In this week's episode of Motley Fool Answers, host Alison Southwick and personal finance expert Robert Brokamp look at two sides of the Facebook case. With the help of contributor Jason Moser and financial planner Matt Trogdon, they consider a more holistic approach to evaluating your expenses. They'll also answer your question about capital gains taxes and include one-too-many U2 references.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

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This video was recorded on Oct. 19, 2021.

Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick and I'm joined as always, by Robert POC to you Brokamp, personal finance expert here at The Motley Fool, it will make sense later bro, don't worry about it, how are you doing?

Robert Brokamp: [laughs] Fine, how are you?

Alison Southwick: In this week's episode we're going to hear the bear and bull case for investing in Facebook (META -1.41%). Bro talks to financial planner Matt [inaudible 00:00:22] about a more holistic way to ponder the true cost of your expenses and will answer your question about paying capital gains, taxes, all that and more on this week's episode of Motley Fool Answers. Imagine you're in college and you decide to build a website to rank the hotness of the women on-campus. A key decision, but OK. Within a short amount of time, your playful display of misogyny grew to be one of the most influential website on the planet with almost three billion monthly active users generating almost $90 billion in 2020. One of the big reasons for your massive success is the powerful algorithm under the hood that curates the content we see ultimately praised on our most basic instinct, accelerating feelings of jealousy, anger and depression.

Oh, you watch that whole video because it may be outright, here I have more of that. Of course I'm talking about Facebook and Mark Zuckerberg, who has had a rough autumn. While the rest of us, were putting on cozy sweaters and eyeing all the new pumpkin spice offerings, the Wall Street Journal published a massive expose, saying time and time again, the document show Facebook's researchers have identified the platforms ill effects time and time again. Despite congressional hearings, its own pledges at numerous media Expose, the company didn't fix them. This included that Facebook buried studies that showed their platforms encouraged depression, eating disorders and suicidal thoughts in girls and young women. The whistle blower who supplied many of the documents to the Wall Street Journal went onto testify on Capitol Hill.

Now some lawmakers are saying the company is too powerful and needs to be broken up or at least have a scotch more oversight and Regulation. A Facebook is a recommendation of more than 10 services at the Motley Fool and coincidentally enough, it's up 10 folds since we first recommended it, but is this Facebook firestorm reason enough to sell your shares? Is all of this scrutiny and threats of breaking up the company going to result in lower returns? Or is Facebook now since stock and our ethical concerns enough reason to sell, so you can sleep at night. I thought who better to help lay out the case than Jason Moser, an analyst here at the Motley Fool, and frequent guest on the podcast. Jason Moser gives me the bull case for investing in Facebook.

Jason Moser: The bull case for Facebook is relatively simple. With over 1.9 billion daily active users and 2.9 billion monthly active users, Facebook has simply put, captured a massive audience. Core properties including Facebook, Instagram, WhatsApp, and Messenger make it the largest social network in the world, then advertisers continue to flock to the platform because that's where so many the eyeballs are. As one of the big two in the advertising market, Google, of course, being the other, Facebook is essentially required spending for advertisers because people just keep using the platform and it's really hard to see that changing in the near-term. You add to that the optionality and initiatives like commerce and augmented virtual reality and even the metaverse, it does appear for better and for worse, that Facebook is going to remain a very relevant part of our lives for the foreseeable future. For company with virtually limitless financial resources, that is something to consider.

Alison Southwick: Thank you Jason. Now, for the bear case, I'm going to turn to Mason Joser. He's a lesser known analysts here at the Motley Fool, but I'm sure you'll find him just as compelling as Jason Moser Mason, what's the bear case for Facebook?

