Show Notes

• (00:49) Can We Get a HELOC Instead of a Traditional Mortgage? (Michael) 
• (05:56) What’s Your Opinion of All-in-One Mortgage Loans? (Jim)
• (08:34) Should I Buy a Condo or Invest for Retirement? (Akiko, WA) 
• (14:28) What to Do With Old Whole Life Insurance Policies We No Longer Need? (Bob, Monterey, CA
• (20:34) What Should We Do With an Old Whole Life Insurance Policy? (Margaret, Austin, TX)
• (28:58) Can I Open an ABLE Account for Those With Disabilities? (Kenny, Granite City, IL) 
• (34:15) Does It Matter Where I File for Social Security When Moving to a No Income Tax State? (Ryan)

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Transcription

Today on Your Money, Your Wealth® podcast #343, Joe and Big Al are talking real estate and life insurance. First, what is a home equity line of credit, and is a HELOC a better idea than a traditional mortgage? What are all-in-one mortgage loans? Does it make sense to ditch apartment living for condo ownership, or just keep investing for retirement? Next up, it seems a few of you have some old whole life insurance policies you no longer want or need, so the fellas spitball some ideas on what to do with them. Then, just to mix things up a bit, Big Al explains ABLE accounts for individuals with disabilities, and the fellas talk about whether to take your Social Security before or after moving to a no income tax state. I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

Can We Get a HELOC Instead of a Traditional Mortgage? (Michael)

Joe: Questions? Go to yourmoneyyourwealth.com. Click on Ask Joe and Al on the air. We’ll answer them right here. You can send an email or send a voice message. Michael sent one.

Michael: “Hi, Joe and Al. A great show, really looking forward to your next episode, thank you for everything you do. I have a question about real estate. My wife and I live in a house in the suburbs and before COVID, I commuted into a major metropolitan city. My commute was up to one and a half hours each way, and when COVID is over I’ll have to return to that. And we’re considering investing or buying a second property, like an apartment or a condo in the city, that I would live in 4 to 5 days a week to cut down on the commute. And by the way, we have about $50-100,000 to make a down payment on the property because properties in the city are quite expensive where we live. My question is, I have read that there are HELOC options that can take only 7 to 8 years to pay down a full mortgage versus a 30-year mortgage. Are these HELOC options real, and can I do that, having an existing mortgage on my home in the suburbs? And how would that work or do I have to go with traditional financing? Again, thanks, and look forward to your response.”

Joe: All right. Thank you, Michael. You know, I think a lot of people are going to be doing this and I don’t know if COVID is ever going to be over.

Al: I don’t know either and I think some of us are probably going to work from home forever or at least part-time work.

Joe: Andi, are you ever going to come back?

Andi: Raising my hand over here. I don’t know if I will or not.

Al: I don’t think I’ve seen in person since March of 2020.

Andi: Yeah, I think that’s about it. I think the last time I was in the office might have been in maybe May of 2020.

Al: As far as I know, Andi, you are now a two-dimensional figure.

Andi: Hopefully, one of these days we’ll be able to change that.

Joe: So Michael is in his car quite a bit, an hour and a half. Then Covid hits and then he’s like hanging out at home and enjoys… maybe he’s excited to get back to the office?
It sounds like the office is maybe saying, Hey, come in or your going to have to find another job.

Al: Yeah, it’s time, right?

Joe: And he’s looking, well, maybe I’ll just buy a little place in the city. So he’s got a question on the Heloc, 7-8 years.

Al: Well, first of all, let’s talk about traditional financing versus a Heloc. Traditional financing is you go and you try to qualify for a mortgage. Generally, it’s a 30 year term. Sometimes it’s 15, sometimes it’s 10. You kind of have choices on what you pick and it can be a fixed rate or it can be variable. More often than not people are opting for fixed rate loans right now because interest rates are so low. Heloc is generally a home equity line of credit. That’s where it can be flexible. In other words, you get a $500,000 Heloc home equity line of credit. You can withdraw the whole $500,000. You could withdraw $300,000. You could pay $200,000 back tomorrow if you get a lump sum from somewhere. So it’s very flexible and you can get a Heloc on a property that doesn’t have a first mortgage. There’s nothing wrong with that but here’s the problem. The problem is Helocs are generally variable interest rate, so you’re taking a chance that interest rates may go up. Now, if you get a traditional 30 year loan or a 15 year loan, you can pay it off in 7-8 years. You just have to increase the payments. The reason why it’s a little bit easier, maybe for a Heloc right now to pay it off in that amount of time is interest rates are so low. So variable rates are lower than fixed for obvious reasons, because they could go up later. So I think that the only risk in the Heloc strategy is if you don’t pay it off quickly, you may have much higher interest rates if they go up at some point.

