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 [...]

Brian Perry

In addition to overseeing Pure’s investment offering and platform, Brian works closely with Pure’s financial advisors, helping provide them with the tools and resources necessary to serve their clients and continue the firm’s mission of providing the highest quality financial education and planning to as many people as possible. He has been actively involved in [...]


Andi Last brings over 30 years of broadcasting, media, and marketing experience to Pure Financial Advisors. She is the producer of the Your Money, Your Wealth® podcast, radio show, and TV show, and moderator for the firm's digital events. Prior to joining Pure, Andi was Media Operations Manager for a San Diego-based financial services firm [...]

Published On
September 17, 2019

This week’s questions all revolve around what to do with your money – and everyone’s circumstances are different. What to do with a 401(k) after you retire and don’t really need the money just yet? What to do with cash in savings? Is the Papa Bear portfolio a good one? How best to save for retirement when you’re a sole proprietor AND a teacher? How to handle the basis in an s-corporation you’re closing down?

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Show Notes

  • (00:48) What Should I Do With My 401(k)? I’m Retired and Don’t Need the Money
  • (08:14) What to Do with $200K in Savings?
  • (14:45) I’m 72, Retired and Have $400K. What’s the Best Portfolio Mix for Me?
  • (19:45) What Do You Think of the Papa Bear Portfolio?
  • (28:22) How Do I Handle $322K Basis in S-Corp I’m Closing Down?
  • (34:16) I’m a Sole Proprietor AND a Teacher – How Best to Save for Retirement?
  • (39:00) Investment Policy Statement Resources

Resources mentioned in this episode:

YMYW TV: What Is Your Magic Number for Retirement? 

YMYW podcast #181 with Meb Faber

YMYW podcast #153 with Chris Mamula

Investment Policy Statement Resources from Morningstar: (hat tip to listener William in Chicago for the links!)

How to Create an Investment Policy Statement

Making your Investment Policy Statement

Investment Policy Statement Worksheet (PDF)

Retirement Policy Statement Template


Today on Your Money, Your Wealth®, Joe Anderson, CFP®, Big Al Clopine, CPA, and Brian Perry, CFP®, CFA continue making their way through the email inbox, answering your money questions, many of which focus on what you should do with your money. What do you do with a 401(k) after you retire and don’t really need the money just yet? What do you do with $200K or $400K cash in savings account? Is the Papa Bear portfolio a good one? How do you handle the basis in an s-corporation you’re closing down? How should you save for retirement when you’re a sole proprietor AND a teacher? I’m producer Andi Last, and now’s your chance to send us your questions: go to YourMoneyYourWealth.com, scroll down and click Ask Joe and Al On Air. Now, on with the emails with  Joe Anderson, CFP® and Big Al Clopine, CPA.

:48 – What Should I Do With My 401(k)? I’m Retired and Don’t Need the Money

Joe: Let’s go to Deb from San Diego.

Al: OK.

Joe: Hi there.

Al: That’s nice.

Joe: See I liked it. You do a little-

Al: You’ve got some enthusiasm.

Joe: Yes it’s called role play and role playing out Deb.

Al: You’re pretending you’re Deb right now. Hi there.

Joe: I am. Hi there. I am one of those that have the $250,000 in the 401(k). I retired a couple of, what are one of those?

Al: One of those? Yeah.

Joe: Hey, I’m one of those.

Al: I’m feelin’ good. I’m gonna be Deb now. I’m feelin’ pretty good about that now.

Joe: I don’t know. I’m one of those? Is that good those? Or bad those? I think it’s really good.

Al: It’s great. Plus she’s got a pension too.

Joe: So $250,000 in the 401(k). “I retired a couple years ago with the pension. Yep. One of those lucky ones.” Oh I like how Debbie, she’s making it fun. “And I’ll collect Social Security.”

Al: She’s got money coming in from all kinds of sources.

Joe: Like Big Al. Call her Big Deb. “Before retiring, I shuffled everything in the 401(k) to the old folks conservative level. I’ve not even looked at it. The company was downsizing when I retired, so gave those leaving a little pail of money, which I put in the bank. With the pension, Social Security, I own everything, house, six cars, and a motorcycle. Have no debt at all. And pretty much spending my time driving one or another vehicle on the property. Three acres, planting and landscaping and luckily have no health problems. The little pail of money has tripled since I retired. I’m now 69 years old. Should I do something with the 401(k) that I’ve just left with the company? I’m not paying for any advice from the financial engines but really don’t see using it for some time. Deb’ Well let’s talk about, well, first of all, congratulations Deb. And I would like to see this 3 acres that you’re driving 6 cars and a motorcycle on.

Al: She’s got to have a lot of roads on it.

Joe: She wakes up, she picks her car, she gets in it, she drives around.

Al: I’m going to the end of my property.

Andi: She jumps on the motorcycle (vroom) all the way around.

