Brian Portnoy

Brian Portnoy, Ph.D., CFA®, is an expert at simplifying the complex world of money. In his two books, The Investor's Paradox and The Geometry of Wealth, he tackles the challenges of not only making better investment decisions but also how money figures into a joyful life. In February 2019 The Geometry of Wealth and Daniel [...]


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 [...]

Published On
March 26, 2019
Brian Portnoy: The Real Keys to Being Rich and Truly Wealthy

Brian Portnoy, Ph.D., CFA® (author, The Geometry of Wealth) on the difference between being rich and wealthy, and how to achieve both. Plus, what about tax brackets? Joe and Big Al respond to a challenge of their critique of Ric Edelman’s critique of the Roth IRA. And they answer questions that stress the importance of understanding financial vocabulary in retirement planning: Roth contributions vs. conversions, the Roth 5-year clock, and the difference between transfers and rollovers.

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Show Notes

  • (00:58) Brian Portnoy, author, The Geometry of Wealth
  • (18:43) Roth IRA Follow Up: What About the Tax Bracket When Depositing Vs. Withdrawing? (video)
  • (28:12) Understanding Roth Conversions Vs. Roth Contributions
  • (32:34) Can I Roll My 401(k) Into My Pension and Draw a Paycheck With No Penalty?
  • (37:04) Can I Transfer My Pension Into My Roth and Use the Money With No Penalty?


Brian Portnoy, Ph.D., CFA® is the author of the Axiom Business Book Award-winning book, The Geometry of Wealth: How to Shape a Life of Money and Meaning. Today on Your Money, Your Wealth®, Brian talks about the difference between being rich and being wealthy, and how to achieve both. Plus, what about tax brackets? Joe and Big Al respond to a listener challenge about their critique of Ric Edelman’s critique of the Roth IRA.  And the fellas answer money questions about the difference between a Roth contribution and a Roth conversion, the 5-year clock on a Roth IRA, and the difference between transferring funds and doing a rollover – all questions that highlight the importance of understanding the vocabulary of finance when it comes to your retirement planning.

This week we’ve got two different ways for you to get a free copy of Larry Swedroe’s book, Think, Act, and Invest Like Warren Buffett, for which Joe and Big Al wrote the foreword, so keep listening. I’m producer Andi Last, and here with our guest, Brian Portnoy, are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

:58 – Brian Portnoy, author, The Geometry of Wealth

Joe: Alan, got a PhD, CFA® joining us today, Brian Portnoy. Wrote a great book, The Geometry of Wealth – this is the first time I think you’ve ever read someone’s book before they came on.

Al: (laughs) I know, can you believe it?

Joe: No I can’t, actually. I’m still curious if you’re BSing me. His good buddy we had on, Dr. Daniel Crosby a few weeks ago, wrote The Behavioral Investor, and both these books, these buddies, they co-conspired or something and then they just won a gold medal for, what, The 2019 Axiom Business Book Award. So congratulations to Brian Portnoy, and thank you very much for joining the show, my friend.

Brian: Thank you guys, I appreciate it.

Joe: Hey can you give our listeners, just a little flavor of the Life of Brian Portnoy?

Brian: Yeah, well the Life of Brian was a Monty Python movie and my life is considerably less interesting than that. So I’ll give it a shot to come in second place. Sure, yeah. I’ve been in the investment and money business for north of 20 years now in various research and strategy roles. A lot of my focus over the last 10 years or so has been writing in the field of behavioral finance. You mentioned my friend Daniel Crosby who also writes in this field, and that’s just a fancy term for investor psychology, or how we’re wired to make just terrible decisions about money and what we might do differently about it. So I’ve been kind of writing about investment strategy, investment decision, making for a number of years and my latest output is The Geometry of Wealth.

Joe: You know, this Geometry of Wealth and behavioral finance might help me out – it’s the start of March Madness and I went to the University of Florida, and they just got into the tournament and of course I picked them to win it all. So I think I need some lessons. (laughs)

Al: I think you’re too far gone, but…

Joe: What is that called, is it familiar bias? What bias do I have when I pick my alma mater to win the whole March Madness tournament?

Brian: I think it’s just being called a homer.

Joe: Yeah. OK. (laughs) That could be it too.