Joe: There is no magical math with some of this stuff. You hear some of the commercials…

Al: Yeah and it sounds great, right?

Joe: Accelerated pay off mortgage You can pay off your mortgage in X amount of years and save all this money and interest. Well, you just have to pay more to the principal upfront.

Al: Which you can do any time, any loan. Well, there are some exceptions on some loans, but that’s unusual.

Joe: Prepayment penalties and things like that.

Al: Some commercial loans for commercial properties have prepayment penalties but most loans that you and I would be able to get, there’s no prepayment penalty. So you pay as much as you want. And sometimes, Joe, what happens is people get a 30 year loan just for flexibility but they go ahead and run an amortization schedule. It’s like, what would I need to pay to get this paid off in 11 years or whatever the timeframe you want and just make that payment. Then if circumstance changes and you don’t have that much income, just go back to the lower 30 year payment any time you want.

Joe: Hopefully, that helps. Good luck, Michael.

What’s Your Opinion of All-in-One Mortgage Loans? (Jim)

Joe: Let’s see what Jim’s got to say.

Jim: “What’s your opinion of all in one mortgage loans in today’s environment where homes sell so quickly. Period.”

Joe: All right. All-In-One mortgages. I don’t know what he’s really talking about in regards to this, but we could take a stab at it.

Al: I think all-in-one mortgages are ones that combine savings accounts, checking accounts and a home equity loan. All in one mortgage, meaning that you can have access to the payments that you make. They go into a savings account, you can actually spend them. You may have additional equity from a home equity loan and I think in some cases, the extra money that’s in your savings account just temporarily pays down the mortgage so you pay less interest.

Joe: So you don’t have a checking account. Your paycheck is directly deposited into…

Al: Into the mortgage and so you temporarily have a lower mortgage.

Joe: And then if I got to pay bills, I’m taking out a home equity line.

Al: Basically you’re adding to your mortgage.

Joe: And you’re taking from your mortgage, so you have this fluctuating balance.

Al: Yeah, you do.

Joe: So the idea is potentially that you can pay your mortgage off quicker but do you think that happens?

Al: No, I don’t.

Joe: I think it’s the opposite.

Al: I think it’s the opposite too and I’ll tell you why. Unless you are very disciplined, you’re basically going to spend your home equity. Which is exactly what happened in the 2000’s, and even yours truly did some of that.

Al: You got it. So, I guess that’s our opinion.

Al: We don’t really like them, Jim. I mean, the concepts okay. It’s just that it makes your home equity so easy to spend. That that’s what we find, people spend it. So then you end up spending it on vacations or you spend it on a nicer car or you spend it on a new television. Stuff that you really shouldn’t be spending money on.

Joe: Sure. I don’t have an opinion on them. I think if you’re super disciplined, they could work out for you.

Al: Well, agreed. I just would say for most people, I would not recommend it.

Joe: You know, there’s other apps that are coming out that if you have spare change where you round to the dollar or things like that, some of that goes into a savings account. I think this was a similar concept to that.

Al: Except with the bigger dollars.

Joe: A lot bigger dollars.

Al: Yeah, I used to have that it drive drove me crazy. Every day $0.44 cents into savings. It’s like after a year I made $8.

Should I Buy a Condo or Invest for Retirement? (Akiko, WA)

Joe: Akiko from Washington. “I would like to know what’s a better strategy to maximize my money. Either buying a condo, $360,000 with the 50% down payment or continue to live in the apartment I live in in Seattle? One bed, one bath, paying $1600 a month and invest in stock bond for retirement. I have $360,000, 90% stock, plus 24% cash, no pension, no 401(k). I save about $300 a month either way. Currently, I have $1350 a month for Social Security. I’m 61 and my income is $45,000. Planning to work until I’m 70 years old. I would appreciate it if you could give me some advice. Thanks so much”.

