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
February 4, 2020

We address a challenge to the advice to wait until age 70 to take Social Security and we tackle your questions on making the most of your benefits, what happened to annual projections for those on restricted applications, using a revocable trust to protect assets from Medicaid, converting from 403(b) to Roth IRA, rolling Roth 401(k) to Roth IRA, and whether to contribute to a Roth 401(k) or Traditional 401(k).

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Show Notes

  • (00:48) Why Do So Many People Say Wait Until 70 to Take Social Security?
  • (06:28) Does My Wife Receive 50% of My Full Retirement Social Security Benefit Or Another Amount?
  • (10:11) Restricted Spousal Social Security: I Can’t Get an Annual Report of Projected Benefits?
  • (14:56) Will a Revocable Living Trust Protect Assets from Medicaid?
  • (20:05) Social Security MAGI Calculation Increases My Medicare Premiums!
  • (22:56) Is It Worth It to Convert My Old $90K 403(b) to Roth?
  • (27:23) Can I Roll My Roth 401(k) to Roth IRA Immediately? Can I Contribute From My Savings?
  • (30:00) Should I Contribute to Roth 401(k) or Traditional 401(k)?
  • (34:54) YMYW Podcast Comments: Chidam Made a Mistake, Sam Has a Suggestion

Resources mentioned in this episode:

READ | from the blog: Breaking Down Medicaid Vs. Medicare

LISTEN | YMYW podcast #226: Medicare Beginners Guide: What You Need to Know Now

READ | from the blog: Convert Your IRA to a Roth IRA

READ | from the blog: IRAs: Everything You Need to Know

LISTEN | YMYW podcast #249: What’s the Break-Even on a Retirement Roth IRA Conversion? 

Listen to today’s podcast episode on YouTube:



00:48 – Why Do So Many People Say Wait Until 70 to Take Social Security?

Joe: We got Matt from Minnesota. Don’t you know. I was just there. The homeland. That’s where I’m from. Born and raised.

Andi: Shout out to Ruthie.

Joe: Yes. “Hi Joe. Al. Andi. I’m from Minnesota. Hi Joe.” Hello Matt. “And I’m trying to understand the numbers behind taking Social Security at different ages. It seems like every time I see this they ignored the fact that this money will replace pulling money from equity accounts or that you might not use the money. I’m an engineer and yes I have a spreadsheet assuming a base Social Security payment at 62 of $1000 per year-” is that $10,000 or $1,000 per year?

Andi: That is $1,000, it says $1,000.

Joe: Ok, he’s just using that as an example. “-of $1000 per year with about a 28% tax rate. I would net about $720 if I don’t spend that money and invest it and get even a modest 2.8% return. I would have $8000 by age 72. Now comparing that to the 8% increase in payment per year I would get $1300 after taxes. At this point, my $8000 is kicking off another $150 a year to add to my $720 for about $870 a year compared to the $1300. But it still will take until I’m 90 years old for that extra $430 a year to catch up to the $8000 I made by taking my Social Security early. This is with a 2.8% return for my investment. With a 4.6% my break-even as 100 years old, 5.5% it’s 110 years. Now you can argue that you’ll be spending this money but that spend is the same as leaving the equivalent amount to grow in existing accounts. So it’s basically the same thing. What am I missing? Why do so many people recommend waiting till max benefit at age 70? I’ve been binging your old podcast for a few weeks now and have been enjoying the ride. Keep up the good work.” Thank you, Matt.

