Joe Anderson
ABOUT Joseph

As CEO and President, Joe Anderson has created a unique, ambitious business model utilizing advanced service, training, sales, and marketing strategies to grow Pure Financial Advisors into the trustworthy, client-focused company it is today. Pure Financial, a Registered Investment Advisor (RIA), was ranked 15 out of 100 top ETF Power Users by RIA channel (2023), was [...]

Alan Clopine

Alan Clopine is the Executive Chairman of Pure Financial Advisors, LLC (Pure). He has been an executive leader of the Company for over a decade, including CFO, CEO, and Chairman. Alan joined the firm in 2008, about one year after it was established. In his tenure at Pure, the firm has grown from approximately $50 [...]

One of the most powerful retirement tools that Congress has ever given taxpayers is the Roth, but not everyone is taking advantage of its big tax benefits. Many say they don’t even know investing in Roth is an option, much less how to maximize its advantages. Whether your workplace has the Roth option or not, Joe Anderson, CFP®, and Big Al Clopine, CPA are going to empower you with the information you need to rock your retirement with Roth.

Free Download: The Ultimate Guide to Roth IRAs

Important Points:

(00:00) – Intro

(01:55) – Overview

Roth Fundamentals:

(04:15) – Eligibility for Contributions

(05:03) – No Tax or Penalty on Principal Withdrawals

(06:35) – IRA Tax Consequences Exceptions

(07:29) – The 5-Year Roth Clocks: Roth IRA Five-Year Rule for Withdrawals

(10:20) – Is Roth Right For You?

(14:07) – Rising RMD Impacts and Roth Conversion Impact on RMDs

(18:08) – Roth Maximizers:
– Invest Early
– Backdoor Roth
– Mega Backdoor Roth

(21:14) – Ask the Experts

(22:40) – Pure Takeaway

Make sure to subscribe to our channel for more helpful tips and the latest episodes of “Your Money, Your Wealth.”


Joe: The IRS has given us a gift. Do you know what it is? Stick around, folks. We are going to fill you in. Welcome to the show. The show is called Your Money, Your Wealth®, Joe Anderson here, certified financial planner, president of Pure Financial Advisors, and, of course, I’m with the big man– Alan Clopine. He’s a CPA. Appreciate you hanging out with us once again this week. We’re talking about a gift, a gift so big that the IRS is giving us, and it is called the Roth IRA, and why is it a gift? There’s over $13 trillion sitting in retirement accounts, 13 trillion in standard 401(k), IRA, 403(b) accounts where you get the pretax contribution, grows tax-deferred, but when you pull the money out, guess what happens. That’s right. The IRS gets their taxes. 13 trillion. Do you have any idea what 13 trillion is? If you counted 13 billion, it’s like 13 years. 13 trillion is 13,000. People don’t really put that in perspective. The IRS is waiting for you to make a mistake with your retirement accounts. There’s an escape route. It’s called the Roth, and that’s our financial focus. All right. Looking at this, 52% of people have a Roth option in their 401(k). However, all of you have the potential to put money into a Roth IRA do you know how? Let’s get in the basics. Let’s bring in Big Al.

Al: So Roth IRAs, we want to rock your retirement with a Roth IRA, so first of all, we’re gonna talk fundamentals–what age, earned income, these kinds of things. We’ll get into all of that so you know how to do it, what the parameters are. Then we want to talk about if it’s right for you. There’s contributions, and there’s conversions, and they’re different, right, so we’ll get into that stuff. Let’s talk about how to maximize your Roth IRA because if you can get more money into a Roth, you got more tax-free growth and income, and you don’t have to have required minimum distributions with a Roth, so that’s pretty cool, and then finally, let’s talk about some pitfalls because there’s mistakes you really don’t want to make, and, Joe, this is, well, kind of one of our favorite shows, right–Roth IRA I mean, what could be better to have tax-free income in retirement?