Joe: First of all, we don’t give advice, but we can chat about this. So he’s contemplating. Paying rent or should I buy a house? That’s kind of the question.

Al: Yeah, that is the question.

Joe: Right now the rent on his one bed, one bath is $1600 a month. Should he take some of the cash he has, get a down payment and purchase a home? So he wants to either buy a condo… Is the condo worth $360,000?

Al: I think that’s what he’s saying.

Joe: With the 50% down payment?

Al: Or is that the down payment?

Joe: Maybe the market value? I would imagine you buy a condo for $400,000 in Seattle.

Al: Yeah, it might be on the cheaper side, but sure.

Joe: Well look at the big wallet on Big Al. (Laughing) Well, it would be in the area I wouldn’t go to.

Al: I’m trying to figure out the payment here. Hold on, you’ve got me sidetracked. Okay, if you put 50% down at a 4% interest rate, it would be $860 a month for principal and interest. So that’s pretty good. I don’t think you’d need to put near that much down. Of course, you got property taxes, maintenance and homeowner’s fees on top of that.

Joe: Let’s say if he has a $360,000 mortgage. His mortgage payment is going to be $1600 a month.

Al: Yeah, that’s right. $1700-$1800 is the mortgage but I think he’s trying to make it comparable because the homeowner’s fee is probably higher and the property taxes and whatever. But you know, I think it’s that age old question do I buy or do I sell? Are these comparable places? Is the place you’re buying as good as the one you’re renting in right now? So there’s some lifestyle questions there. In general, owning real estate on the West Coast has been a pretty good investment over the long term and probably will continue to be. I put Seattle into that category.

Joe: Here’s how I look at this. He’s got $1600 a month going out on rent. Can he buy something that he would be comfortable with that has an equivalent out the door payment?
And so that payment is roughly $350,000. If you find a place for $350,000, your mortgage payment on $350,000 or $360,000 at 4% is roughly $1600 a month. OK, but then of course, you have property taxes, you have maintenance and there’s other expenses that go along with homeownership.

Al: Yeah, and the homeowners fee on a condo can be pretty high.

Joe: However, if you lock in that payment for life at 61. You’re paying rent of $1600, next year that could go up. And the next year that could go up with inflation. We’re seeing rents increase. Big Al’s a landlord, all he does is knock on people’s doors and increases their rent. Right? So you look at, he’s 61. You go out to age 71, 10 years, now that $1600 a month payment might be a lot higher than that.

Al: I think that’s the reason why people end up liking to buy because you have a fixed payment. Maybe taxes go up a little bit and homeowners a little bit, but your mortgage payment… you get a fixed rate loan these days with rates being so low that would be fixed. So over time, your housing expense is going to feel lower and lower with inflation. I think generally I’d like to buy, but I think it’s also lifestyle. If the condo that you want to buy is comparable to what you have that you’re living in, then probably go for it. If it’s not, then you’ve got to make a lifestyle choice. Is it worth it for me to have a lesser place, but kind of lock in the payment?

Joe: So hopefully that helps with the information that we have.

In all this talk about home ownership, mortgages, and home equity lines of credit, one option Joe and Big Al didn’t touch is on the reverse mortgage. Dr. Wade Pfau is an expert on putting your home equity to work in retirement, and he explained the reverse mortgage strategy in detail on YMYW episode 168, way back in 2018. Visit the podcast show notes at YourMoneyYourWealth.com and learn 3 Ways a Reverse Mortgage Can Supercharge Your Retirement. But is what you have saved for retirement enough to get you through retirement? Find out. From retirement income and Social Security to investing, taxes, and healthcare, our free Retirement Readiness Guide offers 7 strategies to ensure you’re prepared for a secure retirement. Both the reverse mortgage episode and the Retirement Readiness Guide are free and waiting for you in the podcast show notes. Just click the link in the description of today’s episode in your podcast app to get there.

What to Do With Old Life Insurance Policies We No Longer Need? (Bob, Monterey, CA)

Joe: Bob from Monterey California, writes in and he goes, “Hey, Joe Al and AndI. I enjoy listening to the show on morning runs. I submitted a question before, but you didn’t select it to answer. So I figured I’d try again. I’m not much for small talk”.