Jason Moser: The bear case for Facebook seems to be growing. It has developed a nasty track record when it comes to privacy and the bigger picture social impact that it's platforms have on people, particularly young people. What's worse, Founder and CEO Mark Zuckerberg just seems totally clueless, and utterly tone-deaf as to how to respond to such concerns. I don't know that there is a more distrusted CEO on the planet today and it feels like he's really earned that unfortunately. Regulators appear to have had enough and some action seems inevitable, but how that ultimately plays out is still anyone's guess. Obviously it's historically been an acquisitive company, but I'd imagine there going forward, any potential deals will be examined with extreme skepticism by regulators. I'm also quite certain that costs are going to go up as they must continue to work to shore up the safety problems. There is a level of uncertainty there along with a just a growing IC factor and actually owning the shares of that could be a headwind to the stock here in the coming years.

Alison Southwick: You probably guessed it, that was the same person. A person perhaps conflicted. What is Jason Moser's final say, buy, sell, or hold Facebook?

Jason Moser: It's starting to feel like maybe the low-hanging fruit may have been picked when it comes to Facebook, but I'm not sold on that yet. The patient investors clearly have one big and that's great. The path forward does see more difficult though, and it's not clear that they're going to be the ones to best monetize things like immersive technology in the metaverse. Understand, I'm just saying it's not clear. That seems reasonable to believe they're going to be a key player in the space.

There's plenty of opportunity we just don't really know how big that opportunity is ultimately going to get, but it does feel like this really all boils down to the individual investors line that they want to draw. As an investor, if you don't have moral or personal reservations and only a accompany, like Facebook, that's being called as bad as big tobacco and a threat to democracy, it's hard for me to imagine that shares aren't worth more five-years from now, but it's hard to imagine this company getting out from under the microscope anytime soon either. It could be a bumpy ride.

Alison Southwick: If Facebook has an outsized influence here in the US, it's even worse in other countries as the Guardian writes, in many parts of the world, Facebook is the Internet, and WhatsApp is the primary method of digital communication. In Brazil and Mexico, 95 and 98 percent of social media users have Facebook accounts. In India, 500 million people use WhatsApp. What Facebook has achieved, their global influence and scope is undeniably impressive. Whether you think it's good for the world or your portfolio, you will have to take that argument up with yourself [MUSIC]

Robert Brokamp: Many factors will determine your ability to one day declare your financial independence, but if you're like most people, the number one factor is, you're spending. It determines how much you have left over to invest, how much will eventually need to retire, and whether you have to rely on credit cards to pay the bills. Putting your everyday financial decisions into the right context might help you spend more intelligently. That is less than of a recent article on and titled What It Really Cost. It was written by Matt Trogdon, who was first on the podcast way back in 2016 when he was a Motley Fool employee, but now he is a certified financial planner professional and a certifiable personal finance nerd, who leads financial literacy workshops through Babson College. Matt, welcome back to the show.

Matt Trogdon: Bro, thank you so much for having me. I 'm so excited to be here.

Robert Brokamp: Great to see you, great to have you back. Let's talk a little bit about your article and let's start with the very first paragraph. You referenced the old latte factor, which is basically the belief that Americans are ruining their finances by going to Starbucks. Specifically, you referenced the time in 2019 when Suze Orman said that a daily coffee habit is like peeing a million dollars down the drain. We haven't really actually discussed the lottery factor much on the show, I thought we chat about it now. What's your take? Is focusing, the amount you spend on coffee or whatever, smoothies, lunch, good advice or is it focusing on the wrong things?

Matt Trogdon: I have two competing thoughts on it. I'm sympathetic to the idea behind the latte factor argument, which is based on what I think are pretty sound time value of money principles. The idea that if you spend less and you recoup that savings and you invest it and you achieve a decent investment return, you will have a surprisingly high amount of money in the future. I like that idea quite a bit. Having said that, I think we are really focusing on the wrong thing. If you really look at the key factors in what helps people save or not save, the research shows that it comes down to three things, it's housing, is your housing affordable? Is your transportation affordable? Is your education affordable? Generally speaking, if you can get those three things right, I think you can drink all of the lattes that you want.