Joe: Yeah, especially when you look at people’s overall situation, right? You have tax-deferred assets. That’s the IRA and 401(k)s. You have taxable assets. That’s your capital accounts, and then you got tax-free, right? We’re a big fan of tax-free because you’ll never ever pay taxes on those dollars again, but, like we talked about, right, there’s trillions and trillions of dollars sitting in these tax-deferred accounts, and the IRS is just basically waiting for 3 things to happen for you to make a mistake, right? We see mistakes happen where, “hey I’m going to pull out and, like, pay off my house,” right? They’re pulling $100,000 out, and they have no idea how much money that they’re gonna owe in tax, right, or they reach a certain age, and what age is that? That’s now age 72. Why does that matter? Well, because you have a required minimum distribution. The IRS wants you to start taking money out. It’s a mandate. Why? Because they get their tax money, and then they’re waiting for you to die. They like it with you– with you dying with a lot of money here. Why? Because then the heirs get taxed, so you want to look at a tax diversification. Today we’re gonna focus on tax-free. How do you go about getting money into that tax-free pool and do it effectively and efficiently because sometimes people make mistakes, and we’ll end the show talking about pitfalls.

Al: You know, most people have most of their money in retirement accounts. Maybe they have a little bit outside of retirement accounts. Very few people have money into a Roth IRA, so let’s talk about how to get money in, so first of all, let’s start with a Roth contribution, so this is $6,000 per year. If you’re over 50, you can add another $1,000, $7,000 total, but your income has to be below certain parameters, modified adjusted gross income, so what are those parameters? If you’re single, that $6,000 or $7,000 starts phasing out at 129,000. By the time you get to 144,000, you can’t do a contribution anymore, and then married, the phase-out is from 204,000 to 214,000. You have to have earned income to be able to do this, or your spouse has to have earned income, and you have to have low enough income to be able to qualify, but, Joe, there’s Roth conversions. There’s backdoor Roths. We’re gonna get into all of that.

Joe: Right. This is kind of the first step of this. You just want to make a $6,000 or $7,000 contribution, “a,” you need earned income, and, “b,” if you have too much income, you get phased out, but there’s loopholes, right, with the backdoor. Now, the biggest benefit here is the tax-free component of the retirement account, so you put $6,000 in, and it grows to 60,000, hypothetically. Well, that $60,000 could come out to you 100% tax-free if you follow the rules, so first off, understand that any contribution into a Roth is eligible to be pulled out tax-free. You make a $6,000 contribution– I don’t care how old you are; I don’t care when you pull the money out–you always have access to the contribution. It’s FIFO tax treatment– first in, first out–so there is no 10% penalty on any of the contributions that you make to a Roth. However, if you pull the earnings out before 59 1/2, that’s when you’re gonna get in trouble. That’s where you get penalties and taxes, so once you’re over 59½, all those earnings are tax-free as long as that account was opened 5 years or longer, so then there’s 5-year clocks and things like that, so, “a,” you have to have that account open for 5 years. You always have access to your principal. You have access to the earnings once you turn 59½, and then is there required minimum distributions on the Roth? Absolutely not. You can let that compound tax-free until you’re 90.

Al: Yeah. Yeah, no question, and then there’s other exceptions, too, Joe. Qualified education expenses, you’re allowed to take out of the Roth IRA, and not pay penalties. We don’t recommend it– this is for your retirement, not for your kids’ education– but there is that exception. Also, one-time $10,000 lifetime for your home. Adoption expenses are another way to go, as well, to avoid penalties. We don’t really recommend any of these, Joe, because this is for your retirement. It’s not intended for other things.