Joe: Bob, love you already brother!

Joe: “But here’s the personal stuff you enjoy. My wife and I are both 55 empty nesters. Do it yourself Vanguardians. Living in Monterey, California, three adult sons all living on their own. Drive a 2016 Mazda MX5 and a 2004 Toyota RAV4. I have an 11 year old golden doodle named Max. Don’t drink much, but enjoy a corona beer when I do have one. Wife is enjoying being at home. I plan to work another 10 years as a federal employee. I’m also a retired army officer with a pension”.

Joe: Well, thank you very much for your service.

Al: Yes, agreed.

Joe: “We’d like a 2nd opinion about what to do with three whole life insurance policies that we no longer need. Meaning if either one of us dies, the death benefit money would just be added to other savings and investments. Our net worth is about $3.5 million dollars. Our home is worth $1 million paid off. A million dollars in a brokerage account, primarily index mutual funds, $800,000 in a Roth IRA and target date index funds. $700,000 in the TSP Target date mutual fund. Here’s the policy information. My wife is beneficiary $5000 whole life policy my parents bought me in 1966. Annual Premium is set for $51 annually. Annual dividend is $178. Death benefit is $10,000 and cash value is $6000”.

Joe: Okay, so that’s one. What would you do that one Al?

Al: I’d cash it in.

Joe: So he’s been putting in $51 dollars a year since 1966. It was $5000. So the death benefit went from $5000 to $10,000. He got an extra $6000 of death benefit.

Al: Yeah, five and a half.

Joe: Five and a half, so I bet it’s cash values isn’t $6000, it’s $5495 is what I’m guessing.

Al: Could be. I’m just going to take his number at face value and say the death benefit of $10,495; $6000 is already your own money if these numbers are right.

Joe: So you’re paying $51 annually for the $5000 of life insurance.

Al: Or $4400. Well, first of all, it’s too small to worry about. And secondly, why do you have the policy? Maybe it made sense way back when, but not anymore.

Joe: “Number two. Mine with wife as beneficiary, a 20 year, 50 year old whole life policy my parents bought me back in 1986. The premiums stopped after 20 years and now the dividend pays for more insurance. Annual dividends this year was $1000. Death benefit is $102,000 and the cash value is $52,000”.

Joe: So I would keep that because he’s got leverage, right? He doesn’t necessarily need it, but he doesn’t have to pay any premiums. There’s no premium dollars going in. $52,000 is already in. So here’s the math of what you have to figure out, and I don’t have time to do the math, but you look at $55,000. He’s 55 years old. If he cashes that $55,000 out and let’s say he lives another 30 years. So then you look at what assumed rate of return do you think he can generate on the $55,000? So maybe he’s conservative and says, maybe it’s 2 or 3% per year, or maybe it’s 7 or 8%. Whatever he feels is appropriate, then you just do that future value calculation. If it’s higher than $100,000, you might want to cash it out. But if it’s around $100,000, you’ve got to look at what your internal rate of return is. So you’re really looking at it as an investment at your death. $50,000 is what the cash value is. So can you take that $50,000 and grow it higher than tax free $100,000 to your heirs at your passing? Then you keep the policy. If you think you can outbeat it, then get rid of it.

Al: Yeah, that’s the right answer. I would cash it out.

Joe: “My wife, with me as beneficiary, $100,000 whole life policy bought in 1996 at the birth of my first son. Annual premiums $850, annual dividend this year was $554. Death benefit is $127,000. Cash value is $33,000”.

Joe: What say you, Al? I can already tell you probably what you’re going to say.

Al: Well again, I would probably cash it out because I don’t necessarily need it but I’m more likely to keep this one. Main reason for me is the cash value is a lot lower than the death benefit. So there’s actually some life insurance value here.

Joe: Yeah, but you’re also paying $850 a year.

Al: You’re paying $850 a year for about $100,000 of life insurance, roughly. Could you do better? Yeah, you could be better. You could get a term policy and probably spend the same. At age 55 spend $1000 and get $1 million or at least half a million, depending upon your health. So you can do better if the goal is life insurance, but this one, at least there’s some life insurance value relative to the cash value. I would still get rid of it personally.

Joe: Bob these are not recommendations. These are thoughts. These are chatting.

