0:00

Well, Elizabeth, would you say it's been

0:02

a slow newsweek? I would not say that, Sean,

0:04

not even remotely. In fact, it's

0:06

dizzying trying to keep up with

0:08

everything that's happening right now with

0:10

the new administration. And some of

0:13

it could affect all of our

0:15

finances. So let's try to summarize and

0:17

then get to the fun part, a

0:19

lightning round of listener questions. Welcome

0:26

to Nerd Wallet's Smart Money podcast, where

0:28

you send us your money questions and

0:30

we answer them with the help of

0:32

our genius nerds. I'm Sean Piles. And

0:34

I'm Elizabeth Ayola. This episode, we're featuring

0:36

a speed round of your questions, including

0:39

favorite travel credit cards and how exactly

0:41

to open a Roth IRA, a question

0:43

for which we turn to fairy tales.

0:45

But first, our weekly money news roundup,

0:47

where we break down the latest in

0:49

the world of finance to help you

0:51

be smarter with your money. So Sean, as

0:53

we just mentioned, the news in the last

0:55

couple of weeks has been a lot. Yeah,

0:58

Elizabeth, I describe it as

1:00

unprecedented, to say the least, but

1:02

also chaotic and confusing. So let's

1:04

try to clear up as much as

1:07

we can. Today we're breaking down

1:09

some of the key recent actions

1:11

by the Trump administration that could

1:13

affect your finances and the economy.

1:15

Our news colleague, Anna Hillhowski, is

1:17

here to help with that. Anna,

1:19

thanks for stopping by. Yeah, you got it.

1:21

All right, so let's start with tariffs.

1:24

A topic we've talked about on the

1:26

podcast in the past, but more hypothetically.

1:28

Now it seems this tariff business is

1:30

starting to become a reality. Yeah, that's

1:33

right. So President Trump has made a

1:35

number of tariff promises, but only one

1:37

has come to fruition so far. As

1:39

of Tuesday, there is a 10% tariff

1:42

on all goods from China. Now, there

1:44

are existing tariffs on certain products from

1:46

China, but this isn't across-the-board tariff. And

1:49

there's two other tariffs that Trump

1:51

announced that have been delayed. Those

1:53

were much bigger. 25% on all

1:55

goods from Mexico. 25% on all goods

1:57

from Canada, except for energy

1:59

exports. which would have a 10% tariff.

2:01

Now those were supposed to go into effect

2:03

on February 4th, but implementation will be

2:05

delayed for a month. So what's the

2:08

rationale behind the tariffs? Why is this

2:10

a priority for Trump? Trump has cited

2:12

a few reasons for his tariffs.

2:14

First off, they're punitive. He blames

2:16

Canada and Mexico and to a

2:19

lesser extent China for the influx

2:21

of fentanyl and undocumented immigrants into

2:23

the country. He also says he wants

2:25

to bring US manufacturing back home. but

2:27

whether or not the tariffs lead to

2:30

that kind of change is uncertain. I

2:32

also want to put it out there

2:34

that tariffs placed on one country

2:36

often lead to retaliatory tariffs in

2:38

response and that's what we saw this

2:40

week too. Yeah, China is enacting

2:42

tariffs on the US, including a

2:45

15% tariff on certain natural gas

2:47

products and a 10% tariff on

2:49

about 80 different products, including crude

2:51

oil, agricultural machinery and large engine

2:54

car imports. And before the Canadian

2:56

tariffs were paused, Prime Minister Justin

2:58

Trudeau had announced 25% tariffs on

3:00

billions of dollars of American goods.

3:02

Now Trump has floated a

3:04

number of other tariff plans

3:07

on specific products, including steel,

3:09

pharmaceuticals, copper, aluminum, computer chips,

3:11

and semiconductors. With more tariffs likely

3:13

to come, what's the takeaway for consumers?

3:16

All in all, tariffs usually end

3:18

up costing consumers more money.

3:20

That means consumers will likely see higher

3:22

prices on goods from China. And that'll

3:24

extend to products from Mexico

3:26

and Canada if those tariffs

3:28

are enacted. And here's one other thing

3:31

that I want to point out. Products made

3:33

in the US quite often require parts

3:35

produced in other countries, like cars. So

3:37

even prices of made in USA goods

3:40

could get more expensive for Americans.

