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 [...]

Andi Last

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 manages the firm's YouTube channels. Prior to joining Pure, Andi was Media Operations Manager for a San Diego-based financial services firm with [...]

Published On
April 23, 2024

So you won the lottery – congratulations! After you celebrate, should you rip off the band-aid and convert the entire lump sum payment to a Roth IRA? Also, Bucky in WA is required to have the same asset allocation in his traditional and Roth 401(k). Joe and Big Al spitball on his options, along with the pros and cons of consolidating retirement accounts for Scott in NC, and they explain the spousal Roth IRA for Rock Rochester in Manistique, MI. Plus, should Scott in Jackson, MS sign up for the state public employees’ retirement system or a traditional retirement plan? Can Driving Fast, Loving Life in TX speed away in her Porsche from RSU capital gains? And should she and her hubbs retire abroad? Finally, can Sean in Reno, NV buy a million-dollar vacation home in 10 years, and can Jennifer in La Mirada, CA afford to retire after being forced out of a 21-year career? 

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Show Notes

  • (01:06) Should We Convert $1.75M Lottery Winnings To Roth?
  • (10:38) Asset Allocation Must Be the Same in 401(k) and Roth 401(k). What to Do? (Bucky, Washington state)
  • (18:08) Pros and Cons of Consolidating Retirement Accounts (Scott, NC)
  • (23:28) Spousal Roth IRA Explained (Rock Rochester, Manistique, MI)
  • (27:07) Traditional Retirement or PERS State Retirement? (Scott, Jackson, MS)
  • (31:00) Avoiding RSU Capital Gains and Retiring Abroad (Driving Fast, Loving Life in TX)
  • (39:23) Should We Buy a $1M Vacation Home in 10 Years? We’ll Have $12M. (Sean, Reno, NV)
  • (43:15) Can I Afford to Retire After Being Forced Out of a 21-Year Career? (Jennifer, La Mirada, CA)
  • (49:28) The Derails

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Andi: So you won the lottery – congratulations! After you celebrate, should you rip off the bandaid and convert the entire lump sum payment to a Roth IRA? That’s today on Your Money, Your Wealth® podcast number 478. Bucky in Washington is required to have the same asset allocation in his traditional and Roth 401(k). Joe and Big Al spitball on his options, along with the pros and cons of consolidating retirement accounts for Scott in North Carolina, and they explain the spousal Roth IRA for Rock Rochester in Manistique, Michigan. Plus, should Scott in Jackson Mississippi sign up for the state public employees’ retirement system or a traditional retirement plan? Can Driving Fast, Loving Life in Texas speed away in her Porsche from RSU capital gains? And should she and her hubbs retire abroad? Finally, can Sean in Reno, Nevada buy a million dollar vacation home in 10 years, and can Jennifer in La Mirada, California afford to retire after being forced out of a 21 year career? I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

Should We Convert $1.75M Lottery Winnings To Roth?

Joe: “Hello Joe, Big Al and Andi, I’m a regular listener and truly love the show. And all the knowledge you spread around the world.” Around the world, Al.

Al: We do spread around the world apparently. It’s internet. It seems to be worldwide.

Joe: “We would greatly appreciate your spitball on a Roth conversion. Con dun dry gum. Con dun.

Al/Andi: Conundrum.

Joe: “I’ll start with the important stats. We live in Wisconsin along the St. Croix River.” Oh, alright. That’s cool. “My smart and beautiful wife and my frumpy self are 55 years old and have two teenage daughters who are close to perfecting the ever so annoying eye roll.”  Oh. I know. We got someone that’s a little witty here. I can just tell by the way they’re-

Al: You don’t have the eye roll yet in your house.

Joe: Nope.

Al: Not yet.

Joe: Nope. Nope. Nope. Alright. “My wife rolls in a lightly used decked out Q5. I skedaddle in a much older Outback and my oldest daughter inherited our 2008 Volvo station wagon with no USB ports. No pets yet, but our daughters are working hard on getting us close to having us adopt a dog. Administrative background, we save about $100,000 or so annually. Regular 401(k)s and IRAs is about $3,000,000.  Regular 401(k) Roth is $350,000, brokerage account is $800,000.” So everything totaling $4,000,000.

Al: Yeah, that’s, yeah, that’s what I get too.

Joe: All right.  “Small pension at 60 for both of us that will be around $30,000 a year with a COLA cap at 2% per year. Combined Social Security at age 70 will be $8500 a month.”  You know what is kind of my pet peeve when people write in?

Al: What?

Joe: They give me an annual figure on one thing and a monthly figure on the other.

Al: You know, cause then you have to convert it.

Joe: Yeah, then I have to either convert the monthly or the annual.

Al: Yeah, I don’t like that either, actually. It’s actually a little easier to have an annual.

Joe; Yeah, please.

Al: Because we kind of think, how much do you spend- you don’t usually say how much you spend per month, you say how much you spend a year? And then you tell us your monthly income. Yes. And some, but some it’s annual.

It’s like, oh my gosh.

Joe: Now you gotta do some work here.  All right. “We’re planning on retiring at a 60 and after using the YMYW online calculator with a conservative 3% inflation rate, 6% growth rate, and 3% withdrawal rate from our retirement, paycheck will be somewhere around $170,000 a year, this estimate will more than cover all of our expenses and then some, without taking into account the pensions and Social Security. With this in mind, we were planning on using our pension and Social Security to overstuff our charitable giving, travel and fun budget while in retirement.  Few months ago on my regular Heineken 12-pack and Four Roses, single barrel bourbon run to the local liquor store, I decided to use some cash to pay the bill instead of my trustee 2% cash back credit card. On a very rare whim, I decided to use the spare change to buy a few lottery tickets. Fast forward a couple of months while on another beer and Pino run this time around, a check-“  sorry, Pino Noir. “-I checked the lottery tickets and bingo, we won.” Wow.

