Edition #29: Traditional vs Roth 401k. Should you split 50/50?

Plus: Your FU Number, Customer Service, Instant Karma, PayPal Travel Protection
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written by oz chen

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Today’s compliment: you are bright-eyed and living life.

I’m totally off my writing schedule, as you could probably tell. I have the fortune of blaming it on travel. I can’t imagine blitz traveling vs staying put in one place for at least 1 week in order to maintain some habits.

Then again, I think it’s a good idea to carve out a true “I’m not producing any work” type of vacation in the future. That’s my tentative plan for August 2022. Any way, that’s a mini update of my headspace.

Today’s edition will cover Traditional vs Roth 401k, Fuck You Money, Using Social for Customer Service, Instant Karma, and Booking Travel via PayPal.


Which is better, Traditional or Roth 401K?

The Traditional 401k saves taxes now by removing $19,500 from taxable income and may put you at a lower tax bracket. The Roth 401k makes you pay taxes now, but that money won’t be taxed at retirement age.

The conundrum: which 401k is better?

This is an exercise in predicting the future:

  1. Tax rates today versus when you retire
  2. How much income you expect to come in. This includes what you need to withdraw at retirement age, mandated by the government.

Reading this Reddit wiki made me aware of the required minimum distribution (RMD), which is a requirement with both types of 401ks.

This is the government saying “Hey, you need to use this money up now” by a certain age. But if you play your cards right and earn passive income well into your later years (properties, businesses, selling out grandchildren to become influencers), then you might not want to take a required, taxable event.

Here’s an example using Investor.gov‘s required minimum distribution calculator, using these figures:

  • Retirement account value: $1,000,000
  • Age: 71
  • Required Withdrawal: $37,735

Now, let’s say that you’re living on a $40,000 income coming in through your investments, putting you at the edge of the 12% tax bracket. The required minimum distribution would tip you over into the next tax bracket at 22%. (See Forbes article). This sucks because you’ll get taxed more for money you don’t need 🤯

Advantage of the Roth 401k: it can be converted to a Roth IRA, which has no required minimum distribution requirements. If you can contribute to a Roth IRA, it’s totally worth maxing that out too.

The 50/50 Strategy

Some people hedge their bets and put half into a traditional 401k, and the other half into a Roth 401k. The simple reasoning is optionality: “I don’t know what my income or later years is going to be like, so I want my retirement setup to have both options.”

I only contribute to a traditional 401k right now, but am now seriously thinking about putting half in the Roth 401k. I’ll update you as I come to a conclusion.

If you have access to both types of employer 401ks, which one(s) do you use, and why?

đź’° Is $5 million enough?

Turns out I’m the average of the people around me. My FU number used to be $2 million, and now it’s $5 million+. This number has been pretty consistent across my circle of friends.

This is purely anecdotal and I’m polling from Californias, so take these observations with a big grain of salt.

  • People anchor their FU numbers to home prices. It doesn’t help that the cost of housing has exploded—in decent (not even the best) parts of LA costs at least $1 million.
  • Female friends tend to say a lower FU number than male friends. The reason is interesting…
  • ^ My female friends often desire continuing work of some sort, while male friends make calculations based on absolute “I never want to be beholden to anyone else” terms. I’m going to make a gross generalization that men tend to value freedom and women more so connection.
  • Inflation is a bitch. People are right worry that prices will only go higher, which will inflate away whatever amount of current wealth they have.

I’m also using a very wide margin of safety for this $5 million number: assuming at least 1% annual returns and high capital gains taxes of 25%, that’ll net out to $37,500/year.

That’s more than sufficient for me to live on, but hopefully that number looks more like $80K/year with higher returns and lower long term capital gains taxes.

What’s your “fuck you” number, and why?

Hit “respond” to this email or vote in this Twitter thread.

If I get enough responses I’ll put together a proper survey and share out anonymous results.

⚠️ Bank problem? Try social first

Last week, I got some suspicious login emails from Celsius in the middle of the night. Panicking, I suspended my account temporarily to freeze any funds from being withdrawn. I submitted a support ticket and waited.

Because I’m more active on Twitter now, I thought maybe I should check tweets from team Celsius. There it was—they had a bug and a batch of automated emails went out at the wrong time. There was no nefarious hack.

But I was still locked out of my account no one responded to my support ticket yet.

I DM’ed the Celsius account and in a few hours, someone followed up to my ticket and they resolved the issue.

Pet theory:

  • The nature of social media being a many-to-all platform can increase accountability. When everyone’s messages, Tweets, likes can be seen, there’s a positive pressure to respond.
  • On the contrary, email is a one-to-many platform. A company can always say that there are other people ahead in the queue than you, so accountability is opaque.

Tl;dr if you get locked out of your account(s), try Tweeting at, posting & tagging, and DMing the company in addition to submitting a support ticket.

P.S. I still support and use Celsius. If you’re a relatively experienced crypto user, check them out to earn some of the best crypto rates. Get $50 in free BTC when you use my referral link with code 16920001c9 and transfer $400+ worth of crypto to your Celsius account.

♻️ Instant Karma

Have you seen ads for Credit Karma Money floating around? I work for Credit Karma and I myself was surprised by seeing ads on podcasts, Youtube, and yes…buses:

I work for Credit Karma so I’m obviously biased, but you should check out Credit Karma Money. It’s a free checking and savings account, but with one particular perk: Instant Karma.

The concept is compelling because it taps into the psychology of variable rewards.

  • Most credit cards offer fixed rewards e.g. 1% cash back on purchases
  • This is a debit card that randomly pays back certain purchases. People have gotten instant cash back from anything like a $5 latte to a $1000 phone bill.

Any swipe can be a win, so it can feel like a lottery. Instead of 1% back on $100 (which is only $1), winning Instant Karma feels much more generous. Getting $100 back in Instant Karma equates to spending $10,000 on a 1% cash back card, which is a lot…

I’ll also stress that this is a debit card, not a credit card. It’s nice because traditional banks don’t want to give that many awards for debit; they earn much more from charging high interest on credit cards.

For people who want to reign in their spending, using a debit card can help—especially if there’s good reward attached to it.

🎩 Money tip: Booking travel via PayPal

Cancelled travel reservations are not uncommon, as you can see in these 6 travel horror stories.

The discount airline I used alluded to the flight potentially not being covered in the event of a random cancellation. This made me nervous, though my credit card comes with some travel insurance.

Then my friend who works for PayPal (and reads this newsletter—thank you) told me when you pay via PayPal, you can get built in travel protection:

> Travel plans don’t always go as planned. But with PayPal, we can help you get a refund if your flight is cancelled, hotel double-booked, or a local tour experience doesn’t match what was advertised.

The best thing is that you could just link the credit card you were going to use with PayPal, and still get them travel points. #doubleprotection

The next time you’re using a slightly sus discount travel option…try to find the “Pay with PayPal” option.


Just for fun: Queretaro, Mexico is home to the tallest freestanding monolith (bigass rock) in the world at 1,421 feet. It’s called Peña de Bernal Natural Monument.

I found out about Queretaro because it’s the next biggest town to San Miguel de Allende. Both are part of the burgeoning wine scene in Central Mexico.

liked this article? tell your mom, tell your kids

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