3:42

All right, so another big topic in

3:44

the headlines lately is the federal spending

3:46

pause, or should I say the federal

3:48

spending, pause pause? Yeah, this is a

3:50

particularly confusing one, but I'll try and

3:52

give it a go. So let's go back to

3:55

January 27th when the Office of Management

3:57

and Budget called for a pause of

3:59

all federal spending. grants and other

4:01

financial assistance programs. Yeah, what did

4:03

that pause include? So that was

4:05

the problem, really. There were

4:07

some apparent exceptions. Medicare, Social

4:09

Security, food assistance, and student

4:11

loans. But it was completely unclear

4:13

what would happen to other

4:15

federal funding programs, including Medicaid.

4:18

Suffice to say, the order produced a

4:20

lot of chaos. Fundamentally, it isn't clear

4:22

whether the memo was legal, since

4:24

the Constitution gives Congress the power

4:27

to fund programs. And each year

4:29

after it approved spending, funding for

4:31

those programs are made legal obligations.

4:33

So then what was the response, honor? Well,

4:35

the next day, a federal judge in

4:38

DC granted an administrative stay that blocked

4:40

the spending freeze for a few days.

4:42

Then on January 29, the White House

4:44

issued a memo rescinding the original

4:46

order, which would have wrapped up

4:48

this debacle until White House Press

4:50

Secretary Carolyn Leavitt posted that the

4:52

funding freeze was still in place.

4:54

So here's where things stand. Last

4:57

Friday, a federal judge in Rhode

4:59

Island granted a temporary restraining order

5:01

blocking the pause, and then a

5:03

similar restraining order was made by

5:05

the DC judge. So to sum it all

5:08

up, Trump's federal spending pause is paused

5:10

while we wait for the legal system

5:12

to work this thing out one way or

5:14

the other. Okay, well, let's turn

5:16

to a few actions by Trump's

5:18

so-called Department of Government Efficiency, or

5:20

Doge. It's led by Elon Musk, the

5:23

literal richest man on the planet, and

5:25

an unelected official. I'd like to note

5:27

that Doge is not an actual government

5:29

department. It is a department in name

5:31

only, and we all expected it to

5:33

serve in an advisory capacity, but that

5:36

doesn't seem to be the case. Yeah,

5:38

in the last week, Doge

5:40

has seized information, begun dismantling

5:42

departments, and fired federal employees.

5:44

But there was one particular action

5:47

that might especially concern Americans.

5:49

On Friday Musk was given access to

5:51

the Treasury Department's federal payment system, which

5:53

makes $6 trillion in federal payments to

5:55

Americans. And I'll note that those payments

5:58

are or approved by

6:00

Congress. So those payments

6:02

would include things like social security

6:04

and Medicare benefits? Yeah, as well

6:06

as tax refunds, payments to federal

6:08

employees, payments to government contractors, and

6:10

so on. In the process, a

6:12

career treasury official who oversaw the

6:14

system was even placed on administrative leave

6:17

after he refused to let musks

6:19

associate access the system. And by

6:21

the way, that system holds a ton

6:23

of personal information on millions of

6:25

Americans. So what does that actually

6:27

mean for people? Well, it

6:29

means that Musk, who is neither

6:31

an elected official or an appointee

6:34

approved by Congress, can access everyone's

6:36

personal information. And beyond that, the

6:38

concern is if Doge can now

6:40

block or change payments. So

6:42

since we don't know what could happen,

6:44

if anything, to that personal information, now

6:46

that Doge has access, we can't give

6:49

specific advice on what to do next.

6:51

But what we can say is that

6:53

we recommend freezing your credit in general,

6:55

because it blocks scammers from accessing your

6:57

credit reports and also opening fraudulent accounts. Yeah,

7:00

we have more information on how to freeze

7:02

your credit at the Nerd Wallet website. Just

7:04

search Nerd Wallet, how to freeze your credit.