Al: How about that?

Joe: “After doing our due diligence with the CPA, attorneys, etc., we’ll be conservatively netting out $1,700,000 after taxes and fees.”

Al: Okay. Not bad.

Joe: Not bad at all.  Wow. That’s like $4,000,000 lump sum or something.

Al: Yeah. That’s, that’s a lot of money, right?

Joe: That’s a good pop. “We’re planning on doing Roth conversions starting at age 60, regardless of this windfall. So would it be worth it just to rip the band aid off of all of our traditional 401(k) money to Roth and use this found money to pay the huge tax bill? Or do the conversions in increments starting at age 60 and beyond? Our thought is that doing the massive conversion would potentially give us 25 plus years of tax-free future growth income while still alive on about 2/3.” What the hell does that mean?

Andi: So 25 years that they’re still alive, on about 2/3 of their now tax-deferred money.  So they’re planning on living for 25 plus years.

Al: Okay, well, it’s good we have a translator. I couldn’t follow that either, actually.

Joe: Okay. “In the event we start pushing up daisies sooner, it would benefit our daughters getting most of the estate in Roth in taxable money versus tax-deferred type money. We would also be adding a substantial amount of our taxable money pot to the estate. Proportionate, well, potentially allowing us to start converting the traditional IRAs more surgically, being that it’s attached to this prorivibial pro-rata hip after we turn 60.” Oh, this is just so challenging to read.

Andi: Proverbial.

Al: You’re doing a great job. We’re getting the gist of it.

Joe: I’m going to stop here. This guy won a couple million bucks in the lottery. He wants to convert everything. Should he convert it?

Al: Yeah, and he’s got-

Joe: The answer’s no.

Al: He’s got $1,750,000 in a 401(k). So that’s what he’s considering doing all at one time.

Joe: He’s got, he’s got more than that. He’s got $3,000,000.

Al: I know, but he just, he said he just wants to convert the 401(k).

Joe: What? That doesn’t make any sense. That bugs me too.  An IRA and a 401(k) is all pre-taxed and a gross tax-deferred and it’s 100% taxable coming out.

Al: It’s the same thing.

Joe: So combine them. So does he rip the band aid off and convert it all?  No.  You have plenty of time.  I would convert to the top of the 22% tax bracket.

Al: Yeah, 24%.

Joe: What, what, what tax bracket are they in now?

Al: Let’s see. Does he say what he makes?

Joe: No, but he’s got a perial- proverbial-

Andi: -proverbial.

Joe: -proverbial pro-rata hip.

Al: I 100% agree. Here’s what you would do. You’d pay taxes in the highest bracket in order to save taxes in a lower bracket later. That’s crazy, right? Why would you do that? I would go to the top of the 24%, which is a big bracket, right?

Joe: $300,000-

Al: $390,000ish, something like that for a married couple. Yep. So that’s what I would do. I do that for the next several years. And then-

Joe: Yeah. I would start this year. You’re still working. Go to the top of the 24%.

Al: Yeah. And then you’re retired 60. You’ll, you’ll be able to do more, even more. Yeah. That’s what I would do.  You know, part, part of this too, is if, if you’re charitably inclined, which it sounds like they are, you’d kind of want some money in a regular IRA so you could do the qualified charitable distribution, right? And then you still never pay taxes on that money anyway.

Joe: Yeah, you want to take advantage of the lower brackets with the retirement account. So you would probably convert out to look at what your RMDs are going to be at 75. And if the RMD is $100,000, you’re still probably RMD is going to be in the 15% or it’s going to be projected to be in the 15% tax bracket. But he’s got pensions and Social Security, so you got to do a little bit better math. Maybe it’s a $60,000 you know, RMD. Yeah, so that’s still that’s a couple million bucks that he would have in retirement account. So you convert $2,000,000 or $1,500,000 out over the next-

Al: – over time.

Joe: – over the next 15 years.

Al: Because, well, and they’re 55, so they actually have 20 years to convert. Yeah. And I mean, when we talk about ripping the band aid off, we like that concept, but not, not this much.

Joe: Yeah.  If he was always going to be in a very high tax bracket, cause they had giant pensions. Then yes, I would rip the band aid off because you’ll probably never be in the lower tax rate. But you also- and then convert it all, pay the tax, and get the compounding and everything tax-free. But, they’re not going to be in that large of a tax bracket moving forward if he starts converting to the top, at least to the top of the 24%.

Al: Yeah, 100% agree. And like I say, you’re not- the goal is not to get rid of all your IRAs or 401(k)s because you may use that for charity, you may use that for healthcare, which is deductible, right? So that you may not have to pay tax on it anyway.

Andi: When you have a big financial change – like winning the lottery, or getting married or divorced, or getting ready to retire, a YMYW spitball is a great starting point, but a comprehensive review can really help you solidify your future plans – and it’s free. Take a deep dive into your entire financial life with one of the experienced professionals on Joe and Big Al’s team at Pure Financial Advisors, a fee-only financial planning firm. Click the Free Financial Assessment link in the description of today’s episode in your favorite podcast app, or call 888-994-6257 and book yours. It doesn’t cost you anything or obligate you to anything. As a fiduciary, Pure is legally required to act in the clients’ best interest, not their own. You can meet in person at the Pure Financial offices in San Diego, Brea, Irvine, Woodland Hills, or Davis, California, as well as Denver, Seattle, and Chicago, or you can meet online via Zoom, no matter where you are. Get the insights and actionable takeaways specific to your risk tolerance, needs and goals, to secure your retirement. Click the Free Assessment link in the show notes to get started.