Joe: And she has a little lunch. She comes back. She does it once more. So there’s little pail of money she’s got in the 401(k). Should keep it in the plan? Well, she’s 69 years old. She’s going to have to take required minimum distributions in a few years. It could be 70 and a half. It could be 72 depending on the SECURE Act.

Al: Correct it’s 70 and a half, currently.

Joe: Currently. And so a year and a half or so. She’s not needing the money because it looks like Social Security and pensions are paying her pretty good.

Al: Yeah she’s got no debt. She did everything right.

Joe: Deb to be honest with you. I would roll it into an IRA.

Al: And why do you say that?

Joe: Well a couple of things. If I’m taking a required distribution from an IRA, and let’s say my IRA is at Fidelity, and I need to take out $10,000. But it sounds like she’s not going to spend the $10,000. I could just transfer $10,000 of XYZ stock or mutual fund into a brokerage account.

Al: You don’t even have to sell it.

Joe: I don’t have to sell it. If markets are volatile I sell them. I sell shares and I just transfer those shares into a brokerage account where if it’s a 401(k)s then I go to the employer and say send me a check for $10,000 and it might require distributions-

Al: it’s all invested then that’s somethings have to be sold-

Joe: then it’s gonna come to me in cash and then what do I do with that? Do I reinvest it? Or does it sit in cash? Most people that if they’ve never had a brokerage account before it’s just going to sit in cash. It’s not probably going to do what it should be doing. If you’re not spending it. Another reason I guess you get that you’ve got your go-tos. You’ve got the full universe of investments.

Al: If I said that you would have said ‘oh, of course, you’re gonna say that Clopine’.

Joe: That’s the go-to.

Al: So explain yourself.

Joe: Well 401(k) plan you might have 20 options. In an IRA you have 20,000.

Andi: Why is that so funny?

Al: Because every time I give an obvious answer-

Joe: It’s just so obvious, it’s just oh my God can you think of something better?

Al: But that’s a good one. I’ll even support you. Most 401(k)s have a limited amount of investments. In an IRA you can invest in anything you want to.

Joe: But sometimes limited is better.

Al: I agree with that. It can be more confusing.

Andi: Okay layperson question here. Does that having that full universe help you with tax-loss harvesting?

Joe:  No. Because that’s in an IRA.

Andi: Gotcha.

Al: No, but it just gives you more options and what we recommend is globally diversified portfolios and low-cost index-type funds and you have the full universe of those funds available in an IRA. You may or may not in your 401(k).

Joe: Downside of moving it into an IRA, I don’t know. If Deb gets sued. She hurt someone on her property on a motorcycle, she’s given some dude a ride, he falls off, gets a concussion, he sues her.

Al: In California, you get the first $1,300,000, give or take, protected, even an IRA and unlimited from a 401(k). Now we’re not attorneys. So don’t take that to the bank.

Joe: But there could be ERISA protection. More ERISA protection 401(k) plans versus IRAs.

Al: That could be another reason.

Joe: Let’s see. She’s over 59 and a half. So it doesn’t matter. 55. She’s not working. So another2 reasons to keep it in the plan is that if you’re 55 and separated from service you could take the money out of a 401(k) plan and avoid the 10% penalty. Or if you’re over 70 and a half and still contributing to the 401(k) plan you do not have to take a required distribution. None of those apply to her.

Al: Yeah. You’ve gotta still be working and contributing.

Joe: So the ERISA thing it could be a factor, may not. I don’t know she’s just kind of cruising around.

Al: I would do it. I just make it simpler just because it’s you control it yourself.

Joe: You’ve got an IRA. Maybe if she wants to do conversions get some money into a Roth IRA so then I can have a brokerage account. I have my IRA and then I have a Roth IRA. It’s all at the same custodian I get one statement. It’s clean and simple it’s easy. My financial plan if I were to pass away. It’s from the IRA 401(k) plan. Sometimes they don’t stretch even though the stretch IRA might be gone anyway. There’s a lot of reasons to keep it in and a lot of reasons to keep it out. But I think we’re in agreement probably just to roll it into an IRA.

Al: Yeah that’s what I’d do.

Joe: Deb, have fun with your cars. And your little pail of money, hopefully, that helps.

Al: And driving on your property. That’s got to be a great property. She spends all day driving-

Joe: What do you think, Jamul?

Al: Could be.

Joe: Jamul, or-

Al: Maybe Alpine.

Andi: Lakeside.

Joe: Lakeside or Alpine.

Al: Yeah. Three acres. So that’s, you need 6 cars and a motorcycle to drive that.

Andi: Ramona.

Joe: Yeah maybe Ramona.

Al: Yeah. Could be.

Joe: She’s not living in Del Mar with 3 acres.

Al: Probably not. Maybe Rancho Santa Fe but might need more than-

Joe: Three acres I mean I don’t even think that’s possible.

8:14 – What to Do with $200K in Savings?

Joe: We got Bob from New York City. He’s writing in.

Al: Now this one I’ll probably have to help you translate, but you start reading it.