7:07

Beyond the Treasury, it seems like the Trump

7:09

administration has been pretty busy with other

7:11

departments too. On the last day

7:13

of January, CFPB Director Rohit Chopra

7:15

was fired. And Scott Besant, who is

7:17

the new Treasury Secretary, was named

7:19

Acting Director. For those who

7:21

don't know, the CFPB is

7:24

an independent agency that oversees the

7:26

consumer finance industry. So that

7:28

includes banks, lenders, and other financial

7:30

institutions. Its main job

7:32

is, as the name suggests, to

7:34

protect consumers often through enforcement

7:36

actions. Over the last

7:39

13 years, the CFPB

7:41

has recouped $19 .7

7:43

billion for consumers. Well,

7:45

it seems that, unfortunately, the CFPB is

7:47

not going to get much done anytime

7:49

soon. Shortly after Besant was

7:51

appointed, he quickly halted operations

7:53

at the agency, saying the CFPB

7:55

needed to align its actions

7:57

with the new administration. This

8:00

wasn't entirely unexpected, of course. Trump, as

8:02

well as Musk, are no fans of

8:04

the CFPB. They also don't seem to

8:06

be fans of the Education Department. Yeah,

8:08

that's an understatement, Sean. After

8:10

dismantling the U.S. Agency for International

8:13

Development, or USAID, and purging other

8:15

departments, it looks like the U.S.

8:17

Department of Education could be next.

8:20

And the Education Department is in charge

8:22

of overseeing all federal education policy

8:24

along with managing financial aid and

8:26

student loans. So it has a

8:28

laundry list of duties and yet?

8:30

And yet, Trump has long promised

8:33

to get rid of the education

8:35

department. And now there are reports that

8:37

he may soon issue an executive order

8:39

to dismantle it. Can he do that,

8:41

Anna? I mean, getting rid of

8:43

the department entirely isn't up to

8:45

a president. That paralyzed with Congress.

8:47

Then again, Doge has shuttered USAID,

8:49

USAID, so is it possible? Maybe. I

8:52

would note that Doge has

8:54

reportedly already gained access to

8:56

internal ED systems. including people's

8:58

financial aid information. So there's

9:00

more personal information that Musk has

9:02

access to. Another good opportunity to repeat

9:04

our house view on freezing credit. So,

9:06

Anna, if Trump doesn't get rid of

9:09

the education department, he could still

9:11

dwindle its power, right? Yeah, that's

9:13

right. He could still fire more

9:15

employees and divert department responsibilities, both

9:17

financial and practical to other federal

9:20

agencies and probably the states. All

9:22

right, that was a lot of information to

9:24

digest, and there's likely to be a lot

9:26

of new actions coming out of the White

9:28

House in the coming days. So listener, let

9:30

us know what you have questions

9:32

about. In the meantime, Anna, thanks for

9:34

walking us through all of that. Yeah, sure thing.

9:37

Up next, Sean and Sarah Rathner answered,

9:39

not one, not two, but three

9:41

listener questions about travel credit

9:43

cards, opening investment accounts for

9:45

grandkids, and more. But before we

9:47

move on, a quick note listener, I'm betting

9:50

you have a pile of tax documents burning

9:52

a hole in your desk right now, and

9:54

maybe you're wondering how to approach your taxes

9:56

this year. While we are putting together an

9:58

episode all about your tax... questions, so

10:00

send them our way. Leave

10:02

us a voicemail or

10:04

text us on the

10:06

nerd hotline at 901 -730

10:08

-6373, that's 901 -730 -NERD,

10:10

or email us at

10:12

podcastatnerdwallet.com. Maybe you're wondering if you

10:14

should itemize or claim the standard deduction,

10:17

or if there will even be an IRS

10:19

to send your tax return to. Whatever

10:21

your tax question, send

10:24

it our way. One

10:26

more time, leave us

10:28

a voicemail or text

10:30

us on the nerd

10:32

hotline at 901 -730 -6373,

10:34

that's 901 -730 -NERD, you

10:36

can also email us

10:38

at podcastatnerdwallet.com. All right, now let's

10:40

move on to this episode's money question segment. That's

10:42

coming up in a moment, stay with us. Today's

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at LandRoverUSA.com. questions

