you can just continue to let it grow tax-free and use it for future beneficiaries down the road. So starting to see discussion in the literature about the like these mega 529s. Like imagine if you don't use it for your own kids and then it grows for another 30 years before you have grandkids going to college. You know, those 529s could potentially be huge numbers that could fund in another generation or two of college education. Um, the other option is that Congress now allows you to roll$35,000 out of the Roth, excuse me, out of the$529 into a Roth IRA for the beneficiary. So if there is money left over, you could potentially use it to fund your child's future retirement without paying any penalties to get out of it. Now, those are the those are the pros. Uh, what are the downsides of the 529? Uh Andy, you highlighted it in your question that um a lot of the 529s do have limited investment options.

SPEAKER_00 32:06

So you do need to really aren't that bad. Depends on the stage. A perception, and again, it kind of comes back to that one of the first questions. People might not necessarily be comparing percentages, they're comparing dollar amounts. But at the end of the day, what I find is the investment choices tend to be okay. Um, it's not as broad, but I actually had that first question directly about a 529.

SPEAKER_03 32:35

I can remember it was uh it was a younger family, but they they might have had$15,000 at the time and a in a 529 that was maybe 10 years old or something like that. And they said, you know, it just doesn't seem like the 529's doing that well. You know, should we be looking at that closer? I looked at it as you've been averaging 12% a year. The problem is you start with zero dollars and put fifty dollars a month or whatever into it. So fifty dollars going up twelve percent is nothing, you know. So yeah.

SPEAKER_01 33:01

Yeah, I have run into situations where you maybe someone has real strong religious convict convictions where they they want to invest it in a very specific way. So that might not be a great fit for someone like that. But for the vast majority of people, I find the 529 has options that will work from an investment standpoint. Um, the other big downside to a 529 is if you don't use it for education specific um qualified education expenses, then if you take the money out for a non-qualified reason, you have to pay um ordinary income tax on the earnings and a 10% penalty on that withdrawal. So um, so that's the real big downside is that if you're using it for its unintended purpose, uh, that's not a good reason to have the 529. And I will note that some states, like California, even tack on an additional state penalty on top of the 10%. So um that would be the one big reason. Like if you really think my kids are not going to college, I'm not gonna have education expenses, then don't use the 529. But bottom line, it usually makes sense for most people because you're gonna have some sort of education expenses down the line. And the earlier you get it started, the better.

SPEAKER_03 34:05

It seems like the trend is they're opening things up with the 529, right? You can use it for more and more things. Yeah. The K through 12 things, a relatively recent uh change to that rule. The the Roth one, even more recent. Um, adding things like buying a computer for school. You know, they they just keep adding ways to use it more effectively, and I think that should continue. Uh, another psychological aspect of the 529s, I think that is helpful for folks, is it it's sort of like a 401k where you just put your paycheck in there and forget that you're doing it after a while. The 529 can be kind of similar. You set up a monthly contribution to it and it just keeps going, uh, and it can add up to a pretty good number over time. If you weren't doing that, you might just not do it at all and then get to college age and I wish I would have had some money.

SPEAKER_01 34:52

That's right.

Long‑Term Care Insurance Today

SPEAKER_00 34:53

Yeah. This last question is pretty common, but the answer is much more nuanced. Should I lease or buy my next car? Funny, I searched the internet for a lease versus buy decision tree. I'm like, there's gotta be something out there that says, okay, I drive less than 10,000 miles, yes or no, lease, buy, whatever. I found one, and it's basically said, you need a car. If you want to impress all your friends, lease. If you want to save money, buy. That's really funny, but I wish it were that simple. There are a lot of very situation-dependent factors to consider on this one, mostly financial factors, but also qualitative factors. If money is not an object, maybe you just buy the new version of what you like and call it a day. But since the name of this podcast is financial opportunities uncovered, let's look at ways to improve your financial outcome when acquiring a vehicle. I'd start by broadening the question by adding buying used to the equation. So we're really comparing buying used, buying new, or leasing new. I think it's important to start with the brand. And why is that a consideration? Because at the end of the day, quality becomes a financial factor in the cost of ownership. The better the quality, the longer the car will last, which matters if you buy it, and the higher the residual value, which matters if you lease it. And down the line, a good quality car may cost less to maintain over the time you own the car if you bought it. And well, another reason to start with the brand is because the appearance of the car is usually pretty high up the decision tree. After brand, I'd consider a lifestyle. Do you tend to want the latest and greatest? The driver technology interface changes at the speed of light, and safety features tend to improve over time as well. Or you could care less. You were the Walter Whites of the world, the folks that Pontiac was targeting with the Aztec. Also, how many miles a year do you drive? And lastly, what are the financial considerations? Are you looking for the lowest monthly payment? I mean, of course, who isn't? But maybe you expect your cash flow to change in the future. So right now you have a limit as to how much you can afford. To answer the question, I'd really need to know the specifics. As Abby said, it depends. I'm not going to give you all the answers today because I don't know all the specifics of your situation. On a future episode, maybe we will share how you can weigh all your specific factors and make the decision that's best for you.

