046: If Your Wallet Could Talk [2/3]
If Your Wallet Could Talk is a three-episode podcast series that was created at the LA Ossa Production Camp in March 2022.
Podcast team: JoJo Evonlah, Brenda Hernández, Quinn Greenhaus, Saranne Rothberg, Tiffany Yu
Guest: Caitlynn Eldridge, CEO, Eldridge CPA LLC
Caitlynn is a CPA, mom of 4, military spouse, and small business owner. She's spent the last 12 years working in a variety of tax roles but has found her passion in working to disrupt the industry. Teaching other professionals how to be more personable and relatable while helping clients understand their financials and how to grow their businesses. No boring CPA here- she’s all about trying to make it understandable and almost enjoyable.
Instagram: https://www.instagram.com/caitlynneldridge/
LinkedIn: https://www.linkedin.com/in/caitlynn-eldridge-cpa-77205712/
Facebook: https://www.facebook.com/caitlynneldridgecpa
Website: http://www.caitlynneldridge.com
Transcript
Hi, It's Tiffany here and I know we are on a little bit of a break from Tiffany & Yu, the podcast. We are getting ready to gear up to start recording for season three. But in the interim, I wanted to share a three-part mini-series of a project that I had an opportunity to work on back in March. I had the honor of getting selected for Ossa production camp. Ossa is this incredible company that creates a community and network of women podcasters that brought together a group of women podcasters to form teams to learn the ins and outs of what it was like to create a branded podcast. So the brands that I was on the team of was a financial services company who was looking to make different aspects of personal finance more relatable and approachable so these next three episodes are the episodes that we've recorded as part of that will also include the trailer here and the full episode and I want to thank our guests again for coming on and being part of this project. And I also want to give a special shout out to my team. Saranne, JoJo, Brenda, Quinn and yours truly. I hope you enjoy.
why is it that I will let my friend me but I won't tell her how much money I made. If finances burning and you're not gonna want to make time for it.
This is if your wallet could talk to real financial challenges, real solutions who's ever
bought and why should I give him 6000?
A lot of people think an investor is like an old white male sitting in a boardroom on Park Avenue doing these deals. It's not every one of us can be an investor.
Hi I'm I'm a first generation daughter of Asian immigrants, a former Goldman Sachs investment banker and I'm trying to figure out how to save and live well.
And I'm I grew up in a single parent, low income household. I'm on track to graduate debt free and redefine what finances mean to me.
We're bringing on money experts to break it all down and have some real talk.
Some sort of plan or checking in on your money
once a month. Even if a lot of what I'm saying today sounds like gibberish but just try it a little bit. Because future you is gonna really be thankful that current you did a little bit to start,
we realize that we all have a voice in our head about how we feel about our relationship to money, the money.
We all have it. It's in our head. It criticizes us. It can make us feel ashamed, but it can
even celebrate us when you find a bargain or get a raise.
If you're wondering how would it sound and what would it say Caitlyn?
Caitlyn, we really really don't need that in our house right now. And that would be better off and your retirement money. Oh my gosh. Are you sure you want to expand on that? What's your wallet voice? Share with us by tagging hashtag wallet
talk and join us every Tuesday to take control of your wallet at wallet talk.com. Where's the money?
Caitlynn is a CPA, mom of 4, military spouse, and small business owner. She's spent the last 12 years working in a variety of tax roles but has found her passion in working to disrupt the industry. Teaching other professionals how to be more personable and relatable while helping clients understand their financials and how to grow their businesses. No boring CPA here- she’s all about trying to make it understandable and almost enjoyable.
Tiffany: You and I actually have similar stories. I was not studying French, but I took an accounting class and on my final exam, my balance sheet balanced. And that's when I decided that I was gonna major in accounting. So I was wondering if you could tell us a little bit of your accounting story, how you got into accounting.
Caitlynn: I don't think mine balanced on my final exam, so I'm totally jealous. Like I, I remember Freddie, but
Tiffany: I hated, I hated tax class. I hated tax class.
Caitlynn: Oh, see, I love taxes. Um, but yeah, I remember Freddie about that final afterwards for hours. I was like, can you just tell me where I missed it? Like, just tell me what I did wrong.