12:00

to help you make smarter financial

12:02

decisions. This episode we're taking on a

12:04

number of your questions in a lightning

12:06

round. Here's the first question which comes

12:08

from a listener's text message. They asked,

12:10

what's your favorite travel credit card? So

12:13

okay a simple enough question but before

12:15

we dive in I just want to

12:17

give listeners a heads up that we

12:19

will be talking about some companies that

12:21

are nerd wallet partners but that does

12:23

not influence how we talk about them

12:25

as ever. And as we talk about

12:27

specific benefits of each card, know that

12:29

terms and conditions apply and the benefits

12:31

that we'll discuss are active as of

12:33

this recording and may change at a later

12:35

date. Okay, with all of that said, Sarah,

12:37

laid on us, what is your favorite travel

12:39

credit card? Is this what it's like to

12:41

admit to yourself that you actually like

12:43

one of your kids best of all? I would

12:46

imagine so having not any kids my own. Well,

12:48

I only have one kid. So I like

12:50

him best of all, but I do have

12:52

three pets, so maybe I could just apply

12:54

that situation to this. If I had to

12:56

go with just one, I would go with

12:58

the Chase Affire Reserve. But my answer

13:00

comes with an asterisk that leads to

13:03

a footnote. Okay, and go on about

13:05

that asterisk slash footnote. So what's great

13:07

about the card on its own is

13:09

that it earns what are called Chase

13:12

Ultimate Rewards Points. That's its rewards currency.

13:14

And when you redeem those points for

13:16

travel through Chase, through Chase. then they're

13:18

worth one and a half cents a

13:20

piece. And that's a good thing, because

13:22

the average value of points is typically

13:25

around one cents a piece. So it's

13:27

50% higher. But that is also what

13:29

makes the Chase Sapphire Reserve even better

13:31

when you carry multiple chase cards that

13:33

earn chase-ultimate rewards points. And how this

13:35

works is, if you have multiple chase

13:38

cards that earn this rewards currency, you

13:40

can move all of those points over

13:42

to your reserve card. And then you

13:44

could redeem for travel at that higher

13:46

rate. And if you have a spouse or

13:49

partner who also carries chase cards that

13:51

earn these types of rewards, they can

13:53

transfer points to you if you're carrying

13:55

the reserve card because chase allows you

13:57

to transfer points to another member of

13:59

your household. So, both of you

14:01

can earn a whole bunch of points and

14:03

then redeem them for travel through your

14:05

Chase Sapphire Reserve account. That is pretty

14:07

sweet, and I might add my own asterisk

14:09

or maybe that little dagger thing you sometimes

14:11

see in publications, and that's that you have

14:13

to pay a pretty hefty annual fee to

14:15

be able to earn the points at this

14:17

rate with the reserve card, right? Yes,

14:20

so the Chase Sapphire Reserve has

14:22

an annual fee of $550,

14:24

which is nothing to sneeze at.