So Matt I totally understand what you’re doing and I agree with you 100%. So you’re looking at it is that if I take it at 62 and invest it I’m going to have more money. It all depends on the assumptions that you make and you’ve made very conservative assumptions. And you’ve found a break-even of age 90 at a 2.8% rate of return. For the listeners what he’s doing is saying I’m going to claim those benefits early. I’m not spending the benefits I’m going to invest those benefits and then I’m gonna look at the total investments over my lifetime and what’s going to give me more out of the system? Take it early take that money and invest it at a conservative rate. And what’s my break-even? Yes, it depends on those rates and in how conservative or how aggressive that you want to be it’s going to make sense to do that. How I look at it however and I think how other financial planners look at it is that most people need the money to live off of and it’s a guaranteed income for the rest of their life and its longevity insurance. If everyone had the discipline like you do Matt and I know that you’re very disciplined because you are from the great state of Minnesota. And you are an engineer and you’ve done the spreadsheets and you’ve run the numbers and you’re a very educated person. So yes this strategy is going to work for you. You’re gonna take it early. You’re going to invest it. Now maybe you invested it in a tax-free municipal bond paying 2.8%. Because then you’re not going to pay any tax on the interest and dividends along the way. So we could go on and on about how all of this works. It will work for you. Guaranteed the numbers don’t lie. You ran the numbers. You’re an engineer. However real life gets in the way for most people. They do not have the discipline. They are not good. They’re gonna take it early. Guess what they’re gonna do. They’re going to spend it. So does it make more sense for the average person to delay? Because most people are not fiscally prepared for retirement. They don’t have nearly enough money to live the lifestyle that they’re accustomed to. Absolutely nowhere close. So our advice is to say most people are gonna be hurting and struggling. So might as well push this thing out to try to get the most money they possibly can from the system so they can have some sort of dignity within their retirement. If they take it early guess what? They’re going to not save it. They’re going to spend it. And now they’re gonna be stuck for the rest of their life with a permanent haircut within the overall benefit. That is why we look at delaying the benefit as long as possible for most people. Also, the taxation of Social Security’s tax-favored. So if I can delay that, get a higher benefit as the longevity insurance type contract and also receive a tax benefit by doing that I like that as well. I’d much rather take money from a 401(k) plan that is taxed awful first and delay though the overall benefits. So put some tax equations in there along the way. I like how you said if I get this 28% tax bracket but then start looking at how is Social Security going to be taxed when you start taking distributions? How’s the interest and dividends going to be taxed if you do save it on your 2.8% or 3.3%, 5.5%? So you can really start getting in the weeds on all this stuff. And right now it’s a perfect time to do it Matt, because I was just in Minnesota last week and it was like 20 below zero. I live in Southern California and I get cold now it like 60 degrees. I was dying. It was absolutely awful.

Andi: What does that have to do with it being a good time to do…?

Joe: Because he’s going to be sitting in his house! It’s too damn cold to do anything so he can grind on his spreadsheets and figure this stuff out!

06:28 – Does My Wife Receive 50% of My Full Retirement Social Security Benefit Or Another Amount?

Joe: Let’s go to Tim from San Diego. He goes “Hello Joe and Big Al. I really appreciate your show and your responses to the questions submitted. I have one on Social Security. I’m holding off on collecting Social Security till my wife reaches full retirement age. I will be 69 when she’s at full retirement age. I understand that she will get 50% of my Social Security. She is a quarter shy of her own benefit as her health prevented her from working. What I’m not sure about is this. I heard you say-“

Andi: “I think I heard you say-“

Joe: – Oh “I think I heard you say, she gets 50% of my full benefit. Does that mean she will get 50% of the amount I get when I claim at age 69? Or 50% of what my benefit was when I was 66? In other words, does the amount she gets 50% freeze at what I would originally receive if I took it at age 66? Thank you.”

Andi: That makes sense to you?

Joe: Yes it does. So here’s what Tim is asking. You have different choices to claim your Social Security benefit. You can claim it as early as age 62 or you could wait until age 70. So at 62, you’re going to receive a haircut. He’s 69. So if he did claim at 62 he would receive roughly 75% of the benefit. But he’s claiming at 69. So let’s just assume it’s $1000 a month. If he claimed that full retirement age would’ve been $1000 but now he’s 69 he’s claiming at $1200. So he’s asking because his wife is going to claim the spousal benefit- the spousal benefit means she’s going to claim on his record. And so is she going to receive $500 which is-

Andi/Joe: – half of $1000 if he would have claimed it, or is she gonna get $600, which is half of the $1200?

Joe: Yes. $600. And most people get this wrong. They think if I push out my Social Security benefit to age 69 or 70 then my spouse is going to receive a lot larger spousal benefit. And the answer is false. The spousal benefit is based on your full retirement age, Tim. And she needs to claim that at her full retirement age to get 50% of what your full retirement age benefit is. She could claim a spousal benefit as early as age 62 if she wanted to. However, she would not receive 50% of the benefit at Tim’s full retirement age. She would have received like 33% of it. Because she’s going to get a haircut because she took it at 62 versus 66.  But on the flip side let’s say Tim takes his benefit at age 62. So instead of getting $1000 a month, he was going to get $750 a month. So as long as his wife waited till her full retirement age she’s going to get 50% of the $1000 even though Tim claimed early.