Brian: Yeah, it is availability bias or you could also say familiarity bias. You know, we know the things that we know, the things that are right in front of us, and if you have the impression that your team is good and you know who the players are and you don’t know much about the players on the other teams, you tend to put more weight on what you do know and there’s also just the human element of wishful thinking to that – we want our teams to do well. Don’t need a PhD to understand that wishful thinking.

Al: So Brian I’ve got a number of questions. I love the book from the standpoint that you give a lot of tips on how to invest properly, how to make money, but it’s a lot deeper than that. It’s like, have a purpose behind it, and I think you start off right off the bat talking about a difference between being rich and being wealthy. So can you explain that?

Brian: Yeah, and I appreciate the question because it’s the important place to start. You know, I’ve been in the investment business for a long time and most of what we focus on in the world of managing stocks and bonds or client portfolios is growing something from smaller to bigger, 10 is better than 9, 20 is better than 10, more is what we want. And so much of our money life is built around getting rich, which is just having more money, and there’s just an overwhelming amount of evidence from behavioral psychology and other disciplines that show that that quest for more is not particularly satisfying. That quest to be rich, even if you want a million dollars and next thing you know you want $1.5 million, and you get there and you want $2 million, and it never really ends. There’s something in psychology known as the hedonic treadmill, which is a fancy, somewhat weird way of saying that life is very much a treadmill and you kind of go and go and go, but you don’t get much further no matter how hard you try. I want to distinguish that being rich or having more money with being truly wealthy. And I define true wealth as the ability to underwrite a meaningful life. And my shorthand for that phrase is funded contentment. What we’re really searching for is funded contentment. We want to lead meaningful lives. We want to do things that are really, really important to us, but we also have to deal with the aggravating and frustrating part of it, which is that money kind of figures into every dimension of the decisions that we make about a good life. And in modern living that’s hard to shake. So I say finance wonks, they focus on the funded part – the fancy stocks and bonds part. But I think we need to flip the script and focus first on what’s really driving our underlying happiness, and then how do we afford a meaningful life?

Al: So how do you go about that? I mean how do you figure out what’s important to you?

Brian: You mean other than buying my book?

Al: (laughs) Yeah correct.

Brian: (laughs) That is the path that I do try to chart out, and I think there’s three steps to it. The first is to be honest with oneself at minimum, and and hopefully, with your family and your financial advisor, in terms of what’s really meaningful to you? And in the book, I walk through a number of things that could count: connection to others, that sense of belonging is very important, sense of control that you have over your life. Competence – the idea that you have mastery over a skill or a passion for a hobby that’s really meaningful for you, and work, generally for all of us, is a major source of identity. Those are the deeper sources of meaning for us. And once you have a sense of that, you want to then set priorities. I talk in the book about setting three broad financial priorities, managing risk in your life so that you can hedge against catastrophe, and then, beyond that, matching your assets and liabilities. I think it’s super important, just from a nuts and bolts point of view, for people to have a balance sheet that gives them clarity to their financial situation. And then beyond that, kind of reach for the things that really matter to us. And then, once you’ve kind of articulated your purpose, and then moved on to your big priorities, then you can kind of get into the weeds in terms of making decisions about the market, about investing. I think a big challenge for all of us is that the way the script is in the financial advice business, and when we turn on financial television, is that we focus on the opposite end first. We start with the investing and the stocks and bonds, the stuff that seems interesting, sexy, and fascinating and fun, and we forget the fact that all of that is geared toward actually solving a problem or underwriting meaning that you want. So I wanted to kind of rightsze the script and move it in the right direction.

Joe: Yeah, it’s a very good mission. It’s an uphill battle to say the least. Al, you’ve been a CPA for 30, 40 years helping people figure out their financial lives, and I’ve been doing this a few days. Our goal and mission is just to figure out exactly what’s the money for? And most people, it’s hard for them to define what the money’s for. It’s always looking to get to a certain number. It’s like, “If I get to a million dollars, I feel that I’ll be secure.” But if you’re spending $500,000 a year, that money’s not going to last you very long. You’ve got to work it backwards and pushing people to work things backwards to find out what the money’s for, what is actually meaningful in their lives, and what can money do to provide that is challenging. So I applaud your efforts on trying to flip the switch or flip the script, either one I think works. Because then is the true component. Al and I see people that have millions of dollars that are miserable and we see people that have a couple of bucks that they’re the happiest people on earth and I think they’ve figured it out. So it’s going through several different exercises. That’s a challenge to put people through, because I think it’s that softer side of finance where most people I think think of finances it’s the hard number.