Yeah. So I was taking accounting. I took it in high. School went in. My goal was to major in French in business and go run hotels. Like I was gonna go to Paris and run hotels. At least that's what my 18 year old self was convinced of. Uh, took my very first accounting class as part of my business major. And the prof.
I told the professor during like a one on one, I was like, this is kind of fun. And she's like, so you're switching majors. Right. And before I left her office, she had me. Switching [00:01:00] majors done in four years, like all the things on the path, and then we just kept plugging along. And by the time you hit your third, your junior year, senior year, they're asking you to kind of decide, are you gonna do tax or audit start taking your interviews?
And I decided I wanted to be the good guy. I save money instead of the bad guy I, who has to go in and be like, prove to me these balances balance them. If they don't, then I. I don't know, and Ron's gonna happen again. Like that was what was in my head. So I decided I'd be the good guy and I do taxes and my career just kind of went from
Tiffany: there.
I will say, I remember getting an internship at Deloitte and I had choices between doing that internship at Deloitte or becoming an investment banker. And I, I chose, I chose the latter, so, so I went the finance at, I didn't choose the accounting one. So one of the things you are our final interview of the day and one of the.
Themes that continues to come up is just how complicated our taxes are. And I think that's [00:02:00] actually what causes a lot of this confusion about retirements and what's tax deferred and, and tax now and later. Yeah. So. I don't know. Can you break down why our tax code is so complicated? Do you have tell us
Caitlynn: the answers?
Oh, special interest in Congress. That's why it's so complicated. So there are a bunch of people in DC who know nothing about business who have written all of these codes. I was actually talking to a. CPA friend. And the code used to be something like 960 pages. And now it's over 6,000 and it's just bit by bit.
People have wanted to get their piece of the pie. The corporations want their tax breaks. The states want something that's gonna benefit them. And rather than like, they, we kept getting promised. We were gonna overhaul the whole tax code. It was gonna be simpler. And nobody simplified it. Nobody went back to the law and simplified it.
It was like three years ago. All they did was try to shorten the form and they're like, see, it's simple. Now it fits on half a page. I was like, yeah, but you've got how many schedules behind that. It's not simple now. And so, yeah, it's just. Until Congress gets actually I think business people who can go in and say like, this is just prohibitive.
It's hard for small businesses. It's hard for individuals. Like no one seems to understand what's going on anymore. You're not helping these tax breaks. Aren't helping anymore. Cuz no one knows how to use
them
Tiffany: all confused here. That's why we have you. So we're gonna go a little bit, 1 0 1 here and one of our guests called it the alphabet soup of retirement.
that's about right. And part of this is so overwhelming. So like, what is an IRA and why should we care about it? And where does it fit in
Caitlynn: this alphabet suit? Yeah. So individual retirement accounts in case you didn't know, accountants are super clever, same with Congress. We like really love to name things.
Um, so we went with the simple and individual retirement account and all it means is that you can have this account regardless of your employment status. You don't have to be tied anywhere. You don't have to do anything fancy. You can just have this IRA and. [00:04:00] We have two types. We have the Roth IRA, so we'll add more like letters in, and then we have the traditional IRA and that's where the tax pieces start coming into play because of how they are treated.
the easy denominator, both for both of them is that you can put in $6,000 a year. So that stays the same, whether we're talking Roth or traditional IRAs for a traditional IRA, this one is one that you can use your pre-tax dollars. So before you pay any taxes, you can put $6,000 and, and. For the majority of people, especially for the audience, for their tax bracket, it will defer taxes.
So it will lower that tax bill in the year that you put that $6,000. When you go to take that money out. It's cuz ideally it's grown. So we've put it into a traditional IRA. You then have turned and invested that money into usually some kind of mutual fund stock market. You [00:05:00] go to the finance people, the, the investment bankers, those ones are the ones who are gonna help you decide what you're gonna do with that money.
Uh, but you put it in the pot and the pot continues to grow. And then you hit 70 and a half and the IRS says, now you have to pull out that money. And so they'll tell you, you have to pull out X amount a year, but that's when you pay your taxes. So when you start pulling that money out in your retirement years is when you finally will pay taxes on that money and you're gonna pay taxes on the growth of that money.