Asset Allocation Must Be the Same in 401(k) and Roth 401(k). What to Do? (Bucky, Washington state)

Joe:  We’ve got, “Hello, Joe and Al. I have an asset location question. Joe-“

Andi: Just felt like saying your name?

Joe: I am just like- love the sound of my name.

Al: It’s like wake up – Joe, you’re reading that. You space for a second?

Joe: I did. Wow. “Should I keep the allocation the same between my traditional 401(k) and Roth 401(k), if it means I have a much better- if it means I have a much better fund option but have to keep the same allocation for both?” Did you get that? “Should I keep allocations the same between my traditional 401(k) and Roth 401(k), if it means I have much better fund options, but have to keep the same allocations for both?”

Al: So I guess he’s in a plan that requires that you to do the Roth part and the traditional part the same way.

Joe: Okay. “I’m 45, 3 kids. I work for a Fortune 10 tech company making $550,000 a year.” My God.

Andi: Dang.

Joe: Killing, killing it.  He’s got 3 kids, so it probably feels like $50,000 a year.

Al: It could be.

Joe: “I’m aiming to retire at 60. I have roughly $480,000 in my company 401(k) with $50,000 in the Roth 401(k). In any addition to maxing out my pre-tax 401(k) and now maxing out my after-tax backdoor Roth option, I recently began contributing into my company’s deferred compensation plan and expect to do so until I retire. I started to contribute around $70,000 a year to that. You all have shown me I am way too heavily tax-deferred.” Yes, you are.  “My company offers an option in both 401(k) plans to put the funds into a Fidelity brokerage link, essentially a brokerage account inside the 401(k). However, once you allocate brokerage link funds from both 401(k)s, they are combined in their contributed ratios in the single brokerage link account. And when funds are removed from there, they’ll remove them in equal portion. I called and checked. This is how it works. I assure you.”  Oh, no, they assured me.

Al: They assured him.

Joe: “I want to own most of my small cap value tilt in riskier assets in my Roth,  but alas-“

Andi: Alas, but that’s fine.

Joe: Alas.

Al: That’s less for an exit. I like it.

Joe: “-I must have the same allocations essentially for both Roth and traditional. The 401(k) fund options at my company are horrendous and there’s no high-risk index funds or ETFs. I would like to keep it in my Roth to maximize a return. Would you just live with the same allocations for both, which is high quality bonds, ETFs, instead contribute to the brokerage account link and take more skewed risk there for the return? Is rolling over the Roth 401(k) to a Roth IRA to get better fund options, even an option for me? Where’s the plan dependent?  Thanks for the work you do.  2017 Chevy Bolt, 2021 Yukon XL.” Alright, you got a Chevy Bolt and a Yukon XL.

Andi: I bet that’s husband and wife.

Joe: He’s got a hat in the freezer and the feet in the oven.

Al: That is the correct analogy.  I’m just gonna go out on a limb. I’m guessing Bucky drives the Yukon.

Joe: “And a Labradoodle, non-stop Diet Coke.” Bucky.  I got a Hummer XL.  And I got a Prius.

Al: “And I got a bicycle.”

Joe: Oh boy, that’s funny. Alright, I think you’re overthinking this.  Hey, you make $500,000 a year. You’re 45 years old. You got 3 kids. And at this point, you only have $480,000. At 45 years old, you should have probably 6 times your annual salary saved in a retirement account.

Al: I was going to say 4 or 5, but-

Joe: Call it 5, 5 times 5 is 6.5.

Al: So we’re one time, we’re one time, we’re times right now.

Joe: Okay, but you got one time. So you got some work to do. So I think you just focus on the savings, and I think you want to be globally diversified throughout. You can get, you know, a little bit more fancy nancy by saying, hey, I want Roth options, or I want high expected return to my Roth. You know, be diversified. I don’t think it really matters all that much right now.  The $700,000- or $70,000 that he’s going to put from now until he retires into the deferred comp plan is something I might want to kind of take a look at.

Al: Me too. First of all, it’s great tax benefit. You don’t pay taxes on it right now. When you get it back-

Joe: He’s going to have a tax disaster.

Al: It’s a time bomb. I mean, if he, if he keeps doing what he’s doing. And then adds this to it, there’s going to be so much tax in retirement. It’s crazy. Plus, so let’s say, I don’t know how long he’s going to work, but let’s say he works another 15 years.

Joe: No, he wants to work till 60.

Al: Okay. All right. So yeah, you’re right.

Joe: Or later.

Al: Yeah. Okay. So let’s go 15 years. And usually these deferred comp plans pay out in 5 or 10 years. So let’s call it 10 years. So that means, are you confident a high-tech company is going to be around at 25 years from now? Maybe, but just, just because when, when it’s deferred comp plan, it’s not separate money set aside. It’s a company liability. And if something happens to the company, there goes your plan.

Yep. Just, just be aware of that.

Joe: Yeah. Yeah. You can save a lot of money up front, but all of his savings is in deferred.  Yeah, I might just take a look and, you know, start saving that thing in a brokerage account, unless you know, the forced savings is the only way that he can save.

Al: Then, then he’s getting a great tax deduction and he’s in a high bracket, but just be aware of what you’re doing. And a lot of, most people don’t have the opportunity for a deferred comp plan. Usually it’s for larger companies. Usually it’s for key employees or executives only. If you have access to it, it’s a great way to go. I always take a little pause myself. If I’m, if I’m going to work another 15, 20 years, whether I really want it, if I’m going to work another 3 years and start getting the money, then I feel good about the company. Okay.

Joe: If I’ve got a 5-year window, then I’m going to jam it. Right.

Al: Yeah. Cause I’m pretty sure I got to get it.