Joe: Alright, I got this: “Hi Joe and Alin. I’m in my early 60-tees, steel full time working. my wife, part time working and collecting SS benefits. We don’t have any debt except monthly expenses. Combine income about $110,000. I’m planing to retire at edge 67. Can you guys advice me where to “parked” my $200,000 savings that is in savings account in bank, that is going to generate most income with minimum risk. Taking in consideration my modest life style, I’m not planing to use that money probably in 10+ years. Royal follower on YouTube, Bob. Thank you”

Al: That means loyal.

Joe: I like a royal. We run with royalty.

Al: I’d rather have royal followers than loyal.

Joe: I love Bob. Robert from New York City. So he’s got a couple hundy, he said. He’s got a combined income of $110,000. He’s retiring at 67 and he’s in his early 60s.

Al: Tees.

Joe: So let’s say he’s 62. He’s retiring at 67. He’s got 5 years. But he said he doesn’t need that money for another 10 years.

Al: I know.

Joe: So he’s fairly conservative.

Al: You could sort of answer this question a couple ways. One way is if you’re really concerned about safety you put the money in a one year CD or something like that. You probably earn about 2%, 2.25%, something like that. Your money is locked up and you can’t lose any principle. But that may not be the best answer, Joe-

Joe: Bob wants more money than I think.

Al: Because he’s not going to touch it for 10 years.

Joe: You know I would go into something very simple. You’ve got $200,000. I would go. Maybe. You know I would. I’m going to regret saying this. But maybe he does something like a target date fund.

Al: That is surprising that you would say that.

Andi: I’ve never heard Joe say somebody should do that.

Joe: I mean to save, let it sit for 10 years.

Al: So pretend like he needs it in 10 years, so you get a target date fund that’s assuming you’re going to retire-

Joe: I’m thinkin’ like a 60/40 split, like a balanced fund. Almost.

Al: But that may be more risk than he wants to take. Maybe flip it around to 40% equities, 60% safety.

Joe: Something like that. Because I don’t think cash is the answer if you’re not going to touch the money for 10 years. I don’t think a 100% equity. I mean you could to a U.S. stock market index fund and that’s not the answer either.

Al: Well I was basically going to say a CD until the last sentence which is I don’t need the money for 10 years.

Andi: That he’s a royal follower on YouTube?

Al: Well the sentence before that.

Joe: So he doesn’t need the money for 10 years. 10 plus years.

Al: That sort of changes everything. Because if you need it in a year then get your one year CD. And then you’re done.

Joe: So he’s in his 60s. He’s going to retire at 67. He’s making really good money. He’s got a combined income of $110,000. I’m not sure how much he’s saving though. So I would be fairly conservative with the $200,000. And then is he saving money into the 401(k) plan? What rate of return does he need? I mean there’s so much more information that we need know, Bob.

Al: And then the problem with the CD Joe, is you generally will not keep up with inflation and so that’s one of the few things you can guarantee. You’re going to lose money. Lose purchasing power in the CD. So I would agree it’d be better to have some kind of diversified portfolio. That’s pretty safe. A little bit in equity to keep ahead of inflation, maybe 20%, 30%, 40% equities, the rest in safe short term bonds, maybe that might be a way to go.

Joe: I like that. Bob, if you’re watching our YouTube channel that we’ve got 4,500,000 what is it, views?

Andi: I don’t know. I haven’t looked lately.

Joe: I think I’ve watched 3.9 of them.

Andi: Most of it is you and Ruthie.

Al: Your mom has watched.

Joe: My mom. Yeah, she’s got carpal tunnel from clicking on our YouTube channel.

Al: At least half.

Andi:  Mashing “like” on every single video.

Al: Now, I can’t get my mom to watch.

Joe: We have videos. I’m talking to Bob here. We have videos Bob, that you can watch. It kind of shows you how to calculate your number. How much money are you spending now? What is your fixed income source when you decide to retire? What’s the shortfall? And then that tells you, are you on track? How much money do you need? I would start going through those types of exercises. And if you have the amount of assets that you need to provide yourself with a retirement lifestyle then that’s where you start going into how should you invest it. So if you’re short, you probably have to work a little bit longer. You might have to take on a little bit more risk in the portfolio, try to get a little bit higher expected rate of return over the next 10 years. If you’re right on track then why take the risk then you can go somewhat conservative. So there’s gonna be some variables. I wish I could help them out more but I just don’t have enough info.

Andi: 14,500,000 minutes watched. 3,000,000 views and 10,700 subscribers.

Al: And we thank you, each and every one of ya.

Andi: Absolutely.

Joe: Now I don’t know if that’s a lot or a little, but it’s something.

Andi: For personal finance, I’d say it’s pretty good.

YMYW TV: What Is Your Magic Number for Retirement?