Robert Brokamp: I have to talk about goals-based budgeting. If you have certain goals in your life, you want to retire, you want to pay for your kids education, you're saving for a car, get that taken care of, figure out how much you need to get that out of your bank account and into your investment accounts. If you take care of all that, then you can feel pretty comfortable spending whatever you have leftover.

Matt Trogdon: I agree with that.

Robert Brokamp: Some people when they hear that figure from Suze Orman, like how did you come up with that? So I do like to provide the details behind that calculation. According to Suze, if you spend a $100 a month on coffee, but you instead get that into a Roth IRA, 40 years earn 12 percent a year, that's where that comes from. Interestingly, if instead of earning 12 percent, you only earned seven percent, you only have $250,000, which first of all, is still a lot of money, but it shows like the power of earnings, just few percent more on your earnings. Now, you can figure all this out yourself by using a financial calculator or an online calculator, which apparently is something you like to do. Tell us a little bit about your fascination with financial calculators?

Matt Trogdon: Yes, sure. I got my first financial calculator or when I was studying for the CFP exam. When I was going through the CFP coursework and I just thought it was the coolest thing. Someone taught me about the idea of compound interest. Back when I was in college, it really changed my life. The idea that if you just save a little bit and you invest it and it compounds over time and you can put yourself in a much better position than you would have otherwise.

I was using spreadsheets for a while. Some of my more math-inclined friends would show me how to run a compound interest formula. I can never remember it. I finally got my first financial calculator when I was studying for the CFP. You pushed three or four buttons, you put two or three inputs in there, you hit "Enter" and you have your number. As I mentioned in the article, I would go around and I have a couple of little cousins that I adore. They are probably 10 years younger, 15 years younger or whatever it is. I was home for the holidays and we were talking about things we were purchasing for the holidays, this, that, and the other and I would just go, "Well, you spent $100 on that item? If you'd actually save that instead of spending it and you invested in at seven percent over 30 years, you would have XYZ amount." While I thought it was exciting, [laughs] they certainly did not think it was exciting. They were just like, "Yeah, go back to where you came from." I find the math to be a lot of fun, but I realized that not everybody does.

Robert Brokamp: I'm sure you planted a good seed. When I was in college, I took a class in literature, the American South. But one of the kids in the class, her dad was a financial advisor and convinced the professor to give him 15 minutes of the class time to talk about this. To talk about like if you don't spend this, but then you instead invest it, this is how much you'll will have after 10, 20, 30, 40 years. Of course, then we were all in our teenagers, early 20s. I don't remember our thing from my literature, the American South class except [laughs] for that lesson.

Matt Trogden: Sure.

Robert Brokamp: By the way, I should say also that being here at the Fool for more than 20 years, I have come across many people whose financial awakening came from calculators. Like being able to see like, holy cow, if I just invest this a little bit of money consistently over decades, we're talking hundreds of thousands of dollars.

Matt Trogden: Absolutely right. The thing is, it's hard when you're talking to young folks to get them to get interested in that thing, to get them to pay attention to that thing. They really have to be somewhat receptive to that message. It doesn't always work for everybody, but when it does, its gold.

Robert Brokamp: When I read that in your article, it reminded me a story of Shelby Davis, who's often considered one of the greatest investors of all-time, because he turned $50,000 into $900 million over 47 years. Great book about him entitled, The Davis Dynasty. But so the story goes, one day, one of his grandsons asked for a dollar to buy a hotdog and Shelby Davis, who is a multimillionaire said, "Do you realize if you invested dollar wisely, it will double every five years, and by the time you reach my age in 50 years, your dollar will be worth $1,000? Are you so hungry as to eat a $1,000 hotdog?" [laughs] It was hilarious, that a multimillionaire would do that.

Matt Trogden: That is hilarious. Yeah, I agree. There's an argument that can be made that people take things too far. I think the Suze Orman Latte Factor is an example of that. If you're going around chastising people about their coffee orders, you're probably not going to have your message received as well as you'd like it to be received.