Joe: Yeah, absolutely. I mean, there’s safeguards here for the Roth IRA– again, FIFO, tax-free–but we don’t want you to take the money out until you hit retirement. Couple of things to consider, 5-year clock, this is where it gets a little bit confusing, so there’s a 5-year clock on your contributions, so every dollar that goes into the Roth IRA, right, your 5-year clock starts with the first dollar that hits the first Roth, ok, so then you have to wait 5 years or 59½ , whichever is longer, ok, to have tax-free dollars out of the Roth, so if you open up your first Roth at age 60, right, it’s like, “ok. Well, how long has that Roth been open?” you have to wait 5 years or 59½, whichever is longer, to get the tax-free treatment of the Roth. That’s contribution. Conversions, you have a 5-year clock on every single conversion that you make if you’re under 59 1/2. The reason why they have multiple 5-year clocks on conversions is because in the past, people would do a conversion when they’re under 59 1/2, and then they would just take the money out. They’d pay the tax on the conversion, but what did they do? They avoided the 10% early withdrawal penalty, so now there’s a 5-year clock on each conversion, and there’s a 5-year clock on contributions. You have to season the dollars in the Roth IRA, so just understand the rules. You can make contributions as long as you have earned income. If you make too much income, you are disqualified. You also have to use the 5-year clock to get that tax-free treatment, and there’s also some other ancillary “reasons,” I guess, that you could take the money out. If you want our help, go to yourmoneyyourwealth.com. Click on that special offer. This week, it’s our ultimate Roth IRA guide that breaks everything down “a” to “z.” got to take a break. The show is called Your Money, Your Wealth®.

Pash: so Pure Financial was very successful in San Diego, so Orange County was a natural progression for us. Annie Chen: here at Brea, I work with a really great team. I think that clients who live locally are really appreciative and excited that there’s a local office. Peter Stokes: we moved straight up the coast and opened an office in Los Angeles. You know, we have a tremendous amount of people that want to work with a firm like ours where, you know, we’re truly partnering with them. Rachel Fuss: markets go up and down, but we’ve got some big powerhouses here in Seattle, and they’re creating a new economy. We really want to be here for those employees to help them achieve their long-term retirement goals. Scott Huband: we definitely take a collaborative approach to managing our client relationships, and the financial planning that we do involves teamwork. There’s never just one set of eyes looking at a situation. We lean on each other for each other’s expertise. Jake Greenberg: our goal is to just identify areas that we could add value and so that when they leave our office, their lives are better financially than they were when they came in.

Joe: Hey, welcome back to the show. The show is called Your Money, Your Wealth®, Joe Anderson, Big Al. We’re talking all about Roth IRAs. Go to yourmoneyyourwealth.com. Click on that ultimate Roth guide. It’s our special offer. If you don’t have a Roth, if you have a Roth, if you’re thinking about doing conversions, contributions, tax-free growth, what to invest, how to invest, how to take money out, the ultimate Roth IRA guide is your key. Go to yourmoneyyourwealth.com and click on that special offer. Ok. Let’s see how everyone did on the true/false question.

Al: Roth IRA distributions don’t contribute to taxable incomes–true or false? Well, sure. That’s true. That’s what we’re talking about. You get the money into a Roth IRA, when you take it out, when you do a distribution, when you pull the money out, when you withdraw the money, it’s tax-free as long as you’re over 59 1/2, you have 5-year season, or if you’re under 59 1/2, you can actually take out your contributions just like we talked about. There’s all kinds of rules, but the general rule is, they’re tax-free. That’s the whole point of a Roth IRA you get money into the Roth, you have tax-free distributions, Joe, later on.

Joe: Yep, qualified tax-free distributions. Just follow the rules, so is it right for you? You got to look at your current tax bracket, you know? If you’re in the highest tax bracket and you’re gonna be in a lower tax bracket in the future, does it really make sense to do this? Probably not. It might make sense to do a pre-tax contribution to get the tax deduction. You got to look at tax diversification. What does that mean? Well, how much money do you have in a Roth compared to your retirement accounts, compared to your brokerage accounts? Most people are very heavy in the qualified accounts, right, and very little money into a Roth. If that’s you, then it might make sense. Then you have to look at your future tax bracket. Is it gonna be lower? Is it gonna be higher? Most people think that they’re going to be in a lower tax bracket, and that’s true for most people because most people don’t have a lot of money saved. However, if you’re an individual that has saved a lot of money in a retirement account especially, you might find that you are going to potentially be in a higher tax bracket, and where are tax rates potentially going? Higher, so this could be– income sources in retirement, do you have a large pension, right? Do you have a lot of real estate income, right? That’s always– that potentially could put you into a higher tax bracket, as well. Then you take your distributions from a retirement account, might throw you into a higher bracket, so, yeah, maybe tax diversification is key, and a Roth could be right for you.