Joe: Right. Yeah. Makes a ton of cash. I think he’s getting serious now. I like the fact that he’s putting some strategy and some thought behind it. But he’s trying to, I guess, get every juice out of the squeeze. Right. Is that the right- how do you say that?

Al: Yeah, and I guess his original question is, yeah, it’s plan specific. If you, if you can do a Roth conversion, if your plan allows you to do a Roth, it’s not a conversion, it’s a Roth rollover, I guess, to a Roth IRA. Then do it because you have more options. If that’s available, do it. If it’s not available, I agree with Joe. It’s, it’s, don’t worry about it.

Joe: Yeah. I would just, if you want to go to the brokerage link, go to the brokerage link and then be diversified in equities. You got 15-year runway, so you can be in equities. You S&P 500, you probably want to have your small cap value. Then you can, you know, go into maybe a little international EM. I don’t know.

Al: Yeah. Emerging markets. Yeah. Yeah. But that’s what EM is, I guess.

Joe: Yeah.  So, yeah, he’s probably spending most of his money on gas at UConn.

Al: That could be. He had 3 kids.

Joe: I like UConns.

Al: Do you?

Joe: Maybe I should get one.

Al: Too big for me. I like a little car.

Joe: Yeah, that’s why you drive the Chevy Bolt.

Al: I want the Bolt. Yeah. I want to, I want to, I want to save the world.

Pros and Cons of Consolidating Retirement Accounts (Scott, NC)

Joe: All right, we got Scott from North Carolina, he goes, “Hey there, Joe and Big Al, I listen to your podcast regularly while walking our dog, Yoda.” Walking his dog, Yoda.

Al: Yoda, yeah.

Joe: That’s a cool name. Right.

Andi: Listen to YMYW, you must.

Joe: Oh, look at you. You do watch movies, Andi.

Andi: Occasionally.

Joe: “And I enjoy your financial wisdom and a friendly banter. In some ways, your podcast reminds me of a wise old married couple giving sage advice to newlyweds.”

Al: Ah.

Joe: A wise old couple.

Al: Are we an old married couple?

Joe: I don’t think so, Al.

Al: Didn’t we used to say it seemed like it?

Joe: Well, we’ve been together 20 plus years.

Al: Yeah, we have. 20th anniversary.  What’d you get me?

Andi: A beer.

Al: A beer.

Joe: Oh boy. “A bit of background. The wife and I are married, both 61, retired, with no kids, but lots of fur babies.  I drive a 2015 F250 on the highway, but prefer trail riding on my American quarter horse whenever I can.” Quarter horse?

Andi: Yep. Literally a horse.

Joe: A horse, huh?  He lives in North Carolina?

Andi: Mmmm.

Joe: Cool. “After eating all that trail dust, my drink of choice is a frosty Ying a ling a ling-“

Andi: Pretty close. Yuengling.

Joe: “-Yingling lager.”

Al: That is a tough one.

Joe: We got a couple of Yuengling lager fans on the show.

Andi: There have been several, yeah.

Joe: Alright. “My question to you concerns about retirement account consolidation and reasons for doing so or not to doing so. Although retired, my wife and I have several traditional 401(k) accounts, still have with all of our previous employer programs totaling about $1,400,000. We also both have traditional rollover IRAs, as well as Roth IRAs accounts totaling $600,000 at Fidelity. While I don’t hear you talk about this much on retirement podcasts, what is your view of consolidation these separate accounts into 4 accounts, one traditional rollover IRA and one Roth IRA for me and one traditional rollover IRA and one Roth IRA for my wife. Seems like a no brainer, consolidate for simplicity’s sake, but just curious if there’s any advantage to not consolidate. Are there any protections to keeping money in a 401(k) versus a Fidelity rollover?  Any argument for keeping retirement money spread across multiple financial institutions?  Could having many accounts present a hassle when RMDs come due later on? Any advice would be appreciated. Giddy up.  Big thanks in advance.” All right.

Al: Okay. Advantages of keeping in the 401(k) or rolling everything into a Roth and a regular.

Joe: Let’s talk about rolling everything into an IRA first.

Al: Yep.

Joe: Yes. It’s gonna be easier to calculate the RMD because it’s only gonna be one RMD for you and your wife, or RMD for him and RMD for his wife. If you have multiple 401(k)s, you’re going to have to take multiple RMDs out of each 401(k) account. Is it going to be easier to probably rebalance the account? Yeah.

Al: Yeah, to track everything.

Joe: Is it going to be less mail or less confirmations and less statements? Yes. Is it maybe the choice of investments? Is it going to be maybe a little bit more broader if you go to an individual IRA?  Yeah. Yes.

Al: Yes. If you keep the money in a 401(k). You’re going to get a ARISSA protection, which if you’re-

Joe: – an attorney, a doctor, self-employed-

Al: -someone that has more likelihood of being sued than others, then at least that’s worth a consideration. And each state has different rules on this. Like our state, it’s like, even if you roll into an IRA-

Joe: – runs someone over with his horse. Yeah.

Al: Well, that’s right. There you go.

Joe: Yeah. He probably carries- Yeah. So you accidentally shoot someone-

Al: Even in our home state, like the first $1,000,000, $1,500,000, that rolling out from a 401(k) to an IRA still has that same protection, but state by state. So to me, that would be the only real reason to do it. I mean, you’re right. Maybe it’s cheaper. Maybe there’s better investment choices, but typically not. Typically there’s way more investment choices in an IRA than a 401(k).

Joe: So, but do your due diligence, right? I think you look at this, the SEC is all over this. And so you want to make sure that, Hey, is, is the investment choice in my 401(k)? What are the costs associated with these versus if I roll it into an IRA? How am I managing the account in the 401(k) versus the IRA? Yeah, you do have a ARISSA protection in the 401(k) versus IRA. So there’s definitely pros to keep it in the 401(k), but for most, I mean, just the simplicity. It depends, of course, on your occupation or if you have a propensity of getting sued, then it probably makes sense maybe to roll it. I don’t know. I mean, there’s pros and cons to each.