Brian: Yeah I think that’s right. One of the words I like to use a lot in this exercise is “calibration.” What we really want is to calibrate our purpose with our plan. You know, it’s one thing to walk along the beach or take a hike in the mountains and think about “the good life”    that’s a nice exercise, but it’s very incomplete. Yes, you need to step back and ask, “Well, what’s really important to me?” And the book does try to provide some vocabulary and some mental models for thinking through that, but then it needs to be attached to a plan. I mean, we can’t forget that most clients of financial advice firms don’t have a financial plan, which means, like, a real game plan that kind of gets you from A to Z. A lot of us will meet with a financial advisor or hang out with our friends, and the conversation will be about, “well, what’s the best investment? Where can I find the next Amazon? Is the price of oil going up and down?” And I can tell you that those questions, generally, are largely irrelevant to this principle of funded contentment. When I say that true wealth is the ability to underwrite a meaningful life, that means that you just need to be calibrated and you gave the perfect example. You’ve got clients who have a ton of dough and they’re pretty miserable. So they’re not calibrated. And you have other clients who, they don’t have much of a nest egg, but they’re probably more self-aware. They’ve sort of matched up what they own versus what they owe, so they live responsibly, and they’re leading a pretty good life. So you can be very rich but not wealthy and vice versa.

Brian: I’ve got a question for you. So you have a CFA®, and so at some point, I would imagine, you’ve got deep in the weeds in the numbers, in the markets, in trying to figure out when you can buy the next to Amazon, and then, did something happen in your professional or personal life to say, “you know what?” I’m guessing you got your PhD from the University of Chicago more on the behavioral finance side of things, or? So the last 10 years you’ve been writing more on behavioral then versus you know, “hey, let’s talk about factor investing.” You know what I’m saying?

Brian: Yeah I do. And it’s a perceptive question, because yes, things have changed for me as they do for everybody as they grow older and have families, and from a career perspective, yeah, I was in the weeds for a long time. This is my second book. I wrote a first book that was more sort of how to evaluate mutual funds and hedge funds and generally make better investment decisions. As I wrapped up that project and kind of looked out on my career, but also took stock of where I was in my life, I did begin to think, “you know, picking the right fund manager is not all that it’s cracked up to be, and really, has almost nothing to do with the things that really matter.” And so, a family with three growing kids, I did have sort of more of a personal revelation where it’s like, “you know what, I want to write a prequel.” And so the Geometry of Wealth is a prequel to The Investors Paradox, and a prequel in the sense that, the investing piece, the making good stock and bond and fund decisions, it’s really the end of the process. But something has to come before that for all of this to be very meaningful. And as I look out to 2030, 2035, and couldn’t even guess what the world’s going to look like, but that’ll be when my kids are ramping up in their careers. I’m thinking, “OK. Do they need a good primer on stocks and bonds, or do they need maybe some insight into how money figures into a happy life?” And it’s the latter that’s really been motivating me for the last few years.

Joe: I was expecting an answer like that, but then I also was thinking that you would say, “well you know what, I spent a long time in my career trying to figure out the markets, trying to look at how do you find the next XYZ stock before it blows up. And with all that information and education that you have over the last 25 years, what’s really going to make you wealthy is yeah, find the purpose, but also trying to identify stocks within the market and buying them before something actually happens is almost impossible. So if I can just control my damn nerves and emotions when the market blows up and understand that things are going to be okay, that’s probably worth a little bit more than finding the the next Amazon or Netflix or Facebook or whatever stock that you want to throw in there.

Brian: So this is great, because let’s just stick to being rich. Forget the wealthy stuff, maybe some of your listeners like, “oh, that’s just all gooey and soft and I just want more money.” If we’re just talking about growing X into 2x and 3x, yeah. The exercise of trying to find the next Netflix or predict how the next political election is going to impact the direction of the stock market, I mean, those are largely fool’s errands. That’s really not the way to compound your money over time. The main way is to avoid taking big bets and making ill-informed decisions that can undermine you, and instead blocking and tackling, having a reasonably priced diversified portfolio, and letting that compound over time, and keeping your saving and spending in check. The problem when I say things like that, because I do do a lot of public speaking, is people look at me like, “Well, no duh. Of course.” And then my come back is, “well, that’s kind of it. If you want to lose weight, you probably want to eat healthier and exercise a bit more. The issue isn’t whether you have the instruction manual. The issue is whether you can stick to the plan.” And that’s where we come full circle to the behavioral finance. The key to being rich, and again, we’re leaving the wealthy stuff, which I think is more important, off to the side. The key to being rich is not trying to beat the market. It’s trying to be, actually, the best version of yourself. And not letting your built-in biases derail you from allowing your assets to compound over the decades.