Andi: As long as she waits until her full retirement age, you said.

Joe: Yes. The factor is based on Tim’s full retirement age and then when the spouse claims the spousal benefit. So it doesn’t matter when Tim claims his benefit at all. It’s always going to be based on his full retirement age. That’s the factor. And then they’re going to look at when the spouse claims the spousal benefit. And if she waited to age 70 to claim the spousal benefit she’s not going to receive a higher benefit.

Andi/Joe: It’s not going to do her any good.

Joe: So she needs the claim right away. We found that mistake along the way as well.

Andi: Just so long as he has claimed when she can start-

Joe: He needs to claim for her to be able to claim the spousal. That was a mouthful.

Andi: Nicely done though.

10:11 – Restricted Spousal Social Security: I Can’t Get an Annual Report of Projected Benefits?

Joe: We got April. She writes in, in Chicago. A little Chi-town. “I started receiving restricted spousal benefits from Social Security in 2019 with plans to wait until 70 to take my personal Social Security benefits. It appears however that I can no longer get an annual report with projected benefits upon turning 70. When I go to Social Security only shows my current spousal benefits. I can use the last reports I receive, but this seems in some in-“

Andi: “-insufficient-“

Joe: “- sufficient. Any suggestions?” I got nothing for you April. I’ve got nothing. Not one even remotely thing comes to mind.

Andi: So she should just continue estimating based on- what, her last report?

Joe: I mean who gives a-? I mean what the-? I mean it’s like who cares?

Andi: She wants to put it in her spreadsheet.

Joe: I know she does. April go out and spend that money. Don’t worry. I mean unless you’re like super concerned to the penny. But if that were the case I don’t think you’d take the restricted benefits by taking- what a restricted application is she’s receiving half of her spouse’s benefits which is 50% of the spouse like we just talked about in our last question. But she has her own record. So she’s deferring. She’s delaying her own-

Andi: She’s waiting to 70.

Joe: To 70, to turn her benefit on. So she’s double-dipping here.

Andi: So her’s is bigger. Otherwise, she wouldn’t be bothering.

Joe: Correct.

Andi: Yep.

Joe: She qualifies because of her age, this strategy is gone. Restricted applications, file and suspend, blah blah blah blah blah. Because of the strategy that all of us advisors were giving to our clients to maximize their overall benefits, Social Security got wind of this really good strategy and they’re like let’s-

Andi: Nip that in the bud.

Joe: Let’s stop that. So April I don’t know what the hell to tell you to be honest with you. I think you’re really anal like Big Al.

Andi: And all the engineers.

Joe: Like Alan, if we have something numbered 1 through 6, he has to go through all 6. And if you skip 5 and go to 6 just because 5 might have been just kind of like a dull question or a dull statement, yeah he freaks out. So April’s probably looking for to the penny what the benefit is gonna be. You already know what your full retirement age benefits are. Hopefully from older statements. Then I would use the 8% delayed retirement credit with on that. And then maybe put it in a 1% COLA in your spreadsheet and then kind of go from there.

Andi: So there you go; you did have a suggestion for her.

Joe: Yeah that’s what I would do. Or just go to the Social Security- and you know what you do April? I’m sure the weather in Chicago is really nice. Go to your local Social Security. Get outside and go to your local Social Security office. And sit there for hours.

Andi: That sounds like a ball.

Joe: And then you meet this person that probably doesn’t really truly understand your strategy because it’s no longer there. And you’re gonna have to explain to them what the restricted application is. And then from there you’re saying no I’m taking spousal benefits. I’m letting mine delay and then you’re going to spend another hour just explaining your overall strategy. Because they might be a little bit confused because you can no longer do a restricted application. And then you’re going to have to talk to another person and then ask for that person’s supervisor. And then you’ll probably get the statement.

Andi: And you still might get the wrong answer.

Joe: Yeah. You could do that. That’s an option.

Andi: Or you can just do that 8% per year and 1% COLA.

Joe: Yeah and call it good. And I meant no disrespect to our fine workers at the Social Security Administration.

Andi: Because you know they’re all listening.