Al: It’s just what I would do.

Joe: Hope that helps.

What Should We Do With an Old Whole Life Insurance Policy? (Margaret, Austin, TX)

Joe: Margaret writes in from Austin, Texas. “Hi, Al, Joe and Annie”.

Joe: I love Annie!

Al: Annie, is that your new name?

Andi: That’s the first time I’ve actually been called Annie.

Al: Well, my wife is Annie. Maybe that’s where that came from.

Joe: Sure it is.

Andi: Keep reading.

Joe” Love the show! My husband and I recently decided we want to get out of this whole life policy that his parents set up when he was young. We have $55,000 of gains when we do this. We currently do 100% Roth into our 401(k), which puts us right at the top of the 24% tax bracket. My question is if we should wait until next year to break out of the whole life policy and switch our contributions to pre-tax to create $40,000 of room in that 24% tax bracket? It seems like a good idea, but then I’m having anxiety missing out on $40,000 of Roth contributions”.

Joe: Don’t you get anxiety missing out on Roth?

Al: Well, you do have to sleep at night. So if you’ve got anxiety…

Joe: I mean, Roth is all powering.

Al: Is that way you think about it when your head hits the pillow?

Andi: That explains a lot.

Joe: I just can’t wait to count my Roth sheet, you know?

Al: Your Roth sheet? That’s pretty good. Does that help you go to sleep? Or does it get you all excited? You get all jazzed and you don’t sleep.

Joe: It’s a little bit of both. “Seems like a good idea, but I’m having anxiety missing out on $40,000 of Roth contributions and starting to doubt if having a few thousand extra in our brokerage account due to the less taxes of the earnings is worth it. What do you think? A little bit about us, we’re in our mid-thirties. Both engineers and believe tax brackets will only get higher, probably will be in high tax brackets until retirement, maybe in our early 50s. We work for the same company that allows the after tax contributions, so we’ve been maxing those out and converting those into the Roth. We did an out of plan conversion just to get our Roth IRAs open. We spend roughly $160,000 a year, including two kids and daycare. Have about $2 million saved, with 80% pre-tax, 12% in Roth, 8% in a brokerage account. I drive a 2014 Forester and love Malbec and Riojas. Following up. Andi, I am so sorry I wrote your name wrong in my earlier question. I totally forgot that your…

Andi: I totally thought your name was Annie.

Joe: “Annie after listening to the podcast. Do you know if they can answer my question on that podcast? That’s the only show I can listen to faithfully when I’m driving”.

Joe: Wow, Margaret from Austin.

Al: Yeah, we can answer your question, Margaret.

Joe: Absolutely. Just because you asked nicely.

Al: What is the answer?

Joe: Here’s the answer Margaret. Is that you roll the $40,000 from the whole life. If you want to get rid of it, you could move it into a very low cost variable annuity. Then you could slowly get rid of the $50,000 in the variable annuity each year.

Al: Slowly over time. Take as much out as you want to.

Joe: You know what, now I changed my mind because they’re only 30.

Al: You can only take out 10%, plus there’s a penalty.

Joe: They can take out as much as they want, but there would be a 10% penalty. But if they didn’t have any growth, the 10% penalty is only on the growth.

Al: And if they cash it out, it’s still the 10% penalty plus ordinary income.

Joe: No, no, no. Not on the life insurance policy.

Al: Oh, I’m thinking of, nevermind.

Joe: So $55,000 of gains.

Al: Oh, you were saying roll that into low cost annuity?

Joe: Yes, you can move up the cash value of life insurance into an annuity if you want to get rid of the life insurance. Then you could get rid of the cost of insurance, the money still grows tax deferred. Until you pull the money out at 59 and a half years of age. Then the earnings will come out as ordinary income.

Al: If they cash out the life insurance, the $55,000 of gains is ordinary income but there’s no penalty because it’s life insurance. Is that right?

Joe: Correct.

Al: Okay, so actually, Margaret, I like your idea. That’s exactly what I would do. I would do it next year and I would change the 401(k) contributions to fully deductible. I don’t really like paying tax in the 32% bracket if you can help it. So I agree with that.

Joe: I don’t like it because I would be anxious too.

Al: Because you’d be missing a year? But they’re already doing the garage door, back door, mega Roth. So they’re already getting plenty in the Roth.