Al: It’s funny how we’re kind of hardwired though. I mean we could figure out what’s our purpose, what do we want our life to look like, what’s important to us, and we could come up with, as you say, the right priorities, and then it’s like, “okay here’s the right investment plan.” But then we’re kind of hardwired to do the wrong things from actually quite often, when it comes to investing.

Brian: Totally, and that’s why in this Geometry of Wealth concept, which is anchored in three basic shapes, the first shape is a circle. It’s a round world. We’re never done figuring this out. It’s why I find the concept of the number to be, actually, a bad thing. A lot of folks say, “well, my number is X. If I only had a million dollars, if I only had five million dollars, then when I get to that point, I’m going to be good. I’m going to be able to take care of everything.” And in point of fact, we know this anecdotally, but it’s also true from a social psychology research point of view, there’s no one number that’s going to make you happy at that particular point. And we’re always going to have to be revisiting what our purpose and priorities are. It goes around and around. There’s this underlying idea that I wrote about in the Geometry of Wealth that I call adaptive simplicity. It’s the idea that we always want to be moving towards simple. We always want to be moving towards a plan that we can stick with. But we have to appreciate that everybody gets knocked off their game. It’s never the case, there’s not a single human alive, where every plan goes just as they’d like. And we need to pivot. We need to adapt. And with the amount of information and disruption that we’re dealing with in our lives these days, all of us, that’s just part of the story. We shouldn’t see the need for adaptation or pivoting as a problem. We should see it as an opportunity to keep doing better, to update. And I think the people who embrace the process of adaptation are generally happier in the moment than the ones who say, “this hasn’t worked out the way I hoped and now I need to start from scratch.”

Joe: Great stuff. We’re talking to Brian Portnoy check him at ShapingWealth.com. The Geometry of Wealth. It’s his latest book, The Geometry of Wealth. Brian, people can purchase that where all finer books are sold, I imagine?

Brian: You mean Amazon?

Joe: Yeah I’ve heard of that.

Al: Yeah that’s what he means.

Joe: I thought maybe just go to..

Brian: A small upcoming bookseller? Yeah. No, it’s available in all of the regular spots, the Amazons and Barnes and Nobles and stuff. Yeah.

Joe: Final question: do you have a team for the tournament.

Brian: Go Blue.

Joe: Go Blue. Duke? Or Michigan?

Brian, No, Michigan! Oh my gosh. Jeez. Is this the part where I get to hang up?

Joe: Yeah. Did you go to University- what, well you’re from Chicago? What did you grow up in Detroit or what?

Brian: Nope. Grew up in Pittsburgh, school in Ann Arbor, grad school in Chicago. So I’m gradually moving west.

Joe: Oh, Wolverines. Go Blue.

Brian: Yeah. I’m a Wolverine.

Joe: Michigan State has had your number there for the past couple of games, so we’ll see.

Brian: That is absolutely true. They just gave it up here at the United Center here in Chicago. Another miserable loss to those guys, but hope springs eternal.

Joe: Yes. Yes. Thanks Brian. Appreciate your wisdom and everything that you do for the investment community.

Brian: Thanks guys I really appreciate it.

For a transcript of this interview and links to Brian Portnoy’s website and his book, The Geometry of Wealth, visit the podcast show notes at YourMoneyYourWealth.com. Now it’s time to answer your emails. If you’ve got money questions or comments, scroll down to Ask Joe and Al On Air at YourMoneyYourWealth.com and send the fellas a voice recording or an email right through the site. They’ll respond right here on the podcast, you’ll get a free copy of the book Think, Act, and Invest Like Warren Buffett by Larry Swedroe, and I might even send you a video of Joe and Big Al’s answer to your question. Keep listening for the second way to get your free book – in the meantime, let’s get to those emails – and you can bet this one’s got a video, check the podcast show notes at YourMoneyYourWealth.com.