Robert Brokamp: The sad part of that story was that the grandson started off, and I'm just kidding this is not what happened. [laughs] There's the pharma calculators, but your article also suggests another way to frame spending. Consider the pre-tax cost of the purchases. Tell us a little bit about that.

Matt Trogden: Yeah. I think this is potentially a more effective way to get through to people, especially if you get through young people to have them understand just the impact of their spending and the true cost of their spending. Everything we buy, if you think about it, we buy it with after-tax dollars. What I mean by that is that if you make a salary or if you make a wage, you're going to get a certain amount and then you're going to pay a certain amount of tax, and then you're going to have some money left over. If you get paid $10 an hour to make a good round number and you're at a 25 percent tax bracket, you're going to have seven dollars and 50 cents left over. If you're in a 10 percent tax bracket, you have nine dollars left over. If you think about going back to the latte, what I always like to say is, if you're in a 25 percent tax bracket and your latte costs three dollars, you're going to have to make four dollars because you're going to pay taxes out of your paycheck. You're going to pay a dollar in taxes, then you're going to have three dollars left over and you can use that three dollars to go spend on your coffee.

I like thinking about it that way because it helps put it in the context of the question of how much do I have to earn in order to have the money to spend on whatever I want to spend on. Then you can go even a step further and you can say, well, how long do I have to work in order to make that amount of money, to have the money to spend that I want to spend? Funny enough, one of my cousins, a different cousin, I sent him the article after it got published, he text me back and he said, "Wow, now I'm sitting over here thinking how much longer I have to work in order to buy certain things and it makes me want to not buy those things.".

Robert Brokamp: Success, victory for Carson Matt.

Matt Trogden: Yes, there you go.

Robert Brokamp: Well, yeah. Then there's a tax bracket. You could know your tax bracket after all. We're taping this on October 15th. Your tax returns are due if you did your extension. But then there's Social Security taxes, 7.65 percent, there's sales taxes, shrink taxes, only nine taxes don't have a state tax. Really, for many people listening, I would imagine most people listening to the show are probably in the 22-24 percent tax bracket. But when you add that other stuff, you're really talking about 35, 40, 45 percent. Where you want to spend 100 bucks, you got to earn 150 first and then figure out how much time it took to earn that.

Matt Trogden: To go to the other end of the discussion, when you start talking about people who are in retirement, it can be a rude awakening when people start to understand how big of a bite taxes will take out. If you've worked and saved diligently in your 401k or whatever, and say you have a million dollars in your 401k. Well, if that money went in pre-tax, you're going to have to pay taxes when you take that money out. You're going to have to pay taxes at your income rate. If you want to take a big family trip, and it's going to be, 20 or $30,000 family trip, and you're going to pull the money out of your IRA to do it. You might have to pull out 50,000 of your IRA to have the 30,000 leftover.

That can be a rude awakening for folks, especially in even more dire circumstances when you have folks who maybe have to go into assisted living toward the end of their lives and have to write a big check in order to get into an assisted living facility. When you factor in the taxes that they'll have to pay, it's a much bigger amount than they might be prepared for. I think getting your head wrapped around the idea of the pre-tax and after-tax cost of these things can be really useful.

Robert Brokamp: Yeah. I've often said that I don't think retirees appreciate that. For every dollar they spend, they may have to pay more taxes if that extra dollars coming out of a tax deferred account or if they have to sell investments, so that will increase their tax bill. Come April 15th, they have to pay the tax bill. Where is that money going to come from? They have to then take out more money from their accounts, which will drive up next year's tax bill.