Thank you, Bob, for being one of those 10,700 subscribers to our YouTube channel. I’ve linked to some of the relevant videos that Joe just mentioned in the show notes for today’s episode at YourMoneyYourWealth.com. Easy to get there, just click the link in the description of this episode in your podcast app, it’ll take you right to the show notes. You’ll see all the relevant links, including the link to subscribe to us on YouTube, for those that haven’t already, as well as the transcript of this episode, you can download free financial resources like Big Al’s Quick Retirement Calculator Guide and the Retirement Lifestyles Guide – Deb’s retirement lifestyle, zooming around her acreage, isn’t in the lifestyles guide, but it sounds like it should be!  We’ve got another “what should I do with my money” question, this one is from Vern in the 2019 YMYW podcast survey, and we’re joined by Pure Financial Advisors’ Executive Vice President and Director of Research, Brian Perry, CFP®, CFA to help answer it.

14:45 – I’m 72, Retired and Have $400K. What’s the Best Portfolio Mix for Me?

Andi: Next one, podcast survey question, comes from Vern. “What is the best mix portfolio for someone 72 and retired with $400,000 plus, to mix?” And Vern would also like advice for living on a limited portfolio in retirement. Now I already know you’re going to say we don’t have enough information.

Al: We don’t. So Brian, what else do we need here?

Brian: Well how much income he needs on an annual basis from that portfolio would probably the most important piece of information. You could back into that with things like what are his expenses? What kind of fixed income does he have coming in? But ultimately it’s how much does he need to draw on that portfolio each year? We could work off the assumption he has normal life expectancy, so we’d probably assume mid-90s. I mean just as a starting point.  But how much money does he need each year? And then we could reverse engineer it to figure out what how it should be invested in order to generate that income.

Al: And I think here’s how you kind of think about it. And I guess if you go to my, what’s that called? The calculator?

Andi: Big Al’s quick retirement calculator guide.

Al: It will answer this question. But I’m going to give you a little preview.

Andi: And that’s in the white paper section of the website, at YourMoneyYourWealth.com.

Al: Perfect. So at any rate here’s how to think about it. Take a look at first of all what you want to spend or what you are spending. In this case Vern you’re 72 and I don’t know if you retired or not, you may be but-

Andi: Yeah he says he’s retired.

Al: Oh he does?

Andi: 72 and retired.

Al: Oh he does.

Andi: It’s a short question Al.

Al: It’s been so long since you read it. Anyway so retired and 72. So the first question is how much are you spending or how much do you want to spend in your retirement per year? And then you subtract out your fixed income. So that could be Social Security, could be pensions, it could be rental income from rental properties. And let’s say you want to spend, just real simple example, you want to spend $100,000 and you get $60,000 in fixed income. So you need $40,000 from your investments. And then you take a look at your investments. So in this case if you want to spend $40,000, the safe distribution rate’s 4%. So you divide that into 4% or take $40,000 multiply it by 25. You get the same number. So you need about a $1,000,000. And if you need about a $1,000,000, then we could tell you what your portfolio should be. In this case what we know is Vern, you have $400,000 to work with. We don’t know how much that you need and that’s what you said right off the bat, Brian. We need to know how much that you need. If you need $40,000 a year on $400,000, we would say that’s probably not sustainable unless you have a shortened life expectancy. So we would probably say maybe more realistically on $400,000, then maybe that’s $16,000 something like that you could generate on a year in/year out basis.

Brian: And being in his early 70s maybe you could push that to 5%. It cuts it a little bit closer where if we get in a bad market maybe he runs out of money. But $15,000 to $20,000 a year is probably what that could generate. And if that’s the case I think the one thing he needs to keep in mind is some of that money is for age 72, 73, 74, and some as for 83, 84, and so I think a lot of times the temptation is to go one of two directions where you get too conservative with the money and forget that you’ve got a longer time horizon for some of the dollars. And then the flip side is some people if they feel like they may be haven’t quite saved enough for retirement they get overly aggressive and figure that they need to double their money to make it through retirement. And the truth lies somewhere in the middle of course.

Al: So let’s just say he needs $15,000 to $20,000. What would you tell him, what should the investments be?

Brian: Again assuming he’s got a normal life expectancy, probably some sort of balanced mix. Off the cuff without knowing him and his risk tolerance I would say somewhere in the vicinity of 50% safe assets like high quality bonds and cash and then 50% growth assets like stocks, natural resources and the like, plus or minus 10% on either those depending on his risk tolerance probably makes sense and that gives him a nice balance. Figure if he’s 50/50 he’s got $200,000 in bonds and that’s 10 years of spending. So if the market stock market falls he’s got 10 years he could draw the bond money down before he’s got to worry about the stocks. And then at the same time he’s got a couple hundred thousand dollars in stocks growing and hopefully keeping pace with inflation for the future.

Al: How about the old rule of 100 minus your age? That’s how much you should have in stock. So if that’s the case 28% in stocks.