Al: There are, but I’ll just say it this way. Most people roll their 401(k)s to an IRA. It’s just so much simpler. You’ve got a lot of investment choices.

Joe: All right. Giddy up, Scott.

Spousal Roth IRA Explained (Rock Rochester, Manistique, MI)

Joe: Yep. We got Rocky Rochester from Mantis geek. Michigan.

Andi: I think it’s Manistique?

Al: Could be either. I, whatever, doesn’t matter.

Joe: Rock? Rochester from-

Al: Manistique.

Joe: Manistique.

Al: Could be. That’d be a good guess.

Joe: “I’m 67, retired. My wife is 58 and will work for 7 more years.  I recently came across the concept of a spousal Roth IRA. I listened and read about financial planning but have never heard anyone talk about this. Until my wife retires, can I still contribute to the spousal Roth IRA?  With her income while collecting Social Security, she already contributes the maximum amount to her Roth IRA.  Please explain the spouse Roth IRA idea and everything I need to know about this.”  Okay, Rocky Rochester.

Al: Okay, that sounds like a good question for you.

Joe: So, first of all, you need earned income to make a Roth IRA contribution. Social Security is not earned income.  So let’s say that both of them are retired and collecting Social Security. They would not be eligible to do a Roth IRA contribution.

Al: Because they don’t have earned income.

Joe: They don’t have earned income.

Al: And another way to think of what is earned income, it’s something that you pay Social Security taxes on, either withheld or you’re self-employed and you pay self-employment tax.

Joe: So that rules both people out if that was the scenario, but it’s not the scenario. So then you look at, all right, how are both spouses going to be eligible? Well, only one spouse needs to have earned income. As long as that earned income is below the qualifications to contribute to a Roth IRA, both spouses can contribute to a Roth IRA. One is the person’s regular Roth IRA, and it’s called a spousal Roth IRA because the spouse is married to someone that has earned income. In this case, Rock’s wife, can make a Roth IRA contribution because Rock has earned income. If she’s already making a Roth contribution for herself, Rock can’t do another Roth contribution for her as a spousal Roth.  It’s a spousal contribution, is basically what it is. So you, you can’t do 3 contributions in one year is I think is what he thinks he can do.

Al: Well, I guess what I, what I thought I heard was the rule is this. If your spouse has earned income, you can use the spouse’s earned income to do a Roth contribution for yourself. As long as you’re below the, the income limits of a Roth, which is a little over a couple hundred thousand, I believe something like that currently. And the amount of the contribution for Roth is $7000 and a catch up when you’re over 50 is another $1000. So $8000 would be the total contribution.

Joe: Yes.

Al: So, yeah, that, that rule has been around for a long time and we’ve, we’ve actually talked about it a fair amount, maybe not recently.

Joe: So it says, “until my wife retires, can I still contribute to this spousal Roth with her income?”

Al: Rock’s retired. I think you got it backwards.

Andi: Yeah. He says he’s 67 and retired and she’s 58 and will work 7 more years.  So, can he contribute to the spousal Roth while he’s collecting Social Security?

Joe: Yes, of course. How stupid am I?  I’m just tired today. Yes.

Al: Okay, good answer.

Joe: So, I thought Rock was working, but it’s the wife that was working. He’s collecting Social Security.

Andi: Yes.

Joe: Oh, and so yes, he can still contribute to his, based on her income.

Al: Yep. That’s right.

Joe: See clear as mud.

Al: As long as their total income is below the limitation.

Joe: Yes.  All right. Let’s go to the next one.

Traditional Retirement or PERS State Retirement? (Scott, Jackson, MS)

Joe: We got Scott from Jackson, Mississippi, Big Al.

Al: Yep.

Joe: “51, starting a new job that offers either traditional 401(k) that allows over $60,000 to be put away or the chance to enter a state retirement system. The PERS program, it has an 8-year vesting program with retirement eligibility at age 60. The PERS plan is 2% of salary cumulative per year up to a max of $305,000 of which my salary would be higher than. The plan requires 9% pre-tax withdrawals from salary. So for example, if I work 10 years, I’d be eligible for a pension of 20% of $305,000. I have a 401(k) from a previous employer of close to $2,000,000. My question is, what should I choose? The traditional retirement or the PERS?”  All right. Interesting question.

Al: Yep.

Joe: So he’s got an option of keep jamming money into the old 401(k). He can put $60,000 away into the 401(k). He’s 51. He’s going to work until- he wants maybe to work until 60 or 10 years.

Al: Yep. Yep. 60ish.

Joe: He’s got $2,000,000 already in the 401(k). Plugging in another $60,000 over 10 years is $600,000 plus growth. Yeah. That million’s going to be for $6,000,000.

Al: Well, I, I just, I just, I took the $2,000,000 out. I just said 10 years, 6%, $60,000 a year, that’s $800,000. Cause that’s really what we’re comparing.

Joe: Got it.

Al: And then the PERS, so that’s, that’s saving $60,000 a year. So the PERS, it’s a 9% pre-tax withdrawal. And you said he makes $305,000.

Joe: No, he makes more than that. That’s the max salary that the-

Al: Oh, that’s right.