Joe: But it’s a known fact that they cannot give advice, first of all.

Andi: Just like you.

Joe: Right. They’re not there to give advice. They’re there to give you whatever answers that they can give you. And you’re doing somewhat of a complex strategy. A lot of times if that strategy is not there anymore- because we had to talk- just my own experience- talking to workers at Social Security, we had to go through many many people just to make sure. Because the clients would go to the office then they would come back and they would say Joe you’re lying to me, you’re wrong. And I was like, no, I’m not wrong.

Andi/Joe: Social Security is wrong.

Joe: How could that be? No. She just wants to know what her own benefit is. So she goes this SSA dot gov and it’s just saying well no you’re already claiming your benefits, here’s the spousal benefit, blah, you know. And she’s like no, I get that, but I wanna know what my benefit is. Are they still calculating what my benefit is going to be?

Andi: So they’ve even changed the system on SSA.gov to do away with the ability to estimate with that strategy?

Joe: Probably.

Andi: That’s crazy.

Joe: Because you cannot use the strategy anymore. So April, appreciate the question, hopefully you’ll find the answer.

14:56 – Will a Revocable Living Trust Protect Assets from Medicaid?

Joe: We’re deep in the email bag.

Andi: We are. We’re like on page 5.

Joe: We got one from Ricky from Birmingham, Alabama. Ricky writes in. He goes “To protect assets from Medicaid, is it a good idea to move 401(k) money to a revocable living trust? Great podcast so keep them coming.” Ricky. No. It’s not a very good idea.

Andi: Why not?

Joe: Well first of all, a revocable living trust does nothing to protect your assets from Medicaid because you are still the owner of those assets. And if you’re trying to do like a Medicaid strategy to hide assets so you qualify that’s kind of illegal. They have look-back periods of 5 years so whatever you’re trying to do to move assets around you’ve got to know 5 years in advance of when you’re going to let’s say go to a long term care facility or know when you’re going to get sick 5 years in advance.

Andi: So it’s a gamble and it’s immoral.

Joe: Yeah. If Ricky did- like a revocable living trust avoids probate. That’s all that does. So you’re titling assets such as your home, your brokerage account, whatever. Anything outside of a retirement account in the name of the living trust and it’s an entity that when you pass away the successor trustees kind of takes over. So if you consider yourself the CEO of your own family business you would name a vice president. So when you pass away the vice president steps in to become CEO. But you have a list of rules and laws that have to be abided by when you’re gone. So the vice president is really not acting as CEO he’s just acting as an interim CEO to finish up what your wish list is. And it avoids the whole probate process. If you do not have any type of documentation to put your assets in this entity- you might have a will but the will goes through probate and the judge goes oh here’s the will, X amount of dollars is going to go to Joe, X amount is gonna go to Andi. And then there’s probate court costs, and attorney costs and things like that. And it’s long and it’s inefficient and expensive public record.  All sorts of negative things by going through the probate process. A living trust avoids that entirely. Ricky what you’re trying to do is hide assets so you can qualify for Medicaid if there’s some sort of medical event. And you want to take your 401(K) and move it into a revocable living trust. If you did that it would be 100% taxable so you take all of your money out of your 401(K) plan, pay 100% ordinary income tax on that distribution, you put it in your revocable living trust and then you think I did this. I saved my assets. You just killed yourself is basically what you did because you lost probably half of it to taxes. Now it’s in a revocable living trust. Now you go to your long term care facility and all those assets are going to be subject to the MediCal spend out. So don’t do it, Ricky.

Andi: So it’s not only immoral and illegal and risky, it’s also expensive.

Joe: And it’s really stupid. Not that Ricky is stupid.

Andi: He was just tossing the idea.

Joe: The strategy is bad.  Because it’s not going to do it- You need an irrevocable trust is what you need to do. So you’re gifting the assets to an irrevocable trust. You are not the owner of those assets anymore.

Andi: But in a (401(k), you’re still going to end up paying full taxes, right?

Joe: You’re still gonna give your ass- your assets lost to taxes.

Andi: Nicely done. Good save.

Joe: Yes. So no. Don’t do it, Rick. Do not do that strategy. If you’re worried about like MediCal or Medicaid cost or long term care and things like that, it’s called a Medicaid spend-down for a reason. They’re going to spend down all your assets. Your spouse is going to have a couple of bucks that she can live off of if you’re married. But that’s why planning is so important before you do get sick.