Brian: I’ve never been a big fan of that because for a couple of reasons. One is I think they came up with that rule when the average person probably lived till about 70. And the other thing is everybody’s situation is different. And so I think that that’s based on a lot of factors including the fact that when the rule was calculated in addition a shorter life expectancy interest rates were at 5%, 6%, 7%. This would be a different situation if he could invest $200,000, $300,000 in bonds and clip 6% coupons. But those days aren’t here at this point and so if his bonds are only getting 2% or 3% he needs to get some returns from stocks. I don’t know his particular risk tolerance but investing only 20% or 30% of his money in stocks might leave him running out of money or at least losing pace to inflation later on in life.

Al: Yeah. Agreed.

19:45 – What Do You Think of the Papa Bear Portfolio?

Joe: All right. Wes from the unincorporated-

Andi: Gwinnett County.

Joe: Gwinnett County, Georgia.

Andi: Come on. You lived in Atlanta. You don’t know Gwinnett County?

Joe: I do not know Gwinnett County.

Andi: Well, Wes is gonna tell you. Read on.

Al: And it’s addressed “Dear Andi.” So she can answer this question.

Joe: All right. “I love the podcast. Ever since I stumbled across it a little over a year ago. I enjoy listening to the show while exercising.” Hopefully you’re exercising right now Wes and start pumping some- I was going to say something. I’m fine. I’m relaxed.

Al: Wow. Calm down.

Joe: “That way both my mind and body get a workout. Please ask the boys who you so-“

Andi: “adeptly corral into an entertaining podcast.”

Joe: Thank you. Adeptly. No wonder why he wrote it to you, Andi, because I don’t know how to read. “I’ve always been a buy and holder. However, lately I’ve been intrigued by the siren song of mechanical investing. I know Paul Merriman uses mechanical investing for a portion of his overall portfolio. What are your thoughts on the Papa Bear Portfolio?”

Al: I got it right here.

Joe: “Muscular Portfolios, Ben Bella Books 2018. The strategy is a clone of a 2013 white paper by Meb Faber.” We’ve had Meb on the show. I didn’t know his real name was-

Andi: Mebane.

Joe: Mebane. “Wes from unincorporated Gwinnett County Georgia. Note the County is named after Button Gwinett.”

Andi: Gwinnett.

Joe: Gwinnett. Signer of the Declaration of Independence. “Little is known about Button. No painting of him exists because he was killed in a duel.”

Andi:  PS.

Joe: Oh, “PS. If a podcast is uploaded to the Internet but no one listens to it does it make a sound? I hope YMYW never has to find out.“

Andi: I love Wes. Great question. And it’s got stories, it’s got everything you want, Joe.

Joe: Thank you Wes. Papa Bear Portfolio.

Al: So let me explain what that is and then you can say whether you like it or not.

Joe: All right. I liked Meb Faber so I’m going to probably say, yes I do like it.

Al: So the Papa Bear is designed to number 1, keep losses small during bear markets. Number 2, underperform the S&P 500 with less volatility during bull markets. And 3, wind up with superior performance over each complete bear/bull market cycle. So it is a bit of a market timing strategy and here’s how it works. So there’s 13 different asset classes from stocks, in different kinds of stocks, large companies, small companies, international emerging markets. There is real estate, there’s bonds, there’s gold, corporate bonds, government bonds, commodities, so all these are ranked. And so here’s what you do. You pick a consistent day each month. Let’s say the 15th of each month and that’s when you look at your portfolio. Actually that’s when you look at these 13 different categories and you rank them by an average of their 3, 6 and 12 month gain. OK. And you take the top 3 and you make sure that all of your assets are in that portfolio.

Joe: So just those 3 asset classes?

Andi: So once a month you’re actually-?

Al: Just those 3.

Andi: Once a month you’re moving things around.

Al: Correct. So in this example and this says it was updated as of September 12th. I guess this is an interactive web page that I just downloaded. But the 3 winners were U.S. Treasury bonds, 30 year gold, and U.S. high quality corporate bonds. Which had 19.8%, 17.3% and 13.7%. So he says invest a third, a third, a third. It’s basically a momentum strategy is what it is. And so the idea there is things that go up tend to go up for a little bit while longer. Joe: For a short period of time.

Al: For a short period of time. So anyway that’s the idea. And then the idea is that whatever is doing best in the last 3 month, 6 month, 12 month average. And I guess you just average those numbers all together and you get the 3 best and that’s what you put your portfolio into. Now one problem right off the bat is you would create a lot of short term gains, which it’s not tax efficient at all.

Joe: Bunch of trading costs.

Al: And a bunch of trading costs.  So if you’d like this strategy it would work better in an IRA or a Roth where you don’t have current taxation. But what do you think of the strategy?

Joe: Interesting. Very interesting. I’m surprised that Treasuries gold or no long term bonds gold and commodities, what were the top 3?

Al: Treasury bonds, gold and high quality corporate bonds. The last 3 months they’ve just gone through the roof.

Joe: Why is that do you think?

Al: Because interest rates went down a little bit.