14:26

You definitely want to think long and hard about

14:28

how you're going to use this card before you apply

14:30

because that's a lot of money. Yeah, but

14:32

that said, if you can make it work,

14:34

you can get a lot of value out

14:36

of these cards. And I feel like the

14:39

Chase Sapphire cards, whether the reserve or the

14:41

preferred, are the gateway credit cards for a

14:43

lot of people that get them into the

14:45

points game because once you learn about transferring

14:47

points, I mean, all bets are off for

14:49

some folks. They get totally hooked on maximizing

14:51

their points to get free or highly discounted

14:53

travel. So I get why you like that

14:55

card. Yeah, and it has some other

14:57

benefits, too. It's got a $300 annual

15:00

travel credit. Last year, I used that

15:02

to buy tickets on High Speed Rail on

15:04

a trip to Spain with my family. So I

15:06

like to think that I got a lot

15:08

of joy out of that travel credit. Fun. You

15:11

also get access to certain types

15:13

of airport lounges. It comes with travel

15:15

insurance, which can be a really

15:17

helpful benefit if your trip does not

15:19

go according to plan. So those

15:21

are all things that could have monetary

15:23

value if you choose to take

15:25

advantage of them. And that can also

15:27

help chip away at that once

15:29

again, $550 annual fee. All

15:31

right, Sean, what is your favorite travel

15:33

card? I think I have an easier choice

15:35

here because my favorite travel credit card

15:37

would have to be the only travel credit

15:39

card that I currently use, which is

15:42

the American Express gold card. So you're definitely not

15:44

the only nerd who's a fan of that

15:46

card. And it's not just because you can get

15:48

the card in classic yellow gold or trendy

15:50

rose gold. And for a limited time, they had

15:52

a white gold option that I don't think

15:54

is available anymore. Yeah, I have the yellow

15:56

gold and I feel very fancy whenever I

15:58

use it, even if I'm just. at the Taco

16:00

Bell drive-thru, whippin' out my fancy metal card.

16:02

I'm not huge in the travel credit cards

16:04

because I just don't want to have to

16:06

play that game, transferring points, and I'm just

16:09

kind of lazy with it. I tend to

16:11

use my cash back card more than anything

16:13

else. But when it comes to my travel

16:15

credit card, I like it, I guess, for

16:17

all the reasons that folks typically like any

16:19

travel credit card. I got a really sweet

16:21

sign-up bonus. The rewards rate is nice on

16:23

purchases that I make frequently, like going out

16:25

to restaurants. And when it comes to travel-related

16:27

perks, I do really like that it has

16:30

baggage insurance. Yeah, and the card also offers

16:32

quite a few statement credits for specific

16:34

merchants like Duncan and Resee, and there's

16:36

a monthly allotment of Uber cash that

16:38

gets added to your Uber account. Terms

16:41

apply. If you take advantage of these perks, you

16:43

can get more value out of the card,

16:45

because it also has a pretty high annual

16:47

fee. So just because Sarah and I like these

16:49

cards, listener, that doesn't mean that they would

16:51

be right for you. Sarah, you've been writing

16:53

about credit cards for a while now. Can

16:55

you enlighten us about what someone should consider

16:58

if they are hoping to find a new

17:00

favorite travel credit card? The first thing you

17:02

have to ask yourself is, is the travel card

17:04

even right for you? And the answer might be

17:06

no, and that's totally fine. Now the more you

17:09

travel each year, especially if you travel

17:11

internationally, the more sense it makes to

17:13

use travel rewards credit cards. But if

17:15

you tend to travel domestically and not

17:18

that often, you probably will get more

17:20

value out of a cashback card. If

17:22

you are a frequent enough traveler, then

17:24

you want to look at the cost

17:26

of the card compared to the dollar

17:29

value of the perks that it offers

17:31

that you're actually going to use. One

17:33

last thing to think about is how

17:35

you travel. If you're loyal to a

17:37

specific airline or you always stay at

17:40

a hotel property that's under the umbrella

17:42

of a specific brand like Hilton Hyatt,

17:44

Marriott, Bonvoy, then airline and hotel cards

17:46

could be a better fit for you.

17:48

But if you want flexibility to book

17:50

on any airline or stay at any

17:52

hotel, even independent hotels that are not

17:54

part of a chain, then a general

17:57

travel rewards card might be a better

17:59

option for you. all good things to consider.

18:01

And I'll also add this. If you currently

18:03

have credit card debt, know that the amount

18:05

that you pay in interest can wipe out

18:07

the value of your travel rewards pretty quickly.

18:10

So before you apply for a high-end card,

18:12

focus on paying down that debt first. Now

18:14

let's get to our next listener question,

18:16

totally different topic. This one comes from

18:18

Cheryl who wrote us an email. I

18:20

have a question about opening investment accounts

18:23

for my grandchildren. I would like to

18:25

open the accounts with a small amount,

18:27

say, a hundred plus dollars, and then

18:29

contribute on birthdays and Christmas. Many of

18:32

the vanguard funds require a large investment

18:34

of $3,000. Is there anywhere I can

18:36

get started with smaller amounts? All right,

18:38

Sean, you're Mr. CFP, so I'm going to

18:41

let you start this one. What would you tell

18:43

Cheryl? Well, first, I'm going to tell Cheryl

18:45

that this is not personalized investment

18:47

advice. This is just for general

18:49

educational and entertainment purposes, as we

18:52

always say. But then I would also

18:54

tell Cheryl that your grandchildren are super

18:56

lucky to have you because investing for

18:58

them is a really generous gift. But

19:00

first I want to back up and

19:02

ask Cheryl hypothetically or anyone else who

19:05

wants to invest for a loved one.