One excellent way to get a jump on that planning is to download and fill out our Estate Plan Organizer from the podcast show notes so your loved ones have all the information they need in the event something happens to you. It’s divided into fourteen sections, ranging from the names and contact information of your advisors, to your account details, insurance policies, and final wishes. Collect ALL the relevant information, put it in the organizer, tell your loved ones where to find it or make sure they have a copy, and don’t forget to update it regularly with any changes. Get the Estate Plan Organizer from the podcast show notes by clicking the link in the description of today’s episode in your podcast app. I’ve crammed the show notes with other helpful free financial resources as well, like the Social Security Handbook, our blog post on the difference between Medicaid and Medicare, and podcast episode #226, Medicare Beginners Guide: What You Need to Know Now. While you’re there in the show notes, click the Ask Joe and Big Al On Air banner to send in your money questions. Speaking of Social Security and Medicare,  Big Al Clopine rejoins us now to answer this question from Susan in San Diego…

20:05 – Social Security MAGI Calculation Increases My Medicare Premiums!

Joe: So Susan writes in. “My total income for 2018 was $162,000 including $9000 of tax-exempt interest. My adjusted gross income was $162,400. My taxable income was $148,000. I’m 67 and retired. Single, on Social Security, Medicare. Social Security added together my adjusted total income plus the tax-exempt interest to get MAGI up to $171,000. This calculation places me in a higher tier for Medicare Part B premiums as well as for Part D premiums. I contend that the interest income has already been added to get my adjusted gross income. What is the proper calculation?” So what she’s trying to figure out, she’s got tax-exempt interest from municipal bonds and she’s trying to figure out if I have total income of $162,000 plus another $9000 of tax-exempt interest to get me to $171,000 but my taxable income after my deduction is $148,000, what the hell is all these numbers? What am I gonna pay?

Al: Which one do I use?

Joe: Yes.

Al: So easy enough. So modified adjusted gross income is what MAGI stands for. And so we’ve got these charts on how much you have to pay for your Medicare premiums based upon your income but it’s actually a two-year look-back. So the question as it pertains- this is 2018 – so we’re really talking about what the fees are going to be in 2020 which is the year we’re in. So here we go. So she’s single and if her adjusted gross income is $162,000 plus you add the tax-exempt interest to that, $171,000. That is the number you use when you go to the table. And on that number that’s between $160,000 and $180,000. I’m sorry $160,000 and $500,000. So Medicare premium for this is-

Andi: That’s 2019.

Al: That’s 2019, I’m a year behind. Anyway so it’s gonna be a little over $400 but that’s how you compute it. It’s basically your adjusted gross income plus your tax-exempt interest that didn’t make it to the front of your tax return.

Joe: So she’s asking, what number do I use? What’s the proper calculation? The proper calculation of a modified adjusted gross in her situation is total income added back in, what, tax-exempt income.

Al: Yes. So $162,000 is her adjusted gross income. Add the tax-exempt income of about $9000 to get to $171,000. That’s the figure that she uses.

22:56 – Is It Worth It to Convert My Old $90K 403(b) to Roth?

Joe: All right, you ready for this one?

Al: I am.  Steve from New York.

Joe: Stevie. 403(b) to Roth conversion. “Hey, Joe and Big Al. Love the show.” See that’s a really good way to start.

Al: It is.

Joe: Steve. Really good way.

Al: We’ll actually read your question when you do that.

Joe: I’m like yeah I’m surprised we missed this. “I’m looking for advice on a Roth conversion. I have about $90,000 and old 403(b). I was considering converting $40,000 of it to a Roth in 2020. I’m in the 24% tax bracket. I understand the taxes owed would be about $9600 and I have the cash to pay it. My question, is it worth it to do the conversion? If it helps, I have over $1,000,000 in 401(k)s and we have over $300,000 in Roths already and I’m 49 years old. Thanks and keep up the good work.” Steve. The answer is absolutely yes. Convert $90,000.

Al: Well convert what you can afford. Right?

Joe: He’s 49 Al. He’s got way more money than you.

Al: You’re sure of that?

Joe: I don’t know. You do have the big wallet.

Al: I do agree with you though. Surprisingly Joe.