Joe: So a defined benefit plan is different than a defined contribution. So let’s start there. Defined contribution plan is the 401(k) plan that most people are familiar with because the contribution is defined. It’s in his plan, you could put $60,000 max into the plan. So that’s the contribution is defined of how much you can put in the plan. On a defined benefit plan, which is his PERS plan is stating that, Hey, the benefit is going to be defined, what your payment is going to be defined for you for the rest of your life. And it’s based on a formula, and so his formula is based on, all right, well, he could be eligible for 2% per year. And so if he worked 10 years, 2% times 10 is 20% of whatever the percentage of his income is. To a max of $305,000. So if he makes $500,000, it’s not going to be 20% on his salary. It’s going to be 20% on the max salary of $305,000.

Al: Yeah, but, well, I guess here’s my question to you, and maybe we don’t have enough information on the plan, but that 9% pre-tax withdrawal from salary, wouldn’t that cap at the max?

Joe: I don’t know. That’s a really good-, but like, he can only take 9% of the $305,000?

Al: I’m wondering. I’m not sure.

Joe: I don’t think so. So 2%- so 20% of $300,000 is $60,000 a year.

Al: $60,000. Yep.

Joe: So, at 61 years old, he would receive $60,000, for 60, 70, what, 25 years?

Al: Yep.

Joe: So you take, what’s the present value of the $60,000 that he would receive each year? You got to bring it back to today. I don’t have my calculator. Did you calculate it?

Al: No, but I just looked at it more simply, $800,000, 4% distribution rate.  Right? So what’s that? That’s $32,000?

Joe: Half of what the pension would be.

Al: Or the pension’s $60,000? Without knowing any more, I would take the PERS.

Joe: Yeah. The better calculation would be, you’d have to take the present value of the cash flows and bring it back today.

Al: Yeah, and I-

Joe: But it’d still be higher than $800,000, I think.

Al: That’s right. But we do have to get clear on exactly what’s being withheld to compare this.  But anyway, it seems like PERS from what we know.

Joe: Yep. Cool question. Thanks, Scott.

Avoiding RSU Capital Gains and Retiring Abroad (Driving Fast, Loving Life in TX)

Joe: We got “Hello. Thanks in advance for answering my question.”  We got Driving Fast, Loving Life in Texas. Is that his name?

Andi: That is their name, yes. Driving Fast, Loving Life.

Joe: Driving Fast, Loving Life. In Texas.

Al: Yes, got it.

Joe: Alright. “I discovered your show in January, and it’s been a game changer for us.”

Al: Game changer. Wow. I don’t think we ever got that comment. But that’s very sweet of you.

Joe: “A little history. We’re not one of your super rich listeners, but we have accomplished a lot.” Damn straight.  “I’d like to share a brief version of our story to hopefully inspire others. Okay. Oh, here we go. We got some music Andi?

Andi: I can add it in post.

Joe: Got it. “My husband and I met 10 years ago, and we had over $200,000 in car, personal loans, and credit card debt. Mostly credit card debt.” Wow. $200,000.

Al: $200,000. Yep.

Joe: “And $80,000 in retirement. We put on our big gal pants and paid off the debt, focused on our careers, tripled our income by doing so.  Paid the $200,000, upgraded our house, bought much needed newer cars, and saved and invest to have a net worth of $1,300,000.”

Al: That’s inspiring.

Joe: Awesome.  “It can be done with a bit of discipline and a great partner. Here’s an overview. Ages, 49 me. 51, the hubs.”

Al: The hubs.

Joe: “Net worth $3,100,000. Here’s a breakdown, $300,000 net equity-“

Andi: $1,300,000.

Joe: $1,300,000 net equity-

Andi: You said net worth was $3,100,000.

Joe: Oh. $3,100,000, see I just, by listening to this show, see what happens?

Al: You already tripled their net worth.

Joe: See what happens to their net worth?

Al: Just like that.

Joe: “-$1,300,000.” Sorry. “$300,000 net equity in the home. We got $250,000 in a brokerage account. We got $200,000 in Roth, $600,000 in an IRA and 401(k), $50,000 in HSA. Annual HSA and Roth contributions is $81,000. Hubs makes $265,000. She makes $150,000.  Average annual spend is about $125,000. We are debt free aside from our home. Home will be paid off in 2030. My husband receives RSU grants each year. We have not sold the company’s stock. It’s a fanged stock.”

Al: Wow. Okay.

Joe: “I’m getting nervous about being so heavy in one stock. The rest of our portfolio is a mix of bonds, ETFs, and mutual funds. Here’s my first question.  If I had different answers from 4 different- I’ve had 4 different answers from 4 different financial advisors.”

Al: Yeah. How about that?

Joe: Why don’t you come to us first?  “When the RCU is granted, can we sell them same day or within 48 hours to avoid capital gains tax? Our plan is to reinvest the proceeds into other investments to further diversify our portfolio.” RCUs. Let’s talk about what an RCU is. Okay. Restricted Share-

Al: Stock. Restricted Stock Unit.

Joe: Sorry.

Al: So, I’ll first start with just restricted stock, right? So that’s where, let’s say your employer grants you a stock in the company, but it’s restricted. And generally you have to work X number of years for the restriction to last.

Joe: It’s a vest.

Al: Vesting. Yep. And when it vests, at the point it vests is when it’s fully taxable as ordinary income. You paid nothing for it.

Joe: It’s compensation.

Al: Right. Yeah. Yeah. It’s compensation. Exactly.

Joe: They’re not paying you cash. They’re saying, Hey, you’re a valid member of our community here at XYZ employer. We would like to give you some stock and give you some ownership of the company. However, you got to stick around a little bit.

Al: Yep. That’s right.

Joe: And so we’re going to give you X amount of shares. And then when those shares vest, that’s when they are taxable.