18:43 – Roth IRA Follow Up: What About the Tax Bracket When Depositing Vs. Withdrawing?

Joe: Fred writes in Al, so I guess we touched a chord a couple weeks ago, maybe it was last week, we talked about Edelman’s view on Roth IRAs and we gave our opinion.

Al: Yeah, I guess one of our listeners had a different take.

Joe: He goes, “yeah I listened to your podcast that deals with the critique of the Roth IRA and I have to agree with Ric Edelman on this one. The one issue that was not addressed in the podcast was the difference between the tax bracket when depositing and the tax bracket when withdrawing the money. Most Americans will not be able to retire with the same income they enjoyed while working. They will be in a much lower tax bracket when they withdraw the money than when they deposited the money. If this is not the case then I stand corrected, but I doubt most households making $100,000 a year have $2 million (4% rule plus Social Security) in their retirement funds. I’d be very interested in hearing your thoughts on this subject.” All right, Fred, I agree and disagree with you. You’re right. I would say that when you hear about the average person, the median balance of a retirement plan is abysmal. There’s not a lot of money. Half of the population does not file a tax return. So when I say the majority of individuals will retire in a lower tax bracket in retirement than they are right now, I would agree with you with 100% certainty. Unfortunately, when you’re looking at tax planning and tax planning strategies, those strategies apply to individuals that pay taxes. So if I don’t have a retirement account and I’m going to live off of maybe pension and Social Security, then there’s no need to even think about or hear or listen to a podcast about Roth IRAs or Roth conversions. And also, a lot of people will be in a lower tax bracket, without question. But I think a lot of people that listen to this program also want to maintain their same lifestyle, that have done a pretty good job of savings, that have Social Security, that have real estate income, that have pension income, and that have saved several million dollars in retirement accounts. Those individuals, I think, would absolutely benefit from a conversion. Also, we look at brackets in regards to, if I’m going to be in X bracket today and maintain that same bracket, so let’s say I’m in the 15% tax bracket today. Taxable income of roughly $80,000 and I want to be in the same bracket in retirement. Does a conversion make sense? We believe it does. It gives you a lot more diversity when you’re pulling assets out. And also the 12% tax bracket today is due to go up to 15%. If I’m in the 25% tax bracket today, or the 22% tax bracket, is there likely a chance of me getting into the 25% tax bracket in retirement because the 22% bracket is going back to 25? Al and I’ve been doing this a couple of weeks, and we see that, yes, that happens often. So it really depends, of course, on the circumstance. But I agree with what your statement, he’s like, yeah, with a lot of people making $100,00 a year, do we see these people having a couple million dollars in retirement accounts? Not necessarily, no.

Al: Yeah. I agree with you wholeheartedly, Joe, and I think maybe we didn’t really express this well enough in that critique is that you always have to look at your tax bracket today.

Joe Yeah, I mean when we just took that as a given.

Al: We did. Yeah. You look at it today versus the future. Now, if you’re in the 37% tax bracket today, and in retirement, you’ve saved nothing, you’re going to be in the 12% or 15 as it’s going to become, absolutely not. Roth conversions would make zero sense. But in a lot of cases what we find is folks save the majority of their savings in retirement accounts and they want to live the same lifestyle. And a lot of people that we talk to have the savings to be able to do that, whether it’s savings, pensions, Social Security, real estate, whatever it may be. And so when you look at that, then it’s like, well, wait a minute. If they want to live the same lifestyle, they’ve got to basically pull every dollar out of their retirement plan. Then they are by definition going to be in the same tax bracket. In some cases, higher tax brackets, because they’re required minimum distribution is more than they need. So that’s part of it. Or because their home mortgage is paid off, so they don’t even itemize their deductions anymore. All that has to be looked at on a very individualized basis. It’s very hard to say, generally, “everyone should do this,” because everyone’s situation is different. But if someone who’s listening, if they know they’re going to be in a lower tax bracket in retirement than they are right now, a Roth conversion may not make sense.