Joe: A flight to quality and-

Al: Correct. And nervousness in the market and all that.

Joe: Take your chips off the table.

Al: Yep.

Joe: So I didn’t know it would be those 3.

Al: It doesn’t matter which 3.

Andi: You’re here now.

Joe: You hear some people you know we’re already in the recession. So you might well might as well, you don’t get defensive.

Al: So that way you’re always just picking the 3 best and going for a little momentum and next month you recalibrate.

Joe: I think it’s interesting.

Al: It’d be interesting to back test this and see how it really works. Because I don’t-

Joe: I’m sure Meb has back tested it somewhere but then you can data mine it. You know what I mean? There’s so many different manipulative ways to show that it’s going to outperform because you can pick certain dates.

Al: You can certainly show that it actually worked.

Joe: So Wes, I don’t know why don’t you try it? Why don’t you be our guinea pig?

Al: And then in a couple of years tell us how it went.

Joe: Let’s start this thing. Because I don’t think I would ever do that. I think it’s interesting and I respect Meb Faber.

Al: So I guess I’m going to agree with what you just said. I don’t think I would do it. I think it’s better to have a globally diversified portfolio, long term, rebalance, tax less harvest and stay invested.  That’s what I think is a more prudent way to go. And that’s based upon all kinds of academic research over the last 50 to 70 years.

Joe: Yeah, but in the last 10 years it’s not been great Al.

Al: Well the last 5 years in particular has not-

Joe: I bet the Papa Bears kicked your portfolio’s ass.

Al: Probably, yeah. But I think you have to have a longer time horizon than five years. However, it’s an interesting idea because there is some truth to momentum things that go-

Joe: Momentum is an academic study.

Al: Things that go up tend to go up for a little bit longer. It’s a super interesting idea.

Joe: I think you should try it and then let’s do it from now and then just check in with us.

Al: Reconvene. From time to time.

Joe: Just give us your results once a month and then we’ll see how it goes. Maybe just do a small portion of your portfolio.

Andi: Thank you. That’s what I was going to ask.

Joe: Keep a small portion of your portfolio in a globally diversified, and just gamble everything else on the Papa Bear.

Andi: He’s kidding.

Al: Do it the other way.

Check today’s podcast show notes at YourMoneyYourWealth.com to listen to Joe and Big Al’s interview with the one and only Meb Faber, and definitely make sure you’re subscribed to the YMYW podcast so you don’t miss next week’s episode: at FinCon, I was lucky enough to catch up with previous YMYW guest Chris Mamula from CanIRetireYet.com, along with Brad Barrett and Jonathan Mendonsa of the wildly popular ChooseFI podcast. They told me all about their upcoming book, ChooseFI: Your Blueprint for Financial Independence. If you missed Chris’ inspiring story of retiring at the age of 41 when he told it on YMYW, check that out in preparation for next week’s show. Click the link in the description of today’s episode in your podcast app and you’ll see everything you need right there in the show notes, right before the episode transcript.

28:22 – How Do I Handle $322K Basis in S-Corp I’m Closing Down?

Joe: OK we got Mike. No location given. Mike we got rules here at Your Money, Your Wealth®

Al: We need to know where you’re from.

Joe: We must know where you’re from.

Al: And if you don’t tell us we’re gonna make it up.

Joe: Yeah because we like to go oh have you ever been there. And then everyone goes no, never been. And they’ll be like where’s that again?

Andi: Where’s Connecticut?

Joe: Where’s Connecticut?

Al: We’ll have to look it up on a map.

Joe: Andi, look it up for me. But this one’s for Al. So Mike, who cares?

Al: You’re gonna give him a pass.

Joe: “I have $322,000 of some basis in my S Corp. It’s closing it down soon. How do I handle this?”

Al: Mike that’s a great question. So let me explain what that means I guess in the first place. When you set up an S corporation, that’s a special kind of corporation that the income and losses actually flow through to the individual owner or owners if there’s more than one. And so when you set up that corporation you typically put some money in the corporation in exchange for common stock. So you put $5,000 in and you get some common stock so you own the company or $10,000 or whatever the number is. So that’s one way to get basis. Another way to get basis is maybe first year the company runs out of money. You got to loan some money to the company. So you write them a loan. So that would be another way to get basis. And then another one might just simply be there’s profits that haven’t been paid out. I’m going to assume the way this is written if you’re closing down the company I’m gonna make the assumption that there’s no assets. Because I think what he’s asking about is, well actually let me backtrack one second. If there are assets, then you just pay them back and there’s no tax consequence because you have tax basis. There’s no harm, no foul. In the case where you have tax basis in the company but the assets are depleted because the company was not successful which happens 4 out of 5 times.

Joe: Wouldn’t that be a loss?

Al: Within a short period of time. There’s two potential kinds of losses. If it’s stock it’s generally considered to be a capital loss with one exception, and that’s Section 1244 stock. How about that?

Joe: 1244 stock?