Joe: So he’s 49. So he’s young. He’s got over $1,000,000 in a retirement account. He’s got $300,000 in Roths now. He’s got $90,000 in a 403(b). I wonder where he’s coming up with $40,000. If that’s the top of the 24% tax bracket, Steve. Then I would probably stop there and convert the rest next year. But I would definitely do the conversion. It absolutely makes sense. Why does it make sense Al?

Al: Here’s the math. So you got $1,000,000 right now already in your retirement accounts. And if you just let them grow at 7% for 10 years they’ll double.

Joe: So that’s $2,000,000.

Al: That’s $2,000,000.

Joe: And now he’s 60.

Al: And you’re gonna be adding more to it. And let’s say you work till 65. You could have $2,500,000 or $3,000,000. I’m going to say $3,000,000 because it’s super easy math.

Joe: He’s going to have $4,000,000.

Al: I’m going to say $3,000,000. Just to be conservative.

Joe: OK.

Al: So $3,000,000 in an IRA-

Joe: So he’s got $1,000,000 now. How old is he? 50? So he’s got 20 years.

Al: If he works till 70. I’m guessing he’ll retire before then.

Joe: RMDs are 72.

Al: Yes. Yeah. And who knows whether he’ll be spending it before- But I’m just going to say $3,000,000, RMDs about 4%. About. So that’s $120,000 of income plus Social Security which let’s just say the taxable part of Social Security will be another $40,000, $50,0000. Who knows? I mean I don’t know if he’s married or not but let’s just say another $50,000. So now we’re at $170,000 of income. And that’s without including any other income from other investments and a standard deduction you will be in the 25% or 28% tax bracket when the old tax brackets come back. So to convert in the 24% makes sense plus all that tax-free growth for all that period of time. Yeah makes a ton of sense.

Joe: So we don’t really know what the hell tax brackets are going to be in 20 years, Steve. But we’re just guessing, speculating, we don’t speculate on stocks but God, we speculate on tax rates Al. I mean we’re hypocrites.

Al: We don’t really speculate. I quoted the actual law. The actual law is the old tax brackets come back in 2026 so I’m going off of that information.

Joe: So what did you use for taxable income?

Al: I said income is $170,000. Let’s take-

Joe:  $25,000? $150,000?

Al: Let’s take $30,000. So $140,000.

Joe: What’s the present value of $140,000? Call it 2%, 20 years.

Al: Probably $100,000.

Joe: OK. So $100,000, he’ll be in the 25% tax bracket if he is single. So convert the 24% still makes sense.

Al: That’s what I’m saying.

Joe: Steve that’s what we do here. We give good answers. Sometimes. To really good questions.

Al: Now the other thing if you want to speculate, do I think tax rates will go up? Go down? Or stay the same in the future? If I’m guessing, now I get to speculate for a second, I think they’re going to be higher in the future because of our national debt. That’s my prediction.

Joe: Ooo. Political. Big Al’s getting political. There’s a lot of things. I think tax rates are going to go up as well. We’ve been saying that for a while. What do they do? They go down. If you want to get really bad advice here’s the number to call.

27:23 – Can I Roll My Roth 401(k) to Roth IRA Immediately? Can I Contribute From My Savings?

Joe: We’ve got John from San Diego. “Love the show.” Way to go John. That’s how you open up an e-mail. “It’s only- it’s one of only two podcasts I listen to.”

Al: Wow. I feel honored.

Joe:  I wonder what the other one is.

Al: It’s a real show. It’s not like ours.

Joe: I wonder what the other show is John.  Cheating on us.

Andi: And whether or not it’s financial.

Joe: Guaranteed. It’s not. “We just got a 401(k) at work with a Roth 401(k) option. From past episodes, I understand I can roll the 401(k) Roth into a Roth IRA immediately if the plan allows. I looked for this one on the IRS website. Couldn’t find it. Also, can I contribute the full $19,500 from my savings? Or must the contribution come from my paycheck each pay period? Thank you.” So he’s got a 401(k) option and his employer- the full amount to contribute to a 401(k) has to come from your paycheck.

Al: Yes. The only exception is if you’re self-employed. Sole proprietor, then you can actually just write a check. But when you’re an employee it has to come from the paycheck.