Al: That’s when they’re taxed, not when they’re granted. But when they vest, they are taxable, it’s ordinary income, it actually goes right on your W2.  And, you can sell same day, generally, and, which is what most people do, because they can’t afford the tax. All of a sudden they have $50,000, $100,000, $200,000 on their W 2 with no withholding. And the employer goes, okay, well, you need to write me a check for $50,000 so we can add it to your withholding. It’s like, well, I can’t do that. And so that’s what most people do. Now, a restricted stock unit, it’s the same concept, Joe. It’s just instead of actually receiving the stock, it’s a promise to receive the stocks. So it’s a restricted stock unit and I don’t, I’m not sure they actually call it grant, but let’s just use the same terminology. When it’s granted to you, when you first get it, there’s- it’s still not taxable. In fact, you don’t really have anything other than a promise to receive a certain amount of shares at a certain price. Now, when they vest then they’re fully taxable at that point. Same thing. It’s ordinary income. Right. Goes on your W2. Now, if you keep the stock, you’ve already paid ordinary income on the value. If you keep the stock, whatever you paid for, it becomes your new tax basis. And if you sell the stock later at a higher amount, then that’s when it’s long-term capital gain, as long as you hold it for a year and a day. And so the first question is, “can we sell them the same day or within 48 hours to avoid capital gains taxes?” No. What happens is it’s ordinary income. When it vests, it goes right on your W2.

Joe: All right, “what are your thoughts about retiring abroad?  Any lessons learned from your clients?  What are some tax laws we should be aware of?” You like, you want to retire abroad, Big Al?

Al: I don’t, I don’t think so. I’m not opposed to it.  I mean, the advantages of, are certain countries have lower cost of living than US. Yeah. Right? Like, Panama, Portugal, Costa Rica. Although some of these are getting more expensive, right? The taxation is this, if you’re a US citizen, you move abroad, you actually have to pay tax in both countries, but you get a foreign tax credit in the US for taxes that you paid abroad. So that’s, that’s the basic concept. More complicated than that because there’s tax treaties between the US and every different country, so it could be slightly different. But I think it’s fine, particularly if you’re trying to stretch your dollars and you find a country that’s cheaper that you would like to do, like to go to.

Joe: All right. “Our friends are all considering different places across the country in the world for retirement. So the whole don’t leave your network doesn’t really apply to us.”

Al: Got it.

Joe: You can’t leave your network. I’ve never heard of that saying.  Don’t leave your network.

Andi: Be with your support system, your family and friends.

Joe: Yeah. Okay.  Oh, and here’s our other debt.

Al: Deeds.

Joe: Deeds.  So there’s two questions she had. One was the RSU tax question, the two was, should they move, and then she’s got 4 different answers from 4 different advisors. Yeah, so, well I’m sure, one advisor, no, don’t leave the country.

Al: And one said yes, and one said, 6 months and a day.

Joe: Okay, so drink of choice, booze. Hubs, likes a good old fashioned, and I could crush a few bottles of Pinot with great pleasure. Cars, Hubs got a 2021 Tahoe.” ooh, she gets a little Porsche Cayenne,  two incredibly spoiled snugly mutts,  thanks for your humor, an approach to finance, it’s super fun to listen to your shows. Best, Driving Fast and Loving Life.”

Al: There’s the name.

Joe: Cool.

Al: All right. Driving Fast, hopefully, we helped you out.

Andi: RSUs and ESPPs are newly covered on our blog! If restricted stock units or an employee stock purchase plan are part of your benefits package at work, make sure you understand how these equity compensation programs work – their advantages and benefits, and the risks and considerations for you as an employee. What are the tax implications? What happens to your portfolio diversification, and what about when the market gets volatile? You’ll find links to both blog posts in the description of today’s episode in your favorite podcast app. And for a good team-building activity, don’t forget to share YMYW and the free financial resources with your co-workers.

Should We Buy a $1M Vacation Home in 10 Years? We’ll Have $12M. (Sean, Reno, NV)

Joe: We got Sean from Reno, Nevada. “Hi, Al, Joe. Love the podcast. I listen to it all the time while walking my golden retriever, Mango! I’m 39 and my wife is 40 with a 6-year-old daughter. Our household income is $450,000 annually and in a very steady industry. We have $980,000 in taxable accounts, $700,000 in traditional 401(k)s, $135,000 in a Roth, $160,000 in our daughter’s 529 plan, $45,000 in Bitcoin, and $40,000 in a high yield savings account.”

Al: It’s about $2,000,000.

Joe: Wow, look at the big wallet, Sean.  “We own our house about $1,100,000, owe $350,000 with a fixed 15-year mortgage at 2.25% with 12 years left. We consistently invest around $150,000 to $160,000 annually, and plan to do that for many years going forward.” Well, why the hell not?  You know?

Al: Yeah.

Joe: Let’s just keep socking money away.

Al: Plug it away. Yep.

Joe: “My question to the both of you-“what possibly could this question be?  – will I have enough money?  I’m going to answer it now. Yes.  Will I have a tax problem? I’m going to answer that one too. Yes, probably.  Will your neighbors come out of the woodwork and ask for loans and like, relatives that are broke ask you for cash? The answer, probably yes.

Al: Okay, let’s get, let’s do the real question.

Joe: “My question to both of you is, my wife and I are thinking about buying a vacation home about 10 years down the road-” Well, go for it. Yes, you’re going to have $500,000,000,000. “-which will likely be about $1,000,000. We would like to retire at around age 59 and plan to spend about $175,000 annually. Is this a bad choice? And do you think our numbers would work?  My drink of choice is Deschutes Twilight Beer.” That’s the Deschutes River.

Al: I know, that’s in Bend.

Joe: Yeah, Bend, Oregon. “Love your podcast and look forward to your spitball in our situation, Sean.” Well, Sean, congratulations. You make a ton of money. You have a steady job in a steady industry. You’ve saved $2,000,000 before the age of 40.

Al: Yeah, pretty amazing.