Al: Well, it is, and, again, just think about, Joe, if you have money in the 3 pools that you mentioned– tax-deferred, taxable, tax-free–then you can somewhat control your taxes in retirement, so let’s also talk about some other things to think about if a Roth is right for you. The first one is if you expect lower income in the coming year, maybe you want to get money into the Roth because if you’re in your lower tax bracket now–like, let’s say, you’re between jobs or any number of reasons, your business income is down–might be a good idea to get money into a Roth IRA while you’re in low brackets to maximize that. Maybe you just retired, right, and so you’re in a lower tax bracket until your required minimum distributions and social security kick in, might be a good time to do it. Another one is, if you expect to be in similar or higher tax brackets in retirement, might be a good idea to get some money into the Roth, or if you exceed current income tax limits for the contributions, have too much income, maybe you should do a conversion instead to be able to maximize that. If you’re not working and have no earned income or your spouse has no earned income, you can’t do a contribution, but you can do a conversion, and then finally–here’s a big one– if you have losses in your IRA or your account balances are down or the market is down in your IRA, maybe it’s a great time to convert because you’re going to convert while the market’s lower. You’ll pay less taxes for the same amount of shares converted and all that future growth will be tax-free, and so best time to do it ever is when the market is down.

Joe: Yeah. I mean, you think about it–let’s say the market’s down 20%–like, you’re getting a 20% haircut off the taxes that you pay because, let’s say, you convert 100,000, it’s down 80,000. It’s the same amount of shares. You convert the 80,000. Then it goes back and the market recovers, now you got 100,000. All that recovery happened into the Roth IRA, right, and then all future growth will grow tax-free for your life, for your spouse’s life, for the kids’ life, and everything else, so, especially now or any time that there’s volatility or in a down market, we highly encourage you to take a look at this. Quick example, I know there’s a lot of things on this, but this is sarah. She’s single. She’s 60 years old. She’s got $700,000 in her retirement account. She wants to retire at 68. What this green line represents is her required minimum distribution, so once she hits 72, right, her RMD is right around $50,000 or $40,000 dollars, but as that account grows, look at what happens to her RMD’s, right? Her RMD’s at some point could be a couple hundred thousand dollars. What do you think that does? It eats up the retirement account. Because that $200,000 comes out as an RMD, you’ve got to pay tax on that $200,000, right? Where does the tax come from? Well, if all of her liquid assets is in the retirement account, she’s got to pay tax to pay the tax to pay the tax. It’s a tumbling effect, so you can see the erosion a little bit here on her overall retirement account because the RMD is forced out and forced her to pay higher taxes. If she did some planning and said, “you know what? I’m going to do Roth conversions for 10 years to get all of that money or a lot of that money out of my retirement account,” what does that do? That lowers the required minimum distribution. If that’s a lowered force-out of her retirement account–guess what– her tax bill’s gonna go down, and if she’s got money into the Roth IRA, it’s gonna compound for her tax-free with no RMD in the Roth, so it’s a tripling effect sometimes or a compounding effect of, “a,” you have a lower RMD. You have another account that’s compounding without an RMD that will forever grow tax-free.

Al: Yeah, and I think, Joe, that’s well said because here, this is probably, the example is really for probably somebody– I mean, it works for everybody, but this particular example is for somebody that doesn’t necessarily need their retirement, so think about this. If you don’t need your retirement, all that money gets into a Roth IRA, or most of it, so your kids get the money tax-free. If you do need it, it’s good for you for the same reason, because you’ll be in lower taxes in the future.

Joe: Yeah, without question. If you need help with any of this, go to our website– yourmoneyyourwealth.com. Click on the ultimate Roth IRA guide. Yourmoneyyourwealth.com, click on the ultimate Roth IRA guide. It’s our special offer this week. Use our guide. Start planning your tax-free retirement now, the ultimate Roth IRA guide. Go to yourmoneyyourwealth.com. Click on that special offer. All right. When we get back, we’re gonna talk a little bit more about conversions– backdoor, mega backdoor. We’re gonna get into the pitfalls, right? How could there be a pitfall in a Roth IRA? Well, there’s a few, so you’ll want to make sure that you stick around. We’ll be right back.