So. , it is a wonderful thing. If like today you wanna just reduce taxes. We're just trying to make the best decisions to have some money for the future and reduce my tax bill. Now, I think where a lot of folks also get com like. Confused maybe is that it's not a dollar for dollar savings. So for every dollar you put in, you don't save a dollar in tax.
You save whatever your tax bracket is, whether that's 15, 24, um, 32%, that kind of range. Yeah. I'm,
Tiffany: I'm gonna go a little nitty gritty here, cuz. It's not very often. I get to talk to a CPA. uh, um, so you mentioned something like 70 and a half, and then I saw another number 59 and a half. And what are those different ages and why are they meaningful?
Caitlynn: So 59 and a half, you can start taking your money out of the retirement accounts without penalties, but 70 and a half is when they say you can't keep hoarding it. You have to take the money out. And they're starting to try to add similar legislation to Roth IRAs. To the idea being that you can't just start one in your twenties and then pass it on for generations and generations and never draw from it.
They want you to take the money out because remember you didn't pay taxes on it. So they want their tax money. They're gonna force you to take that money. Yeah. Thank you.
Tiffany: I, I did not find that in, in my research. So one other thing that kind of came up that I was like, oh shit. Like, I didn't know this was, so there are income limits.
That dictate how much you can contribute to an IRA. Can [00:07:00] you talk a little bit about that or should we just Google it? I
Caitlynn: don't know. I can, I can't. Oh, look at you. She's not a audience. Can't see. But I had the book. I was like, if they're gonna ask, I don't have this memorized so yes, we phase out based on your income limit.
So we have different statuses of filing single, married, filing head of household. But if you are single head of household, kind of what we're talking about, then. The 66,000 to $76,000 range, we start phasing out your, uh, contributions and the benefits to putting that money in. And once you go over that range, we say, oh, well, you could no longer contribute to this.
You're better off using something like a brokerage fund. You lose your tax benefits, but you were gonna lose them. Anyway, the Roth IRAs for a single person, the phase out is between 125,000 to 140,000. Big reason for that is Ross or after tax dollars. So they care a lot less that you're getting a benefit and will give you a little more leeway
Tiffany: there.
Thank you for dispelling that, because then I was like, oh man, I thought I was maxing out my IRA, but should I be phasing out? Am I doing something right? And anytime it comes to taxes, I'm always scared.
Caitlynn: It's scared. It is scary. So if you like let's cause most of the time you don't find out. So, what we find is that it's when you're filing your tax return, you're like, oh shoot, I'm over the limit.
[00:08:18] I shouldn't have put money in back in February, you get until the filing deadline to pull that money back and they just ask that you pull the contributions and any growth on that money out of the account, and then find another place to invest it. Whoever you're working with, whoever's holding your, I, they should be able to help you.
[00:08:35] Figure that number out and make that transfer
[00:08:38] Tiffany: who holds your IRA? How do we know? We're, we're filing our taxes. Maybe we're over the threshold. Who's gonna tell us who is that person or entity
[00:08:47] Caitlynn: or entity. So what you will get usually is a 54 98, sometime in the January through late February timeframe, that will be from whomever has that IRA.
[00:08:58] And what they're gonna do is tell you your [00:09:00] contributions for the year, the fair market value. It's about a half page document, and you can have an IRA at like places like fidelity, Vanguard. They have one, but even some of the big banks, Wells Fargo chase also have like an investment arm to them and they'll have your IRA.
[00:09:17] And so that statement, wherever you've. Sending your check to every month, they are the people who should be able to tell you, this is what you had. And then when you're putting your tax return together, that's when you should get some kind of alert in most softwares or your tax pro should be able to say like, oh shoot, you've over, contributed let's chat and see what we need to do.
[00:09:36] Tiffany: I'm like learning so much. I'm like, Can you be my CPA? Mm-hmm can you be my accountant? All right. So as we think about money, how do we think about like where to start investing it? Because I know you can start contributing to an IRA as soon as you have income. Is that the first place that you should be thinking of where your money should go?