19:07

What are they investing for? Like what

19:09

do they hope their grandchildren will use

19:11

this money for? Is it for college? Is

19:13

it so they can have a gap year

19:15

gal vanting around Europe after high school or

19:17

college? What this money is going to be

19:19

used for can determine what kind of account

19:22

might be best for them. I will also

19:24

say this before you open any sort

19:26

of account, talk to your grandchildren's parents

19:28

or guardians, whoever is raising them day

19:30

to day, because they might already have some

19:32

accounts set up for their kids that you

19:34

can contribute to. Let's break this

19:36

down by different goals. So if

19:38

Cheryl wants to invest for their

19:40

grandchildren's future education, a 529 college

19:42

savings plan can be a great

19:45

investment vehicle. The funds don't have to be

19:47

used for college, they could be used for

19:49

a trade school or other types of education

19:51

like private school. When the investment money

19:53

is used for qualified educational expenses,

19:55

it's tax-free, which is a big

19:57

plus. And it's really common for

19:59

to fund or open a 529-4 relatives. In

20:02

fact, I just opened one for my nephew

20:04

as a Christmas gift, and like Cheryl,

20:06

I'm planning to contribute to that on

20:08

birthdays and for Christmas. My husband and

20:10

I have a 529 for our son,

20:12

and we both contribute to it. Both

20:14

of our sets of parents have also

20:16

contributed by giving us checks, and then

20:19

we deposit them into the savings account

20:21

that's linked to the 529, and then

20:23

we move the money over and invest

20:25

it. But what if Cheryl isn't so much

20:27

the 529 kind of grandparent but is

20:29

more the yellow kind of grandparent who

20:31

wants to fund their grandchildren's, I don't

20:33

know, experience going to like a yurt

20:35

in the desert? Well, as Cheryl wants

20:37

to give their grandchildren money just to

20:40

do whatever they want with and find

20:42

themselves, there are a few options to

20:44

consider, but I'm just going to focus

20:46

on two. An Atma account and a

20:48

standard taxable brokerage account. Starting with

20:50

Atma. Atma is a pretty ugly

20:53

sounding acronym that just means uniform

20:55

transfers to minors act, and it's

20:57

what's known as a custodial account.

20:59

There are also things called ugma accounts,

21:02

which is a similar even uglier

21:04

sounding acronym, but many people prefer

21:06

atmas, so I'm just going to

21:08

focus on those. So atmas are

21:10

essentially ways for minors to own

21:12

investment assets when they generally would

21:14

be unable to do so. When the

21:16

grandchild is a minor, Cheryl would

21:18

manage the assets in the account

21:20

and the grandchild would eventually take

21:22

active ownership of the account when

21:24

they're an adult. There are a couple

21:26

of catches with utmost, though. Now remember that

21:28

the child is considered to own the

21:30

assets in these accounts. That means they

21:33

would be considered the child's for student

21:35

aid purposes, which could mean that they

21:37

could qualify for less assistance. The second

21:39

is that the child could be responsible

21:41

for taxes on growth within the account.

21:43

And I don't want to go too

21:46

far down the tax rabbit hole here,

21:48

but depending on how much the account

21:50

earns in a year, the child's earnings

21:52

could be taxed at their parents' marginal

21:54

tax rate, which a lot of folks

21:56

want to avoid. Yeah, that is a lot to

21:58

consider. So would it be... simpler to

22:00

go with a taxable brokerage account then?

22:03

Yes and no. So remember that

22:05

minors aren't generally allowed to own

22:07

investments or taxable brokerage accounts unless

22:09

it's in something like an atma.