Another aspect about this that I'm glad you've talked about retirees because whenever we talk about the time value of money, people might be listening and thinking, "Well, I'm 70. I'm retired. I don't have 40 years to save money. I'm spending money," but the same principle applies to spending less from your portfolio. That means there will be more in your portfolio down the road. So if you were to say to someone $100 invested today and an eight percent annual return would grow to $500 in 20 years, which is about what it would be. If you're retired, the way to think of it is spending $100 less. Means that in 20 years, my retirement portfolio will have $500 more, which means you increase the chances that you won't run out of money. It increases the chances that you'll have money for long-term care if you needed and increases the amount that you'll leave to your heirs if that's important to you. We won't even get into the whole aspect of when you're retired, if you get a big bill of some kind, a large increase in income, that can increase chances of social security tax and increase the chances that you'll pay a higher Medicare premiums. A whole other topic. Let's move on. I think another couple of interesting things to think about spending is to annualize your spending. For example, you might think of your cable bill, for example, and if you're paying a $100 a month. That's one thing. But then when you think of the fact that you're paying $1,200 a year for that, it gives you a bigger appreciation for how much you're spending, and it might be a monthly bill like cable or the gym, or it might be just the amount you spend each month on something that maybe not quite so important to you.

Matt Trogden: Yeah. I agree. You can then compare it to what your salary is. If you're spending $1,200 a year on cable and you're making $60,000 a year, then you have a number that you can compare it to. Then you can make that decision about how important it is or how not important it is. But it's always helpful to have all of the math that you can get.

Robert Brokamp: I did want to throw out a rule of thumb by the way, since we talked about hourly as well. A lot of people don't know their hourly wage because they earn a salary. If you earn a salary, here's the rule of thumb to figuring out your hourly wage. That's basically lop off the three zeroes, and then divide by two. Let's say you're in $75,000 a year, you lop off the three zeroes, you get 75 divided by 2, 35. You're roughly earnings $35 an hour. That's another way to think about, is this purchase worth the amount of time I had to work in order to pay for that.

Matt Trogden: Exactly.

Robert Brokamp: Okay. I did have a more practical question for you because I know back in the day when you worked at The Fool, you were known as being a pretty good budgeter. Is that still the case? What tools are you using? How you keep on top of your spending?

Matt Trogden: Yeah. Sure. I still use I go through phases where I either use it religiously or whether I just check-in once a month. I'm in one of those phases now or I'm just checking in once a month. I don't put myself on a strict budget, but I know what the levers are that I can control. I know the difference between my fixed costs and variable costs, and I try to keep my variable costs, so that's food and clothing, entertainment. Try to keep those within some boundaries. I find it helpful just to know where your money is going. The thing about budgeting is, budgeting is not fun. Nobody wants to budget. If you're a financial planner or financial advisor and you meet with the client and the first thing you do is you give them a budget sheet to fill out, you're never going to see that client again. [laughs] I don't think it's important to have too strict of a budget, but I do think it's important to understand broadly where every dollar is going.

Because if you don't, then you'll be surprised where every dollar is going, and then you might find out, "Well heck, I'm spending way more on that than I thought I was, and it's not really something that's important to me." By doing that, I have the opportunity cost is that I can't spend more money on the thing that is important to me. It's important to know where your money is going. If you really want to get further into that, there are ways to do it. I have a friend who uses the You Need a Budget website, and swears by it. I haven't used it, but that would be the only other one that I could speak to you at the moment.

Robert Brokamp: Yeah. We talked about budgeting tools earlier this year and definitely why not you need a budget mint came up as favorite personal capital as well for people who also wanted a more robust investing analysis tool. Something else you said there, raised up a good point is that once you do it for a while, you get a pretty good sense of where your money is going, and you have a sense of which discretionary expenses are most likely to get out of the way, so it's not a situation where you have to watch every dollar. It's just you have to know it's this one or two or three categories that I just have to keep an eye on.

Matt Trogden: Yeah. Since you bring it up, and since he's in the virtual room with us, and I hope this makes it into the show. I remember we talked about using Mint in an investing club meeting at The Fool when I was there. and Rick was in the room with us, and I was going through my different spreadsheets, and Rick said something to the effect of, "Man, how do you have a life if you do all of this stuff?" [laughs]

Rick Engdahl: I have no memory of that whatsoever, but I stand by it.