Perry: if you can take an hour without driving anywhere, attend a virtual lunch n’ learn, and potentially learn one or two things that could change your life in a meaningful way, that sounds like a pretty good deal. Brandeis: just such a great way to just get that financial foundation over lunch. Announcer: are you saving enough to retire or even know what your financial goals should be? Join Pure Financial for a free lunch n’ learn. Brandeis: you know, we give people the road map to have them have the retirement of their dreams. Announcer: during the lunch n’ learn, you’ll explore the tools and strategies for putting your custom financial plan in place, all with a certified financial planner. Lunch n’ learn is a tool to empower you to take control of your financial future one step at a time. Brandeis: really just has you get motivated to start because if you’re sitting by yourself, you probably aren’t gonna be motivated, but really being part of something has you be like, “ok. It’s time for me to finally be motivated and do something about my financial future.” perry: the reward really comes with people that are at a tipping point where, if they do things right, they’re going to make it through retirement, live the life of their dreams, spend time with their kids and grandkids, travel, do the things they like. Announcer: to join one of Pure Financial’s free lunch n’ learn virtual meetings, go to purefinancial.com/lunch. Pure Financial Advisors– trustworthy by design.

Joe: Hey, welcome back to the show. The show is called Your Money, Your Wealth®, Joe Anderson, Big Al. We’re talking Roth IRAs, tax-free income in retirement. Who doesn’t want that? Want to learn more? Go to yourmoneyyourwealth.com. Click on that special offer. It’s our ultimate Roth IRA guide, yourmoneyyourwealth.com. How smart are you? I don’t know. Let’s see how you did on the true/false question.

Al: RMD’s are not required with a Roth IRA well, that’s generally true, so if you take money out of your Roth IRA and you’re not subject to one of these penalties that we talked about, yeah, it’s tax-free. If you pass away, your spouse inherits it, it’s tax-free, but, Joe, it’s a little bit different if you pass away and the kids inherit.

Joe: Yeah. I mean, if you’re a non-spouse beneficiary, then there’s going to be– I guess they don’t really call them RMD’s now after the secure act. You got 10 years to deplete it. Roth 401(k)s, though, al, is there an RMD there?

Al: There is an RMD.

Joe: So, I mean, it makes no sense–Roth IRAs, no RMD’s; Roth 401(k)s, RMD’s, so how do you get rid of the RMD in a Roth 401(k)? Well, you roll it into a Roth IRA, easy as that. All right. Let’s maximize this. Let’s talk about jack and jill.

Al: So in this example, Jill, she contributes $6,000 a year to a Roth and for 10 years, and she starts at 25 and cuts it off at 35, all right, so it’s only a 10-year period. Now, jack, it’s like, well, he was kind of not really thinking about savings for those first 10 years, so he started at age 35, $6,000 a year, goes all the way to age 65. Who do you think has more money? It turns out that jill has more money, and it’s all due to the compounding effect of income and growth. Jill will end up with more, and this is true whether, Joe, it’s a regular IRA or Roth IRA, but if you can start your Roth IRA early, what a difference it can make in your retirement.