Joe: If you had a solo 401(k). I don’t know what, what’s he looking at? Some website or something? IRS website?

Al: He wants to know can he roll his 401(k) Roth into a Roth IRA immediately if the plan allows. The answer is yes, if the plan allows.

Joe: But the IRS won’t know what the hell the plan is doing.

Al: So that’s why you couldn’t find it on their website.

Joe: You know what? I’m gonna order Domino’s Pizza but I’m going to order it through Chuck E. Cheese.

Al: They know pretty much what Domino’s has.

Joe: You’re just asking someone else to do someone else’s job here, John.

Andi: So in other words, contact your HR Department?

Joe: HR.

Al: Yeah. Yes.

Andi: Not the IRS.

Joe: Yeah.

Because we always have so many questions about Roth IRA conversions, I’ve added a number of Roth IRA resources in the podcast show notes, click the link in the description of today’s episode in your podcast app to get access.Sorry, no pizza from either Dominos or Chuck E. Cheese, but you can read our blog posts on making Roth conversions ( Convert Your IRA to a Roth IRA) and IRAs: Everything You Need to Know, download the Roth IRA basics guide, listen to podcast #249 on determining the break-even point on Roth conversions, and for Dave coming up here next, check out Joe and Big Al’s video on Roth 401(k) vs. Traditional 401(k) from way back in podcast #198.

30:00 – Should I Contribute to Roth 401(k) or Traditional 401(k)?

Joe: All right Roth 401(K) or traditional?  “Hi, Joe and Al. This is Dave from Oregon.” Hey Dave. Go Ducks. “Thanks for producing my favorite podcast.” Gah, that makes me feel good. “My question is around-” what?

Al: I was going to say Andi produces it.

Joe: I know, but-

Andi: You’re welcome Dave. Thank you for the thanks.

Joe: There’s no mention of Andi whatsoever here. “My question is around Roth 401(k) and traditional. I’m 55 and plan to retire in 10 years. The majority of my savings is pre-tax now. My wife and I are currently making $300,000 annually and estimate we’ll retire with around $2,000,000 based on a 4% burn rate which matches our estimated retirement income needs we’ll be living on $80,000 those from savings and we’ll draw Social Security when we hit 70. Since this is considerably less than our current income we’ll be in a much lower bracket in retirement. Does it still make sense to do a Roth 401(k) now? I’m thinking it would be better to max out traditional now and then do Roth conversions when we’re in a lower tax bracket in retirement. Thanks for your thoughts.” OK he’s 55. They’re making $300,000. When they retire they’ll have around $2,000,000. So he doesn’t have $2,000,000 now. He wants to retire in 10 years. I’m guessing he’s got $1,000,000 in retirement accounts, most of it pre-tax.

Al: That’s probably right.

Joe: And he’s saying we’re going to retire at 65. He’s going to push off Social Security to age 70. So that’s going to give them a window from age 65 to 70 where he can do conversions in a very low tax bracket. So the question is should he do or- 401(k) Roth contributions now? What do you think?

Al: Well I think you answered. I think the best time- I think you’re in a high tax bracket, although I got to come back to that one second. But in general, you’re in a high tax bracket. The tax deduction is going to mean more to you right now. You’re going to be in a pretty low bracket between when you retire and age 70. That would be the best time to take what you have in your 401(k) and your IRA and do conversions. Now I’m going to say one other thing though and that is $300,000 annually minus even a standard deduction for a married couple, that’s taxable income at $275,000 which believe it or not is in the 24% tax bracket.

Joe: Minus another $50,000 let’s say if they’re both fully funding their 401(k) plan.

Al: That’s true. 24% tax bracket given the amount that’s going to be in your required- in your IRA plus Social Security and I don’t know what else you have. You may be in the 25% bracket in retirement. So you may actually consider it right now.

Joe: Yeah I think so. You’re going to have- I’m a big believer that if- especially contributions into a Roth. I mean I used to rant on this forever. I go 100% Roth 401(k). I don’t care what bracket I’m in. Because I’m not going to miss the tax deduction that I would have gotten. Dave, so you put in the Roth 401(k), you max that thing out. And over the next 10 years- what’s $25,000 payment, 10 years, 7%?

Al: $25,000 payment.

Joe: Yeah. 7%, 10 years.

Al: Starting with zero?

Joe: Yeah.