Joe: But then I would say most people that are looking at a retirement income strategy and it’s like, “okay, I’m 5-10 years out from retirement,” then you have to look at it fairly closely. But let’s say if I’m a younger listener, if I’m 20, 30, 40 years old. Then you’ve got the time component of how that tax-free compound growth will at some point outpace the traditional IRA. But that’s a totally different argument. That’s a totally different thing that we usually never touch on. What we look at is to say, “if I need to replicate the same paycheck that I’m getting today or something similar, maybe it’s a little bit less,” but what we find again doing this for as long as we have is that a lot of our clients, a lot of people that seek really good financial planning advice, spend more money. They’re going on trips, they’re going on vacations, they’re redoing their house, they’re buying an RV, they’re spoiling their grandkids because it’s Saturday every day once you’re retired and you find time to spend money. So most people want, in our scenarios, and I guess in this assumption, they want to replicate their paycheck. And if everything is in their 401(k) plan and everything is coming out taxed just like their paycheck minus FICA tax, the likelihood of them being in a significantly lower tax bracket – we find that they don’t.

Al: Something else that a lot, most people don’t know. Most accountants, I would say, don’t even know this. And that is when you’re in the lowest tax bracket, or the lowest two tax brackets, which is now 10% and 12%, and it used to be 10 and 15%. So I’m going to use the 15% amount. So a lot of folks that were in that bracket, receiving Social Security, their income was high enough that it would force more of their Social Security income to be taxable. And if you can follow this, you add an extra dollar of income, it makes another 85 cents of Social Security taxable. And what we were seeing before this new tax law is that folks that thought they were in the 15% bracket were actually in the 27% bracket when you look at what we call marginal, or a few more dollars out of my IRA is going to cause a higher tax, there, in that situation in particular, getting money into the Roth IRA would be very beneficial.

Joe: Right. Because what you have to look in that circumstance is their provisional income. How is their Social Security going to be taxed? What does that look like? So it’s half of the Social Security plus their adjusted gross, but they don’t include Roth IRA distributions from provisional income. So if there is a way that you can then push out, let’s say, your Social Security income, do Roth IRA conversions to a certain bracket, and then get a lot of the retirement accounts into a Roth, and then you can reduce the RMD to keep you from a 0% tax bracket from a provisional standpoint? Or maybe only 50% of your Social Security benefits are subject to tax? And then you can take additional distributions from a Roth IRA and have a lot higher cash flow without getting yourself into a higher tax bracket? I think that makes sense.

Al: Yeah. And one other thing, I hate to say it, but in terms of married couples…

Joe: One dies.

Al: One will survive the other, and the survivor now is a single taxpayer, the tax brackets are cut in half. So now it’s like you’ve got virtually or almost the same income but you’re hitting those next brackets much sooner.

Joe: How about this: they’re looking at changing the stretch IRA provision, that only $450,000 then can be stretched. What that means is stretch out the tax liability over the beneficiaries life expectancy. If you have a large IRA and you’re gonna split that thing out within five years, I mean, that could blow your kids’ tax brackets up. So if you can do it strategically and convert in the lower tax brackets over the next five, 10, 15, 20 years, does that make sense? So there are multiple ways of looking at this. So when you look at hearing Roth conversion and then it’s like, “well, if I’m going to be in a lower tax bracket in retirement,” because that’s what everyone says. That’s the biggest fallacy to most people that have saved money. Because a lot of things that we see, yes, they’re in the same bracket or higher. But as a country as a whole? Yes, they will be in a lower tax bracket. So I agree with you there. But I think you’re missing the point of strategic planning. And we don’t know anyone that’s listening out there! I don’t got a balance sheet in front of me! We’re just throwing out ideas to see if it catches someone’s interest and then what they do is they blow it up and then they email us later saying, “hey, I think I did this wrong.”

Al: Yeah. That does happen.

28:12 – Understanding Roth Conversions Vs. Roth Contributions

Joe: This one hot off the press, “my husband and I attended one of your retirement workshops, from that we made the decision to pull $10,000 from my 401(k) rollover and open a Roth IRA. I made a $9,000 deposit and banked $1,000 with the IRS. Well, in doing our taxes, we took a hit for over-depositing. We have now withdrawn the excess and I’m getting a check back. Can we make this deposit in my husband’s name without penalty?” No idea what she’s talking about. Zero clue.