22:11

If Cheryl wants to pursue the

22:13

taxable brokerage account route for their

22:15

investments with their grandchildren, but avoid

22:17

the sticky student aid and tax

22:19

stuff that I mentioned earlier, they

22:21

could just open one of these

22:23

accounts for each of their grandchildren.

22:25

make contributions, and then gift

22:27

the grandchild the money from

22:30

that account when they want to. Yeah,

22:32

but I'm going to go ahead and assume

22:34

that there is some sort of tax hang up

22:36

here too. You are correct, Sarah, because

22:38

there is no escaping taxes. In

22:40

this case, Cheryl would likely have

22:42

to pay long-term capital gains on

22:44

the earnings in their brokerage account

22:46

if they hold the investments for

22:48

more than a year. But the

22:51

grandchildren wouldn't owe any taxes on

22:53

the money they get, which is

22:55

nice. In 2025, people can gift $19,000

22:57

per person without having to file a gift

22:59

tax return. Well, those are all things to

23:01

plan for, and it sounds like anybody

23:03

in Cheryl's situation who wants to gift

23:06

money to grandchildren for their future, their

23:08

young adulthood, might be worth talking to

23:10

some kind of tax professional first before

23:13

you take any actions, and again, talk

23:15

to the parents too. All right, another thing

23:17

they asked us about is account minimums. Do

23:19

they have to start with a minimum investment

23:22

of $3,000 or is there a way they

23:24

can start with smaller amounts? Cheryl should

23:26

certainly be able to start with smaller

23:28

amounts depending on what type of account

23:30

they want. Cheryl should have no problem

23:32

finding an investment account with a zero

23:35

dollar minimum. Yeah, and this is where

23:37

we put our nerd wallet hats on, not

23:39

that we ever take them off. and remind

23:41

folks to shop around for financial products. We

23:44

have loads of roundups about investing accounts on

23:46

Nurd Wallet, so check those out. You can

23:48

find a link in this episode's show

23:50

notes or online by searching Nurd Wallet

23:52

Investing Account. And moving on, let's get

23:55

to our final question of the episode,

23:57

which comes from a listener's text message.

23:59

Here it is. Step by step, like

24:01

I'm a five-year-old, exactly how do you

24:03

open a Roth IRA? And then what

24:05

do you do once you open it?

24:07

I'm college educated, but I need finances

24:10

for dummies. All right, Sarah, you are

24:12

a parent. I get that your kid is

24:14

not yet five, but how would you explain

24:16

to them how to open a Roth IRA?

24:19

Honestly, ask me that question in a few

24:21

years when he no longer refers to

24:23

our dog as mama. I'm also mama,

24:25

but the dog is double

24:27

mama. Whenever I say the dog's name

24:29

to him, he goes mama. So cute.

24:31

So opening a Roth IRA is

24:34

pretty simple. You can do it in

24:36

just a few steps, which we laid

24:38

out in an article that we will

24:40

link to in the show notes, but

24:43

I will also walk you through them.

24:45

Give them to us, and Sarah, you

24:47

got to make this fun, because

24:49

I was that five-year-old who preferred to

24:51

doodle with my cray as a house.

24:53

Deep in the woods, and it's like

24:55

made of candy or something, just to

24:57

make things really interesting. And you are

24:59

a lost child, you're getting kind of

25:01

hungry, you want shelter, you want a

25:03

snack, and in this raw firey house,

25:05

you can have both at the same

25:07

time. And of course, we would like

25:10

a fully funded retirement, which I will

25:12

somehow work into this metaphor eventually. I'm

25:14

not yet sure how, but stick with

25:16

me. Okay. I'm confident you can get

25:18

there. Okay, Sarah. Sarah, I'm picturing a

25:20

house. How do I'm picturing a house.

25:22

How do I get into it. So the

25:24

Roth IRA candy house has a locked

25:26

door. The first step is knowing if

25:28

you have the right size key. In

25:31

this case, the key represents your income.

25:33

So if the income is too little

25:35

and the key is too small, can't

25:37

enter. But too much, you can't enter

25:39

either. The key won't fit because it's

25:41

too big. It needs to be just

25:43

the right size. So to put funds

25:45

into a Roth IRA, you need to

25:47

have earned income. That income is something

25:49

that you get from a job that

25:51

for which you are a W2 employee.