Al: 1244 stock allows you to write off up to $50,000 of your stock loss or $100,000 if you’re married as ordinary deduction. So not a capital loss deduction which is only good against capital income, but as an ordinary loss. So if it’s stock basis then you could write off, if you’re married up to $100,000, $50,000 if you’re not. The rest by the way, would be a capital loss and you can only use that against capital gains.

Joe: So what’s a 1244? I mean that’s how they issue- so any company could have 1244 stock? It’s just how it’s issued or how the owner established the S Corp to begin with? And how it was issued?

Al: I’m glad you asked. To qualify as Section 1244 stock, the company’s equity may not exceed $1,000,000 at the time where the stock was issued which is generally true in most small businesses.  The stock must be issued for money or property, not stock and securities. And number 3, for 5 years preceding the loss, the corporation must have generally derived more than half of their gross receipts from business operations, not passive loss from stock portfolio or real estate portfolio. So if all those 3 things are true you can take the Section 1244 loss. It’s a one-time thing. That’s if it’s stock basis. If it’s debt, in other words, you loan money to the company then it’s simply going to be a bad debt from the company and it would be either business bad debt or non-business bad debt. If it’s business bad debt it’s an ordinary deduction. If it’s non-business bad debt it’s a capital loss. So you’re always trying to make it business bad debt. And typically if it’s a small business and you’re the main maybe you’re the only employee and you’re the one doing all the work you could say well I loaned this money to the company so I could pay myself a salary and in that case it could qualify as business bad debt. That’s a little tricky though because the IRS doesn’t really like that categorization because it’s you get a big ordinary loss deduction. But that’s what I would look at is can you call this business bad debt versus non-business bad debt? So that’s your answer.

Joe: So assuming that he says it’s closing it down soon the assumption is that his basis is $322,000, but the business is worth less than that because he’s shutting it down. No one’s gonna buy it for more than that.

Al: Yeah that’s what I’m guessing.

Joe: The assumption that we’re making is that it’s worth less, it’s worth nothing.

Al: It’s worth nothing. I’ll say it another way. If the company has $50,000 in its checking account and that’s all it has, then pay the $50,000 dollars back to yourself. Now your basis is $50,000 less. And the remaining deduction of around $272,000 is your loss. And then it’s a stock loss or a bad debt loss depending upon if it was issued for stock or for debt in the company.

Joe: But if he’s got $1,000,000 sitting in cash. So how would that work?

Al: That’s a good question. So in that particular case then the first $322,000 is tax free and the rest is capital gain. Great question.

Joe: Hopefully that answers your question Mike from who cares where the hell you live.

Al: Wow. You’re gettin kind of rude at the end of the show.

Andi: Yeah.

Joe: That’s what you wrote Andi.

Andi: No, I said no location given Joe.

Joe: Oh, sorry.

Andi: You were supposed to make something interesting up.

Joe: Oh. I just did.

Andi: Not jerky.

Joe: Beef jerky.

34:16 – I’m a Sole Proprietor AND a Teacher – How Best to Save for Retirement?

Andi: Next one up is from Christy in Seattle. She says hello Andi, Joe and Big Al. This time I got first billing.

Al: You did.

Andi: How about that?

Al: I’m last on this one.

Andi: And Brian’s not anywhere in there. You kindly answered my question about Roth solo 401(k)s and gave me props for my solo 401(k) knowledge awhile back. Thanks for that. A follow up. I have a solo traditional 401(k) and a solo Roth 401(k) for my sole proprietor business. I also have a 403(b) with a teaching position. I’ll be able to contribute the maximum employee contribution of $19,000 this year which I gather is the limit between those two types of plans. My questions: if I contributed most of the $19,000 in employee contributions to the 403(b), could I add more to the solo 401(k) as an employer? Should I stop there? Do you want to keep going?

Al: We can stop there. Let’s talk about the 401(k) versus the 403(b). The 401(k) is typically a retirement plan for a private company business or maybe your own business. And in this case it’s Christy’s own business. Hence the word solo 401(k). So it’s $19,000 unless you’re 50 and older than its $25,000, there’s an extra $6,000 but $19,000 is the amount. Unfortunately though the 403(b) which is a similar kind of tight plan for a governmental or maybe a school. It’s aligned with the 401(k) so if you put $19,000 into your 403(b), you cannot put $19,000 into 401(k). Those two get added together. But what you can do Christy is you can setup a- let’s say you’ve maxed out your 403(b) already at work. You can set up a SEP IRA, a simplified employer pension plan, which has the same computation as the employer portion of a 401(k) or a solo 401(k) and you it’s a simpler plan. That’s why I’m suggesting to set that up and you can do that after the fact. You can actually fund that all the way to the filing date of your return which would either be April 15th or if you get an extension it’s all the way to October 15th. So that would probably be the way to go there. Do a SEP IRA for the business.