Joe: They got $2 million out, 80% of its pre-tax.

Al: I understand.

Joe: And they’re 30.

Al: I’d rather get the money out of the life insurance policy at age 30 and have that grow in a capital gain environment. That’s what I would do. Plus, they don’t need the life insurance anyway.

Joe: They got two kids in daycare! They probably need life insurance of some degree.

Al: Sure but is this the right policy? Probably not.

Joe: So take the $55,000 and put it into another policy. 10/35 exchange it into another policy because you have two kids. Do they have the kids in daycare?

Al: Yeah, two kids in daycare.

Joe: They have $160,000. They both make a ton of money. It’s on the husband, so maybe he needs a little bit more life insurance because he got it when he was a kid. The life insurance is probably worth $70,000 with the cash value of $55,000. I’m guessing, you take the $55,000 you roll that and you buy something else. You’re 30 years old, you’re fully insurable, you’ll probably get preferred rates, and you could buy several hundred thousand dollars as a totally paid up policy. Unless you want the $55,000.

Al: I’d still cash it out. The reason is because I’d rather have the money in a non-qualified account. Then I would get a couple million of term insurance, which is super cheap, in their 30s. That’s what I would do.

Joe: Okay. I would have to shop that.

Al: I agree they need life insurance for sure.

Joe: Unless they have some life insurance and we don’t know.

Andi: That’s why it’s called a spit ball.

Al: You’re idea is decent though, because you can roll it into more appropriate life insurance products.

Joe: So I’m talking taxes. There’s two ways to avoid the taxes on it. You could roll it into another life insurance policy with a lot higher death benefit that’s probably more suited for you. Or you could roll it into a low cost variable annuity that avoids the tax and then you can try to maneuver the money out at a later date. I don’t love the 2nd option.

Al: Yeah, because there’s a penalty to get the money out.

Joe: Keep doing what you’re doing. There’s a penalty to get money out of the annuity. Don’t change the Roth. Keep going with the Roth. Cash out of the life insurance and then just pay whatever % on the life insurance and move on.

Al: I wouldn’t do that, but I get it.

What should you do with old life insurance policies or annuities you were sold? What kind of mortgage is right for you? When should you take Social Security? Does a Roth conversion make sense, given your financial situation? Are you on track for retirement? If you have questions like these and you’re listening to Your Money, Your Wealth® and you haven’t Asked Joe and Big Al On Air yet, what are you waiting for? Your questions are what makes this show. Well, that and the way Joe reads them and how the fellas get completely Derailed talking about your cars and pets and drinks. Click Ask Joe and Al On Air in the podcast show notes at YourMoneyYourWealth.com and send in your questions, comments, suggestions, corrections, or stories to be featured on YMYW. For a free, one-on-one, comprehensive assessment of your entire financial plan from a CERTIFIED FINANCIAL PLANNER™ professional on Joe and Big Al’s team at Pure Financial Advisors, click the get an assessment button in the podcast show notes. There’s no cost and no obligation, so why not sign up? Click the link in the description of today’s episode in your podcast app to go to the show notes and get started.

Can I Open an ABLE Account for Those With Disabilities? (Kenny, Granite City, IL)

Joe: We got Ken from Granite City. Kenny, he’s back! Granite City, we always talk about beer with Granite City, don’t we? Or something like that.

Andi: Keep reading he actually tells you his beer.

Al: Oh, look at that, second sentence.

Joe: “Hello YMYW. Still listening and still loving the show. Thank you”.

Joe: Here’s what happens with the listeners of our show. At first, they’re like, You know what this is… it’s too much.

Al: It’s not very good.

Joe: And then it grows on you.

Al: You give it a 2nd chance.

Joe: You have to. You’ve got to give it a little time to breathe, it’s like a fine wine. Then after a while, some people are like, okay, this is just the same old B.S. This is awful.

Al: And some people they like this, it’s financial humor.

Joe: Kenny from Granite City. He’s still loving the show. Thank you. “A primary piece of business. My beer of choice is Stag.

Al: Stag beer. You ever had stag?

Joe: No. Never heard of it.

Al: Me neither.

Andi: Then he says, grandpa’s beer is my beer.

Al: Looks like it has a deer or an elk?