[00:09:55] Caitlynn: Oh, everyone is gonna be so different here. You usually start having income in your [00:10:00] teens. And if you're in a home where you're well supported, well taken care of, and you actually don't need that money. That's a great time to really start thinking about it. Hey, I've got money coming in. I'm 15, 16, 17 years old.
[00:10:12] Mom and dad are paying for everything. Let me invest that money. So that's the first, best time. If we can really try to get that going the second best, I would say in your twenties, when you have that income, I know we have, I mean, there's debt and student loans and car loans and all these competing interests.
[00:10:27] But your money over a long time works really, really well for you. So even if it's $3,000 a year, so it's half of the IRA limits that 3000 will still grow so much more over time that if we can get that together, still be able to eat, still be able to make our minimum payments plus some then really do encourage my clients to look into those investment accounts.
[00:10:51] Tiffany: Yeah. I will also say one good nugget from one of our guests earlier today was that retirement is non-negotiable. Yeah. Uh, and even in your teenagers, I guess. [00:11:00] Retirement is nonnegotiable. Um, so I've got a couple, uh, a couple of questions and then I'm gonna turn it over to my co-host Jojo. We're doing like a little part, one part, two of our interview, but I wanna come back to like the alphabet soup of retirements.
[00:11:14] You talked about traditional IRAs. You talked about Roth IRAs. You mentioned 401ks. I guess my question is, can you have both a Roth IRA and a traditional IRA? And then why do we need this money? Retirement account?
[00:11:26] Caitlynn: So you can have both, but in one single year, you're only gonna contribute to one or the other.
[00:11:31] So you can't contribute to both. Um, and again, because there were special interest in Congress that decided that we will write all of these benefits in. So people come and say, Hey, this kind of retirement would really help me. And I have enough dollars to get you to write me something that will allow it.
[00:11:46] They all just serve different functionalities. So Roth and traditionals are nice because as long as you have income or you're married to someone earning income, you can contribute to them. 401ks are tied to. Employer plans as a benefit. [00:12:00] A lot of those came around and I don't have the exact citation, but back in the great depression era, a lot of benefits went away.
[00:12:08] And so benefits like healthcare and retirement accounts became the way to sway employees. You could pay off them later, but you could hire somebody now at a lower salary. And so we started getting the 401ks. If you're in a small business, you'll hear of like a simple IRA or a SEP IRA. All forms of tax deferred retirement accounts, different rules as to how much has to be contributed by the employee versus the employer.
[00:12:33] What needs to be matched?
[00:12:34] Tiffany: What I got out that was that I should find someone to marry who has income so that I can to my IRA. So now we're gonna talk about taxes. And so what was interesting for this? So as we were prepping for this, not only did we listen to some of your, um, some of your podcast episodes that you've done, other places, fractional, CFO.
[00:12:55] Hello, but I Googled IRA tax and the number [00:13:00] of just, you know, how Google kind of auto populates. all of them were about how people were confused about the way taxes work. So I was wondering, and I know you kind of touched on it a little bit, but how do taxes work with IRAs from when you make the contribution to when you make the withdrawal?
[00:13:18] Caitlynn: So we touched briefly. So traditional IRAs, we contribute pre-tax dollars and then we take out and we get taxed on it. When we retire a Roth IRA we contribute with after tax dollars. So you've finished everything for the year. You have 6,000 bucks in the bank. That's after tax dollars, you're gonna put it into your account.
[00:13:35] Roth for 20 something year olds are really nice in the fact that they grow tax free. And so when your $6,000 today becomes half a million dollars, 20 years from now, hopefully more. That $494,000 of growth is tax free. And that's huge. If you think that you will retire in a tax bracket higher than the one you're in today.
[00:13:59] [00:14:00] And you're like, oh, well, when I'm, when I'm 40, 50, 60 years old, that's when I'm gonna have millions of dollars, my tax rate's gonna be super high. Or I just think that the tax rate in the United States is gonna go up and up. Uh, and so I just wanna get the benefit. Now I'll take the hit, pay a little bit more taxes today to save taxes
[00:14:15] Tiffany: later.