Robert Brokamp: All right. Let's get to one of the final sentences of your article. You wrote, "We should spend and save money in ways reflect our values." What did you mean by that?

Matt Trogden: Yeah, sure. I will give you a good resource on this one. Someone whose book I read in the last year, which really spoke to me was Ramit Sethi, the name of the book is, I Will Teach You To Be Rich. His idea is all about living a rich life. Brass tacks what he means is to ruthlessly cut out the things that aren't important to you in order to be able to spend lavishly on the things that are important to you. If travel is important to you, for example, you will get a lot more enjoyment out of spending lavishly on travel than you will out of just spending a little bit on travel, and then also using your budget to buy nice clothes and go out to a nice dinners and have every potential cable cord cutting subscription.

Find the things that are important to you spend your money there, and then at the same time, try to look at the things that aren't important to you, and that's where you should cut back. To tie it all back together, if going out for coffee in the morning is something that you get just a tremendous amount of joy from, or if it's something that you use for networking or if it's something that just you need to have that experience over the course of the day to get your day and your week started off correctly, then you should feel free to go for it and feel free to go all in, and you can cut somewhere else. But if getting coffee is not that important to you, if getting lunch out is not that important to you, if ordering delivery is not that important to you, and you're just doing it because you don't feel like cooking, then you can start to take a hard look at those places and mind them for potential places for savings.

Robert Brokamp: Any other budgeting or money management tips or principles you'd like to pass along here toward the end of our discussion,.

Matt Trogden: Yeah. I'll just go back to the idea of very strict budgeting versus just gaining an understanding. I think it can be like dieting if you try to put yourself on a very strict diet, and eventually you will fall off the wagon, most likely. If you try to put yourself on a very strict budget it's really hard thing to do. But if you can gain an understanding of how money flows through your life, on the health side if you can just get an understanding of how your health works and how to live a healthier lifestyle generally I think dipping your toe into it, you're going to have more success there.

Robert Brokamp: Excellent advice. Our guest has been Matt Trogdon, a CFP professional whose article What It Really Cost was recently published on Matt, thanks for joining us.

Matt Trogden: Thank you Bro [MUSIC].

Alison Southwick: It's time now for answers, and this week's question comes from Luke. "Thanks largely to the Fool's podcasts and stock advisor service, I have been earning tremendous investment returns. Also, thanks to answers, I was wise enough to have the bulk of it in Roth IRAs and Roth 401K. However, even my small amount in traditional accounts is growing and if I sell it could represent a respectable gain. How do I do the taxes? Do I need to withhold it like other taxes to avoid penalties or stolen looks for my tax guy, or should I just set some money aside in an account and wait till I file? Thank you for all your wisdom. I'm smarter, happier, and much richer than I expected to be at this point in life, and I has a lot to do with you two." Oh Luke that's so sweet.

Robert Brokamp: He's not talking about the IRAS band, I think he's talking about us which is very nice. Luke, thank you for the kind words and congrats on the excellent returns and the wisdom to have those investments in the Roth accounts. As long as you follow the rules and Congress hasn't changed rules, you'll be able to take that money out tax-free in retirement, which is awesome. But you mentioned that you have traditional accounts. If you mean that you have traditional pre-tax IRAs or 401Ks, you don't have to worry about any interest or dividends or capital gains generated in those accounts in any given year, these accounts are considered tax-deferred. Which means you don't pay taxes until you take the money out, at which point the withdrawals will be taxed as ordinary income. Now, if by traditional accounts, you meant regular taxable brokerage accounts, then you may have a tax issue on your hands. It's because the US tax system is basically a pay-as-you-go system, in that you're generally required to pay taxes around the time you earn the income. If you work for an employer, this is done for you via the withholdings for your paycheck, which are based on how you filled out your W4 when you were hired. If you have too much withheld, you get a refund when you file your taxes. If you don't, you'll own taxes and maybe pay a penalty. 