Andi: A stag. Yes!

Joe: Is that old school? I might have to try that.

Al: It must be.

Andi: Well, he says grandpa’s beer so I assume that it’s old school.

Al: Is that grandpa? That picture with the beer glass twice as big as his head.

Joe: I like a beer glass twice as big as my head.

Andi: Add that to your drinking list, Joe.

Joe: Alright, I will add that, Stag beer. If Grandpa likes it, I like it because I like old school beer. “However, I’ll sometimes have a Coors Light on hand while listening to YMYW”.

Al: He’s got to get in the spirit.

Joe: “A few weeks ago, there was a discussion on ABLE accounts and it was the first time I ever heard of such a thing. I am blind. I have the letter from my optometrist”.

Joe: He’s blind and I can’t read.

Joe: “I have the V2A”. What is that?

Al: That I don’t know.

Joe: “On my state I.D. and I have received SSI in the past. However, I’m currently working and in the 24% tax bracket. Am I eligible to open an ABLE account for myself? What are the rules, details and benefits of an ABLE account”?

Al: Well, let’s talk about ABLE accounts because they’re rather new. 2014 is when they came into existence and what it is… It’s a tax advantage savings account for individuals with disabilities and their families. The beneficiary of the account is is generally the account owner, and the income earned by the accounts will not be taxed. So in other words, you get money in, it grows. You use the money for expenses related to your disability and there’s no taxation on gains. So it’s a little bit like an HSA account, except it’s for disabilities, although you don’t get a tax deduction going in. So there’s a little bit of difference there.

Joe: What would be a related expense to a disability? Isn’t all expenses related to the disability?

Al: Well, because you asked, a qualified expense means an expense related to the designated beneficiary as a result of living a life with disabilities. It could include education, food, housing, transportation, employment, training, support, administrative technology, personal support. It’s pretty much everything.

Joe: Stag beer?

Al: It didn’t say that but it might fall under food. So let’s talk about who can open such an account because there are some restrictions here. The ABLE Act limits eligibility for opening accounts, individuals with disabilities with the age onset of the disability before turning 26 years of age. So in other words, you have to have had this disability when you were 26 or younger. If you got it later in life, you’re not able to open this account. If you meet the age requirement and are also receiving SSI or SSDI (Social Security disability income) you’re automatically eligible to open the account. If you’re not receiving those disability payments, you still may be able to open it as long as you’ve got a letter from your physician. You can put in $15,000 a year and every state has limits as the upper limit to how much you can keep in the account. So I actually looked up Illinois and it’s $450,000 so that would be the total you could put in an account. California, it’s $529,000. It’s usually between a couple hundred thousand and $500,000 based upon the state that you’re in. So anyway, that’s a little bit about the ABLE account.

Joe: Wow. Very good Al. Thank you.

Al: There are actually…

Joe: Oh boy, more??? I thought we were moving on.

Al: I didn’t get any commentary. So they’re great accounts if you have had a disability before age 26, I mean, they’re fantastic. That’s all.

Does It Matter Where I File for Social Security When Moving to a No Income Tax State? (Ryan)

Joe: Let’s see, I’m going to bust through this. “Greetings, I turn 68 at the end of 2021 and have amassed all my Social Security benefits living in California. I plan to wait until age 70 to collect and am considering moving to Washington state. Part to escape state income taxes. I’m seeking advice on how best to make this transition. Does it matter if I file in California, then move to Washington? Or is the best to move to Washington then file? Thank you. Please advise”.

Joe: He’s going to move to a non-tax state. If he moves halfway through, does it matter when he files or what state he lives in when he files?

Al: Is he talking about filing for Social Security benefits or tax returns?

Andi: It says he’s amassed all of his Social Security benefits living in California.

Joe: Right but he knows now that there is no state tax. There’s no California tax when you claim your Social Security benefits in California, so it makes no difference.

Al: Yeah and either way, whether it’s tax or Social Security makes no difference.

Joe: Any other tax tips for this guy, that’s moving to a non-tax state? When he should maybe file his return?

Al: When you move, you’re going to have two returns that year. You’re going to have part year in California, part year in Washington, even though Washington doesn’t have a filing. Unless you move on December 31st, if you happen to move on that date, it’s even simpler.

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