[00:14:16] We okay. One of our earlier guests, I mean, you get all the questions that we had from our earlier conversations. One of our guests said between traditional IRA versus Roth IRA. Just flip a coin and put money into one. I was wondering how you thought about that.
[00:14:34] Caitlynn: Very much the same. Um, so like Ross, we can have more income and contribute to them, but it is because I, I have no idea.
[00:14:40] There's part of me. That's like, of course we're gonna have a higher tax rate 20 years from now. How else are we gonna afford kind of the lifestyle I think we're headed toward, but it's always nice to save a dollar today. So yeah, there's really no they're gonna be invested in the same accounts. There's no great way to tell what 20 years from now taxwise is gonna look like, cuz I can't even tell you what two years from now looks [00:15:00] like.
[00:15:00] Yeah. Two
[00:15:00] Tiffany: final questions from me before I hand it over another question that ended up getting asked just a ton on my Google search was. Do you get taxed twice on IRAs, if you're outside
[00:15:13] Caitlynn: the limits for any benefit on your traditional, then yes, you would ideally. So if you have, if you're gonna, let's say we're just gonna invest a dollar.
[00:15:20] So we're gonna put a dollar into our traditional IRA. We had to pay, we got a benefit of 30 cents on that dollar. So we reduced our or tax bill by 30 cents. So we still had 70 cents left that 70 cents. When I turn around and withdraw it. Is gonna be commingled with all this other stuff and that's gonna be taxed.
[00:15:38] And so that P that other 70 cents will the initial 30 wouldn't be taxed again. Um, so that will depend on your tax bracket and how much of a benefit you got upon that initial contribution. But yes, I could see where the discussion of like being taxed twice would come in. Yeah.
[00:15:54] Tiffany: And I think that's a big fear.
[00:15:56] And then final question here. This is why I was so excited to chat with [00:16:00] you because a lot of people think that they need to hire a CPA in order to open an
[00:16:06] Caitlynn: IRA. Oh, no, not at all, actually. No, I won't. I, I don't open them. I'll tell you what to put in it, but no, we don't open them. If you have a CPA who is also like a certified financial advisor expert, I can't remember C I think is the designation planner, a CFP.
[00:16:21] Um, they. Are the ones who will do the opening. So some, some CPAs will have both, but no, I'm gonna send you to your financial advisor to a bank and say, Hey, that's where you're gonna open the mountain. I'll tell you what to do when to do it by. And the rest is up to them. Is
[00:16:34] Tiffany: there any point of this process of how we're thinking about retirement accounts, where we would bring someone like you in?
[00:16:39] Caitlynn: So it's usually in conjunction with your. Financial planners. So we both work well alongside. So what is the big picture? What goals are we trying to reach? Where can we save money and taxes in order to reach those goals? Because anytime we cannot pay a tax and instead invested in our future, then that works really well [00:17:00] preparing of the tax return.
[00:17:01] We're the ones who are gonna catch and say, Hey, you come was too high, too low. You have this much left that you can put in, but it it's usually a tag team effort.
[00:17:10] Tiffany: I like that. Thank you. And, and I think it's. Good for our listeners, just to know that. Sometimes you need a team to kind of like help you think through these things.
[00:17:18] So I'm gonna say thank you, Caitlin. I'm gonna do a little musical chairs with my co-host and have Jojo and ask, ask you a couple of questions as well. All right. Hello,
[00:17:27] Jojo: Caly. My name is Jojo, and I want you to think of this as. Sort of like a part to, um, I'm gonna give you some rapid fire questions. Don't think too much about it.
[00:17:35] Let's just have some fun here. So first and foremost, give us the rundown CPA versus accountant.
[00:17:40] Caitlynn: Oh goodness. So a CPA is a designation. We went through a four part exam to get there. We had to have like 150 credit hours and accountant can do the same work. They can still file taxes. They can still do your keeping.
[00:17:51] They just haven't done the exam. So
[00:17:54] Jojo: given your background, wouldn't I really be a good strategy for military family. Why
[00:17:58] Caitlynn: or why not? Yes, [00:18:00] we really, I love them for military families, cuz so often what you find is one is in the military and one is unfor like staying at home, raising kids unemployed because of all the moves.