Joe: Right. I mean, if you got kids, right, that have earned income–let’s say they make a few thousand dollars a year–you can make contributions for your kids if you’d like to. That’s a good, you know, holiday gift. It’s a good birthday gift, right? Give them a thousand dollars. Put it into a Roth IRA and let that compounding effect take place, right? Jill started at 25. All she did is invest $6,000 for 10 years versus 6,000 for 30 years for jack, and she’s got 675–75,000 more, right? Another maximizer, let’s get into backdoor. What the heck is a backdoor Roth? Well, we talked about if you make too much money, the IRS does not allow you to make a direct contribution to a Roth IRA, so what we would look at doing is to take an after-tax contribution. The IRS doesn’t care how much income that you have. You can always make an IRA contribution. The IRS cares if you can make the deduction or not, so if I have high income, I can make an IRA contribution, right, so $6,000 goes into the IRA it’s after-tax. There’s no double taxation here, right, so I take that after-tax contribution, and I convert it into a Roth because conversions, there is no AGI limitation, either. If you make a million dollars a year or zero dollars a year, you can always do a Roth IRA conversion, so I make a $6,000 contribution. It’s after-tax. I take the 6,000 and I convert it. The mega backdoor, the Megatron, the whatever you guys want to call these things, this is if you have a 401(k) plan, right, that has an after-tax component so you can make a lot larger contributions. You have your pre-tax, and then you have after-tax and, al, what’s the contribution limits? You know, for someone over 50, it’s over, like, $60,000.

Al: Right.

Joe: This could be a huge, huge, huge opportunity for you. Al, what are the pitfalls?

Al: Yeah, Joe. There are a few pitfalls. First of all, if you’re paying zero capital gain rates, that means you’re in the 12% ordinary income rate, right, which, for a married couple, is roughly below $84,000 of taxable income, single–half of that–roughly 41,000, 42,000–so if you’re in those brackets and have capital gains, if you do a Roth IRA, what effectively can happen is, you’ll pay taxes on the Roth conversion, and you’ll push those capital gains up into where they’re now taxable, so you actually end up paying two taxes, so be careful of that one. Another one is if you have the qualified business income deduction, QBI for short, meaning you have a business, you have real estate, you’re getting to deduct 20% of the profits, you may not want to do Roth conversion because that may push you over to the point where you can’t take those deductions. IRMAA, that’s the Medicare income limitations. If you make too much income, you got to pay more for your Medicare premiums, and, understanding pro-rata rule, which basically just means on your backdoor Roth conversions, if you have other IRAs, it’s much more difficult because they look at these all together.

Joe: All right. Let’s switch gears here. Let’s go to “ask the experts.”

Al: “My husband stays home with our kids, so he doesn’t earn an income. Can I still set up a Roth IRA for him?” and this is from Julie. Julie, the answer is yes. As long as one of the two of you have earned income, you could do a Roth IRA, but it’s still subject to those income limitation rules in terms of whether you could actually take.

Joe: Yeah, a great point. It’s a spousal contribution, so one spouse only needs to have earned income, and both spouses can make that Roth IRA contribution, so great question.

Al: “Is it overall better for my kids for inheritance purposes if I pay the taxes and do the Roth IRA conversions now? I don’t expect to need to tap into most of my retirement accounts to fund my retirement.” this is from Scott. Well, it’s a great question, and the answer really depends upon your tax brackets versus your kids’. If you’re in a lower bracket, yeah, do conversions now, they get it tax-free. Even if you’re in a similar bracket, maybe it makes sense to do the conversion now so that that money can grow tax-free for longer.

Joe: Yeah. I mean, it’s the compounding effect, right, the time value of money. The sooner you get the money into the Roth, the better off you’re going to be. You’re gonna pay tax on that, but now you get the compound of tax-free growth within the Roth. Let’s kind of wrap this thing up. We’re rocking your retirement with Mr. Roth. First thing is, understand the fundamentals. Do you qualify, and if you don’t, is there other ways that you can potentially get money into the Roth, and the answer’s usually yes. Decide if it works for you, right? What are the pros and cons? How does your situation fit into an overall Roth strategy? Maximize it, right, so we talked about different ways on how you can really maximize the amount of money that you can get into a tax-free environment, but then remember, there could be pitfalls, so go to our website– yourmoneyyourwealth.com. Click on our special offer. This week, it’s the ultimate Roth IRA guide, the ultimate Roth IRA guide. That’s our gift to you. Go to yourmoneyyourwealth.com. Click on that special offer and get going to rock your Roth retirement. That’s it for us today. Hopefully, you enjoyed the show. For Big Al Clopine, I’m Joe Anderson, and we will see you next time.

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