Andi: She says can you make a larger employer contribution to the 401(k) than the employee contribution or does the employer contribution have to match contributions you make as an employee. Also I can only contribute up as the employer up to 25% of earnings. Does that include the deduction of the employee contribution or not?

Al: Okay so let’s stop there. Actually this might N/A because I just told you you can’t do it. But just for your own purposes. Yeah. The match. It doesn’t have to be a match, it can be a profit sharing component. So it could be quite a bit more. The way that those are computed is when it’s a corporation it’s 25% of your salary. When it’s a sole proprietorship it’s 20% of your net profit. That’s how they figure out how much to do. So, $100,000 of profit you can put about $20,000 into the SEP IRA. It’s not quite that simple. There’s some other limitations.

Andi: Of course there are.

Al: That comes out to about $18,500 to be honest but I won’t really get into why but just realize. And if you’ve only contributed $3,000 for your own account. That doesn’t matter.

Andi: Now she also says it’s her understanding that employer contributions have to go into the traditional not the Roth. Is that right?

Al: That is correct. When you have 401(k) that has a Roth component so you can do either. So if you as an employee want to put it into the Roth which is fine you don’t get a tax deduction but it grows tax free. The employer has to do it in the traditional because the tax is pre-tax. They’re getting a tax deduction.

Brian: You know I would throw in one more consideration for Christy is that she mentions the 403(b) plan. A lot of times those are loaded those plans with high commission, kind of lousy products. And so she might want to take a look at what options are available on a 403(b) and that could be a deciding factor too on where she contributes or whether it’s to a solo 401(k) or SEP or to the 403(b) plan is what options are available. A lot of times those 403(b) plans are kind of buyer beware for some of the products in there.

Al: I think that’s a good point and if that’s the case then maybe you don’t want to contribute much to them because you don’t tend to get a match on those types of plans. It’s just your own money. And if you can do better with your own solo 401(k) if you have enough profit to be able to utilize that then maybe that is maybe that is a better way to go.

Andi: And I have to say she also ends with thanks again to all of you for a delightfully informative show. Thank you Christy. That’s so awesome.

Al: Well Christy, as last time this was a great question and keep them coming because you’re kind of like one of our most valuable questioners.

Andi: There you go.

39:00 – Investment Policy Statement Resources from Morningstar

How to Create an Investment Policy Statement

Making your Investment Policy Statement

Investment Policy Statement Worksheet (PDF)

Retirement Policy Statement Template

(hat tip to listener William in Chicago for the links!)

Joe: Alan we had a couple of comments come in through the email bag.

Al: Yeah we did.

Joe: We can bust through those real quick. We’ve got William from Chicago Illinois. He sent a nice little letter to Andi.

Andi: Ms. Last.

Joe: “Ms. Last. Hi.” What’s up, William? “This is just a quick additional follow up to the listener’s question about finding online resources for creating an individual IPS.” So I believe William might work at Morningstar. Because Morningstar’s in Chicago.

Al: Yeah and he’s from Chicago.

Joe: Unless he just hangs out at Morningstar.

Al: And we got 4 links for Morningstar.

Joe: We got 4 links. So did you did we send this to the person that-?

Andi: Actually he called. He left us a voicemail. So I don’t have a way to send him that information, so I’m actually gonna put it in the show notes for the podcast.

Joe: Oh the guy that asked about the IPS.

Andi: He asked me and my two associates to talk about this issue. So I’ll put it in the show notes for that episode so that he can access those links.

Joe: So do we remember the guy’s name?

Andi: It was Jeff from Redding.

Joe: Jeff from Redding was very curious about an investment policy statement. So William from Chicago’s just helping out our little community here. So how to create an investment policy statement and then making your investment policy statement. Couple articles there from Morningstar. Investment Policy Statement worksheet, little PDF for you. And then, “note that in addition to those IP resources they also have an interesting template for creating their retirement policy statement.” Thank you William from Chicago. We’ll make all of those resources available. We’re stealing them from Morningstar and putting them on our website.

Andi: Well he also said “thanks for the great podcast and the work you all do.”

Al: That’s nice. And then so another way to say that is, “you guys didn’t answer that question very well. Let me give you some links.”

Joe: We had Christine Benz on the show.

Andi: You did. I’ve been trying to get her. She’s been ignoring me. What did you say to her?

Joe: I said, “Hey Christine you want to come on the show?” She’s like “absolutely.” Interesting. You could say, “hey, I’m Ms. Last.”

Andi: Well I think maybe they’ve got their own podcast now so she may be too busy.

Joe: That’s it for us today, thanks for listening. For Big Al Clopine, I’m Joe Anderson. The show is called Your Money, Your Wealth®, we’ll see you next time.


I’ve got a couple derails for you this week, stick around to the end of the episode of you’re into that sort of thing. Thanks once again to Brian Perry, CFP®, CFA from Pure Financial Advisors for helping to answer some of your money questions. Go to YourMoneyYourWealth.com, scroll down and click “Ask Joe and Al On Air” to send in yours.

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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.