[00:18:11] So the spouse can still contribute, which is really, and the service member can do their TSP usually and still an IRA depending on income limits, which is really nice. Lovely.
[00:18:23] Jojo: So I have the money for an IRA. What do I do exactly to get it in there?
[00:18:28] Caitlynn: Yeah. So if you have a financial advisor, your CPA has one that they can send you to your tax pro, then you're gonna go to them and be like, Hey, I've got money, let's open this account.
[00:18:37] You're gonna sign some documents. And then you're gonna go ahead and cut that check, send it on over. And then get it invested. That's the big piece. Um, making sure you get over the hurdle of not just putting it in the account, but making sure it's invested in something in that account. Um, I've heard horror stories of people who waited like 15 years to check and to come to find out there were no actual investments.
[00:18:58] They were just a savings [00:19:00] account. If you don't have a financial advisor and you're at a big bank, Wells Fargo chase. Go to their website, look up their investment arm. They'll have one and you should be able to go ahead and walk through that process with them.
[00:19:11] Jojo: All right. Don't wanna make that mistake. Uh, can you use gift money or do you have to earn it to deposit into an IRA?
[00:19:18] Caitlynn: You have to have earned income on your tax return to deposit it. Now, if you spent that money and you got a gift, if $6,000. Then you can still turn around and invest that. All right.
[00:19:28] Jojo: But you've gotta earn it first. Correct?
[00:19:31] Caitlynn: Well, so you have to have shown earned income. So let's say though, you are in a younger age group and maybe you babysat and you earned $3,000 and you reported that on your tax return.
[00:19:42] And mom and dad said, Hey, you can keep that money all put in 3000. Are you? So I can't go above what I earned, but it doesn't have to be my dollars that went in. Does that make sense?
[00:19:53] Jojo: Makes perfect sense. What does your money voice sound like if your wall could talk, what
[00:19:59] Caitlynn: would it sound [00:20:00] like? Very nagging. I am a spender of an accountant and so my money voice NAS me to make sure I put my, my, uh, debit card away.
[00:20:08] Can you give us an impression? Oh gosh. Um, Caly, you don't need that. Caitlyn puts that away. Caitlyn. We really, really don't need that in our house right now. You can go without it. And Caitlin, that would be better off in your retirement account.
[00:20:21] Jojo: Wow. Sounds familiar. Is that the voice that comes across in
[00:20:24] Caitlynn: It is my inner voice is my outer voice and it's unkind a lot of the time inside my head. Okay. Well,
[00:20:32] Jojo: can you give us three tips to help your money voice or the listener's money, voice mellow out.
[00:20:37] Caitlynn: what we do have time. Like you can't take money, you to the grave. So it is okay and better today than never and better tomorrow, if not today.
[00:20:48] So. it is okay to enjoy life. Like we are not here to be miserable. Every second in exchange for a hope of a future someday. So just find that balance. Yes,
[00:20:59] Jojo: [00:21:00] absolutely. Nobody knows tomorrow, but that was number two. So you owe me a
[00:21:03] Caitlynn: third one. um, oh, to get your money, voice to stop nagging you where you can see where you can find that cheaper substitute don't obsess over it.
[00:21:13] Don't drive yourself into the ground trying to do it, but the name brands often can be found for a lot less and it allows you to do something else with that savings. Like invested, if you can, um, invested or even set it aside into a savings account, that's for a bigger purchase someday, maybe your next vacation, even.
[00:21:33] All
[00:21:33] Jojo: right. In your opinion, can accounting be funny?
[00:21:37] Caitlynn: it can, I don't know. You have to understand the inside jokes. Sometimes I try to think of all the meme accounts I, people I watch. It can be. We find our humor in some areas it's very dry in a lot of them though. Yeah. You'd have to understand like assets and liabilities, I think to make it funny.
[00:21:54] Jojo: All right. Gotta be an insider. Okay. Well that's all I have for you today. You [00:22:00] did great. . Thank you so much for speaking with us this afternoon.