Al: Just to see what that is. $345,000.

Joe: $350,000 that you’re going to have in a Roth IRA. Versus having that $350,000 additional into your 401(k). That’s all pre-tax. It all has to come out. I guarantee you when you retire at age 65 and you see that $350,000 or $400,000 in a Roth you’re going to come back and you’re gonna be like gah, I am so glad I wrote in and listened to Joe and Big Al and Al talked about the tax brackets. But Joe just gave me the common sense to say you know what? I’m going to have a lot of money sitting in a Roth IRA and then a few thousand dollars that you could have saved a few years ago in taxes. You would have spent that money anyway. Now you just paid yourself a nice big fat tax-free nest egg. Go with the Roth.

Al: I don’t necessarily disagree with that because the income’s $300,000. If it were $600,000 I would say just the opposite.

Joe: If you had income like Big Al-

Al: -go for the deduction. And that’s because you’re in the 24%.

Joe: Hopefully that answers your question, Dave. Hey, thanks a lot and thank Andi for producing your favorite podcast. But this podcast would not be anything without me.

Andi: Absolutely true.

Al: Oh great one. Thank you for being here.

Joe: I’m kidding.

34:54 – YMYW Podcast Comments: Chidam Made a Mistake, Sam Has a Suggestion

Joe: Something interesting happened last week Al, while you were while you’re watching golf. We got this complaint.

Al: Oh.

Joe: And then I read it on the air because I like complaints more than compliments it seems like. Well, I think I like ’em both.

Al: Yeah. We don’t get too many complaints so it’s kind of fun.

Joe: Right. And the guy goes this-

Andi: – too slow and annoying.

Joe: Too slow and annoying. Big Al’s mean and-no, he didn’t say that.

Andi: That’s actually not in there.

Joe: The guy writes in. And then he goes “I heard the following comment read out on the show today January 18, Tuesday, I apologize for this. I meant to write this bad review for some other podcast.”

Al: Oh, it wasn’t even us.

Joe: It almost sounds like us trying to make this stuff up.

Al: I wrote that on the golf course.

Joe: “I accidentally wrote it for your podcast. SINCERE apologies. Please read this on your podcast so your audience will also know.” Okay, so that was Chidam. Then Sam writes in too. He’s like “Hey I’ve been listening to your show for a while after finding it through Paul Merriman in his podcast. But I felt as though I must write to come to your defense and offer a possible solution after hearing from Chidam in last week’s episode. I disagree with him on the unnecessary distractions and the repetition. I’ve thoroughly enjoyed the program in content and its presentation. Keep it up.” Regarding the talking too slowly, that would be Big Al. Apparently.

Al: It’s definitely not you.

Joe: He’s getting older.

Al: I’m going as fast as I can.

Andi: Sam didn’t say that, Joe said that.

Joe: He goes “I suggest the following; on my iPhone, you can select the speed from 1 times, 1 1/2 to 2 times on the bottom left on the app to increase the speed at which the podcast is played.

Al: So here’s my suggestion, when I’m talking, speed it up. When Joe is talking, slow it down. That would be perfect.

Joe: “This will help with the pace but may do nothing to improve his opinion on your annoying voice.” I do have an annoying voice, Sam. Thank you very much.

Andi: Have you ever tried to listen to a podcast on 1 1/2 or 2 times speed?

Joe: No.

Andi: When I get done doing that I feel like all jittery. It stresses me out to listen to them that fast.

Joe: Really?

Andi: So I’ll talk really slow so that when you play it back it’ll be normal.

Joe: So yeah when you play it fast it sounds-

Al: -it’s perfect.

Joe: Okay so I just wanted to clear the air there. That’s it for us today, appreciate you hanging out, we’ll see you again next week. The show is called Your Money, Your Wealth®.


If you want to hear Joe nearly die laughing, stick around to the very end of the episode for the Derails.  And now for the disclosure: the Derails contain no relevant or useful financial information.

Your Money, Your Wealth® is presented by Pure Financial Advisors. Click the free assessment button at YourMoneyYourWealth.com and sign up for a free two meeting assessment with a certified financial planner via video web meeting or in person at one of our four offices in Southern California. And now for the real disclosure:

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.

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Your Money, Your Wealth® is presented by Pure Financial Advisors. Sign up for your free financial assessment.

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.