SPEAKER_01 37:14

Andy, you just brought up cash flow, and I think that's an important question. I actually just had a conversation with a client yesterday where we're where we were trying to answer this very question. Um, and you know, there's the long-term question of what is it better to own or lease? And you can kind of look at like a 10-year table of what the total cost to own. But for her, she actually had a relatively low monthly income and just could not handle any unusual cash flow changes, right? Like sometimes a$500 or$1,000 unexpected repair bill can throw someone's budget into chaos. And so even if owning a vehicle over time makes more sense, oftentimes that consistency of cash flow becomes more important. So for her, leasing was the most clear option, um, even though my personal bias is to is to own long.

SPEAKER_00 38:01

Yeah, that's that's a great point. I've had conversations with people, not necessarily clients, because clients always do what we tell them to do. But when I'm talking to friends, relatives, my son, they question everything. And there are just some people, you mentioned lease, not doing it, not doing it. I gotta own it. And that particular client, it sounds like leasing is the best choice for them. You know exactly what pretty much what that that outcome is gonna be for that three years or so.

SPEAKER_04 38:31

It must be the season because I just talked to somebody about it like a month and a half ago, and they said, I only want to own the car for three years. And I said, just go lease the car. Let's not it's right, right? Just lease it. Because it's the long, it's not gonna make sense. And I ran the numbers and I supported it, but it made pretty pretty clear sense from the get-go.

SPEAKER_03 38:49

Yeah, it's I think important to sort of look at yourself in the mirror in some of these scenarios and say, you know, am I that person that's gonna just buy an another car in three years anyway? Even if I'm thinking I'm making a good decision by buying used or buying new, and I'm gonna hold it for 20, but in reality I'm not. Um that's not really a scenario you want to get in either. And then you're behind, you're you're kind of underwater on the loan you took out on that car, and then you roll it into another one, you're just creating more of a problem for yourself. Yeah. So if you know you're that person that wants it every couple of years, leasing could be an option. Um, it also changes with the environment that we're in. You know, interest rates change, how much vehicles these places are selling and how how desperate they are to make deals in different ways, and that can change. Uh, because I've heard even people at dealerships say, I've never seen leases look this bad before, not necessarily right now as we're recording this, but I've heard them say that before. And so it's okay, well, maybe leasing's not great there. But two years ago it was a way better deal, you know. So it we also have to look at the conditions we're in. Yeah.

SPEAKER_00 39:49

Yeah. I can as I said, I can't really answer everybody's specific situation, but um, I I tend to buy used, slightly used cars. So A year or two old because I find, especially with certain brands, the depreciation on some is so high. I can get the car that I want with 10,000 miles on it,$20,000 less than the original price. Yeah. But my most recent vehicle happened to be a pickup truck. As Mark said, the time of year, the situation in the economy, they were offering these huge incentives, and I couldn't find a used truck for what I paid for the brand new truck. So I'm like, why would I buy someone else's problems? Used trucks are pretty expensive. Yeah.

SPEAKER_03 40:36

But then that's why, you know, it's very different than saying I'm going to buy maybe a used BMW, you know, something or other like that, where there's kind of a reason why a lot of people lease those and turn them back in because the warranty's up and I don't want to deal with it after that. You know, so yeah, it's very different vehicle to vehicle.

SPEAKER_00 40:56

So Abby, Mark, and Jake, thanks for helping us empty the mailbox. I'm Andy Keeler, and this is Financial Opportunities Uncovered, brought to you by Keeler and now their family wealth. If you have questions on anything you heard in this episode or have an idea for a future episode, connect with us on LinkedIn or email me at andy.keeler at kanwealth.com.

SPEAKER_02 41:25

The opinions expressed in this program are for general information purposes only and are not intended to provide specific advice or recommendations. It is only intended to provide education about finance, tax, retirement, and related planning topics. To determine which investment strategies are appropriate for you, consult your finance, tax, or legal advisor prior to implementing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always, please remember investing involves risk and possible loss of principal. Please seek advice from a licensed professional. Keeler and Adler Family Wealth is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Keeler and Adler Family Wealth and its representatives are property licensed or exempt from licensure. No advice may be rendered by Keeler and Adler Family Wealth unless a client service agreement is in place.