Because the federal government and your state, if it levies on income tax, expect to get a certain amount throughout the year. There are many forms of income that are generally not subject to these automatic withholding and includes rent, alimony in some circumstances, unemployment benefits in some circumstances, self-employment income, interest, dividends, and capital gains. If you sell some stocks in a regular taxable brokerage account and realize sizable capital gains, you may end up paying a penalty if you don't share some of those gains with Uncle Sam, close-ish to when you realize them. How do you know if you're going to pay a penalty? Well, if you meet any of the following three criteria, you will not owe a penalty. Number 1, after completing your tax return, you owe less than $1,000 in taxes for the year, you're safe, you're good. Number 2, your withholdings and other payments amount to at least 90 percent of the total that you owe. Again, if that's a situation, you're fine.

Number 3, your income tax withholding and payments are at least 100 percent of the total tax owed on last year's return, and for those whose adjusted gross incomes last year were above $150,000 or $75,000 if you're married the file separately then your withholdings of payments must be at leas 110 percent of the total tax you owed for the previous year. If you could meet any of those three criteria you're fine. If you don't think you'll meet any of those three criteria when you file your taxes for this year, then you probably should consider sending some money to Uncle Sam sooner rather than later because the penalty gets bigger, the more you delay. How do you send in the payment? Well, you can just send it in extra amount using the Form 1040-ES, an estimated tax for individuals. 

You can find that on the IRS website. Or if you use some tax software or tax website, they have it there and you could do it that way as well. If you're still working, you can amend your W4 so that you have more withheld from your paycheck for the rest of the year. But again, if you don't pay it all off sooner, the penalty you pay will be later. That's only a gradual way to do it, it may not be fast enough to reduce your penalty. Your broker actually may allow you to elect federal or state tax withholdings, so check the website and give them a call that's great for any future sales that you do. Finally, since Luke mentioned that he has a tax guy, give him a call, he'll be able to help determine whether you need to send it in money, the amount you should send in, and he can actually do it for you.

This really is likely the best option for people who aren't sure because this stuff can be complicated, plus what I'm mostly discussing at the federal rules and many states have their own rules. Since Luke mentioned that he has a Roth 401K, I assume he's still working. But once people enter retirement is a whole new world, you go from receiving most of your income from an employer who withholds taxes to receiving income from multiple sources with various withholding rules. 

For example, you can choose to have money withhold from social security or not. Distributions from pre-tax traditional retirement accounts are subject to a default 10 percent withholding, but you can change that. Before you retire, work with a financial planner or a taxpayer to help you determine the best way to pay your taxes for your situation. Speaking of retirement accounts, there's one other situation that might require you to send in some money to Uncle Sam before April 15th. That's when you convert money in a pre-tax traditional retirement account to a Roth account. The amount you convert maybe added to your taxable income for this year that increases your tax bill, but from then on the money will go tax-free because it's in the Roth. Here's the thing. You have to make sure that the total amount that you are moving from the traditional account makes it to your Roth.

If your broker withheld any of that money and sent it to the IRS or you kept some of that money maybe to pay the associated tax bill and that money didn't make it to the Roth, that amount will be assessed to 10 percent penalty if you're not yet 59 and a half. Finally, I'm going to just point out that we have a little more than two months left in 2021, so everyone should start considering year-end tax moves. That includes checking to see how much you've had withheld so far or if you're self-employed the amounts that you've paid in estimated payments, and determine if you've paid enough and make adjustments while you can.

Alison Southwick: Oh, that's the show. It's edited rattle and homily by Rick Engdahl.

Robert Brokamp: You too reference, I got that.

Alison Southwick: There we go. Robert Brokamp, I'm Alison Southwick stay Foolish everybody.