Al: (laughs) Well, here’s what I think. Let me try to dissect it, and then while I’m saying that you can chime in if you think something different. So the first sentence, “the decision to pull $10,000 from my 401(k) rollover and open a Roth IRA.” So maybe she pulled the money out and had to pay taxes on it, and then she tried to do a Roth contribution for the $9,000. She was trying to do a Roth conversion. But I think she got those two terms mixed up. And so then she had to pull out the excess, because she was only allowed to put in, say, $6,000? That’s a guess. Total guess.

Joe: (laughs) That’s a pretty good guess! So, all right, that makes sense. Instead of doing a conversion, she’s like, “all right, I’m gonna just take a distribution of $10,000, withhold $1,000 in tax, and then I got $9,000, I’m going to deposit the $9,000 into my Roth IRA. And then the I guess Turbo Tax is saying, “hey, you made a Roth IRA excess contribution.” And so they’re sending a check back.

Al: Well she found out it’s too much. And so she’s gotta pull – what it was last year, $5,500? Plus a $1,000 catch up if  she’s over 50, so let’s just say $6,500, so maybe she has to pull back $2,500, let’s just say. And could she put that in her husband’s account? Potentially. I mean, whether he’s working or not, he could use spousal income, so that’s possible.

Joe: See, this is the problem with people listening to snippets.

Al: Yes. Yeah. Or in this case, they actually came to a workshop and they got confused between a conversion and a contribution. And those are two completely different things. It sounds like a similar word. A contribution is, you take some of your current earnings and you contribute it to a Roth IRA. A conversion is, you take money out of your IRA or 401(k) and convert it to a Roth. They’re two completely different things with two different kind of tax treatments.

Joe: Yeah. One comes from cash and one comes from a retirement account.

Al: Right. The one that came from cash, you’ve already paid taxes on it. So when you do the contribution, there’s no additional tax,but if it comes out of your IRA or 401(k), that’s pre-tax. When you do the conversion you have to pay tax on it. I think that’s what she was trying to do.

Joe: And so a conversion is unlimited. So if she wanted to put the $10,000 of the IRA as a conversion into the Roth, she would be able to do that. There would be no excess contributions. Because there is no limit. But there are limits on contributions up to $5,500 or $6,500 if you’re over 50.  So that’s kind of a big blow up.

Al: Yeah. Well at least it’s not a big dollar amount. At least for you and me, maybe for some people.

Joe: Good thing. I mean how about if it was $100,000?

Al: Yeah, or $500,000. So you made a contribution of $500,000? Nope, we won’t take that.

Okay so yes, the Roth IRA is great, but it’s complicated. If you want the basics, download the Roth IRA Basics white paper from the podcast show notes at YourMoneyYourWealth.com.

And this week on the season 5 finale of the Your Money, Your Wealth® TV show, Joe and Big Al talk about The Making of a Retirement Millionaire. Watch online at YourMoneyYourWealth.com. Now, according to Google, Warren Buffet is worth $82.7 billion. Ya think he might know something about becoming a retirement millionaire? Here’s the second way to get yourself a free book: click “Special Offer” at YourMoneyYourWealth.com to get your copy of Think, Act, and Invest Like Warren Buffett by Larry Swedroe for more motivation on your path to retirement millionaire status. Now, let’s get back to those money questions.

32:34 – Can I Roll My 401(k) Into My Pension and Draw a Paycheck With No Penalty?

(transcript coming soon!)

37:04 – Can I Transfer My Pension Into My Roth and Use the Money With No Penalty?

(transcript coming soon!)


Yes, before you make any financial action, make sure you’re doing it right – scroll down to “Ask Joe and Al On Air” at YourMoneyYourWealth.com – send ‘em a voice message or an email, get a smart answer, possibly in video form, and a free copy of Larry Swedroe’s book, Think, Act and Invest Like Warren Buffett.

Special thanks to today’s guest, Brian Portnoy. For more information about Brian and his latest award-winning book, The Geometry of Wealth: How to Shape a Life of Money and Meaning, find links in the podcast show notes at YourMoneyYourWealth.com, where you’ll also find links to share and subscribe to the YMYW podcast on Google Podcasts, Apple Podcasts, Spotify, you can listen on YouTube, or on your favorite podcast app. Click to subscribe to the podcast on any of the following apps: 

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Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this broadcast and does not represent that the securities or services discussed are suitable for any investor. Investors are advised not to rely on any information contained in the broadcast in the process of making a full and informed investment decision.