25:53

and your income has to be

25:56

below certain limits. And for a

25:58

single person in 2025... you have

26:00

to earn less than $150 ,000 to

26:02

be able to contribute the maximum

26:04

amount to a Roth IRA, that amount

26:06

that you can contribute is phased

26:08

out as your income goes above that

26:10

limit. So as a single person,

26:12

you can't contribute at all if you

26:14

earn more than $165 ,000 in 2025.

26:17

Okay, so your income is the key to

26:19

entering this candy house and the size

26:21

of your key, AKA how much income you

26:23

have determines kinda how big the house

26:25

is when you get inside, as in how

26:27

much you can contribute. And the maximum amount

26:29

you can contribute to a Roth IRA

26:32

in 2025 is $7 ,000 for those

26:34

under the age of 50. And for

26:36

those who are age 50 or older,

26:38

the max contribution is $8 ,000. So

26:40

I'm in the house, now

26:42

what? All right, so you go into the

26:44

house and you see a wall stacked

26:46

with shelves full of bowls. So these

26:49

bowls are different Roth IRA accounts and you

26:51

can choose from different companies. Some bowls

26:53

are different shapes and sizes and some have

26:55

different features. How do I know which

26:57

one to pick? Well, in a non -made

26:59

up fairy tale world, you would check out

27:01

Nerd Wallets Roundup of the best Roth

27:03

IRA accounts to help you choose which one

27:05

is right for you. But if you

27:07

wanna choose your own investments, you might select

27:10

the brokerage account bowl of porridge. If

27:12

you wanna be more hands off with your

27:14

investments, you might select the robo advisor

27:16

bowl of porridge. Okay, I will have the

27:18

robo porridge please because I like to

27:20

be a passive investor. I've got my

27:22

bowl selected, what's next Sarah? Next

27:24

up, you choose how much money you'll put into

27:26

the account, which let's say is the amount of

27:28

porridge you wanna add to your bowl. You might

27:31

want to add a certain amount each month or

27:33

do it all at once for the year. You

27:35

have some flexibility here. So I'm in the

27:37

house, I've got my bowl, I'm gradually

27:39

adding some porridge to it. Does it

27:41

somehow transform into a handsome prince that

27:43

will provide me with money and candy

27:45

in retirement? You know, it kinda does

27:47

because the next and final step is the most

27:49

magical of all. You pick your investments

27:51

and this is a big one because the

27:53

money you put into a Roth IRA

27:55

is not automatically invested. So think of choosing

27:58

your investments as bringing the whole math. dish

28:00

to life because if you don't do that

28:02

then the money you put into a Roth

28:04

IRA account is just held in cash. That's

28:06

your uncooked porridge just sitting in the bowl

28:08

instead of some hunky prints. Then you sit

28:10

back, continue to invest, and watch your

28:13

retirement funds grow over time until you

28:15

have the largest bowl of porridge that

28:17

anyone has ever seen. Well that's one

28:19

way to live happily ever after and

28:21

hopefully this story helped the listener understand

28:23

how to open a Roth IRA. Well

28:25

now I just want a bowl

28:27

full of candy porridge. All right

28:30

that's all we have for this

28:32

episode. Remember listener we're here to

28:34

answer your money questions and we

28:36

could do it via fairy tale

28:38

if needed or not. So turn

28:40

to the nerds and call or

28:42

text us your questions at 901-30-N-E-R-D.

28:44

You can also email us at

28:47

podcast at nerd wallet.com. Also visit

28:49

nerd wallet.com/podcast for more info on

28:51

this episode. And remember, you can

28:53

follow the show on your favorite

28:55

podcast app, including Spotify, Apple Podcasts,

28:57

and I Heart Radio, to automatically

29:00

download new episodes. And here is

29:02

our brief disclaimer. We are not

29:04

financial or investment advisors. This nerdy

29:06

info is provided for general educational

29:08

and entertainment purposes and may not

29:10

apply to your specific circumstances. And

29:12

with that said, until next time, turn

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to the nerds. Today's

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