Joe: And you save $150,000 a year. $150,000, 10 years.

Al: I got the- I got the number.

Joe: Okay, what do you got?

Al: I just said, you start with $2,000,000, you save for 20 years at $150,000, without the vacation home, just doing this math, 6%, you get, you have $12,000,000.  Can you afford $1,000,000 to buy a vacation home?

Joe: Yeah, I think so.

Al: You can do it. I, I know this, I, I’m, I’m not including inflation and all that, but yeah, there’s, there’s plenty to work with here.

Joe: Yeah. Way to go bud. I mean, that’s huge for you to be able to save that much because if he makes, they make what, $400,000? Yeah. $450,000, half of that’s what, well, they live in Nevada, so that helps. There’s no state tax.

Al: That does help, yeah.

Joe: So they lose about 35%, 30% on the money and then they’re saving, so yeah, they’re spending about $125,000. Usually people that make that much probably spend a lot more.

Al: Yeah, and he’s, he’s saying about $175,0000, of course that’s when he retires. Of course there’ll be inflation, maybe in 20 years it’ll be $200,000ish, something like that, but if you got $12,000,000, we’ll subtract out $1,000,000, for the vacation home. We’ll subtract out $2,000,000, just because you’ll have less money to invest. $10,000,000, you want to spend, call it $250,000, $300,000 with inflation. Yeah, you’re good.

Joe: Does not include any type of fixed income.

Al: No, it’s not. All right, we gotta take a break. Congratulations, Sean.  Invite us to your vacation home sometime.

Al: He didn’t say where it is.

Joe: Yeah, I know. He lives in Reno. Yeah. That’s Reno’s nice.

Al: It is nice. I like it.

Can I Afford to Retire After Being Forced Out of a 21-Year Career? (Jennifer, La Mirada, CA)

Joe: We got Jennifer from La Mirada, California. “I am being forced out of my job in June 2024 after 21 years with this employer.”  Forced out. Kicked out. Kicked to the curb, Al.

Al: That’s too bad.

Joe: “I’m 58 years old, single female, with a total of $400,000 in investments. $200,000 in my 403(b), $15,000 in a Roth, and $15,000 in my traditional IRA, $8000 in the HSA, and about $162,000 in the old brokerage account.  Collect $2200 in non-taxable family income that will permanently be there through family usage of my home.  I own a home worth $950,000 and owe $260,000 at 3.375% until 2049.  House payment and taxes is $1700 a month.  I stand to collect Social Security at $2000 a month at 62. I do my Medicare expenses on COBRA is expected to be $15,000 a year.” So she’s another one that likes to switch from month to year to month to year.

Al: A little trickier, but that’s what we can do.

Joe: Got a couple questions for us, Al. “Number one, if I don’t work again, do I stand to possibly make it with what I got? If not, should I leverage my house with reverse mortgages to fill the gap?”  Can she make it?

Al: Well, I think, if you look a little further down, she wants to spend about $70,000 a year.  And she’s got, let’s just call it $25,000 a year from family income.

Joe: But, yeah, it was like, I collect $2200 in non-taxable family income that will permanently be there. But is that $2200 a month or is that $2200 a year?  Cause she’s, she’s flip flopping.

Al: Well, a good question. I’m let’s assume it’s, it’s monthly because if it’s a year, the answer is definitely no, you don’t have enough, but okay. So you take $70,000 minus $25,000 and you end up with, what’s that $45,000. $45,000 into $400,000, that’s what she has. That’s a 10% or 11% distribution rate, that does not work. Now fast forward 4 years at 62 you collect Social Security, we’ll round that to another $25,000, so you got the family income and Social Security, so that’s $50,000 combined, off the $70,000 that you need to spend, so you’re short $20,000. $20,000 into $400,000 that’s a 5% distribution rate, that’s too tight too.

Joe: Yep. She’s not gonna have $400,000 cause she’s gonna take a bunch out of that to bridge the gap.

Al: That’s exactly right. So you’re gonna have 4 years taking 11%ish out and then it’s probably gonna be closer to 6% after that. So Jennifer, unfortunately this does not work unless you can make some changes in terms of spending.

Joe: You can’t leverage her home, maybe. The only thing that she can- well she can do a reverse mortgage potentially and all that does is stop the payment. So her payment is $1700 a month, so then that reduces her payment spending to like $55,000 vs $70.000.

Al: It’s closer.

Joe: That gets a little closer.

Al: Yeah, yeah. So you could. Usually I don’t really like to thing about reverse mortgages except in kind of a last ditch thing but – so if I were Jennifer I’d try to get another job. But I understand what she’s asking. She saying if I can’t get a job, then does this work. And the answer is no. Should I do a reverse mortgage? Yeah you could. You have to wait until 62 to do it. And so you’re going to be kind of burning through your portfolio at that time. I don’t know, I would rather try to get another job.

Joe: “Do you recommend Roth conversions in 2024 and 2025 before tax rates increase?” No.

Al: Yeah, your IRA balance and 401(k), great job, but it’s not gonna put you in a higher tax bracket with RMDs so I wouldn’t worry about it.

Joe: You need every last penny of that.

Al: Yep.

Joe: “So far for 2024 I’ve only made $12,000 and have been putting all of my income from my employer to my 403(b)s so I definitely have room to convert if it’s a good thing to do this year and next. Since I’m not planning on working again hopefully-“ bad news-

Al: Sorry. Wrong answer, Jennifer.

Joe: Get back to work girl. “My total expenses should be around $70,000 a year. I live in California and drive a 2024 Toyota Camry Hybrid.” Yeah, close but no cigar. You gotta figure something out. She’s got to make at least, I don’t know, $50,000 a year for the next 5 years.

Al: Now let’s say she can’t find a job. Here’s another solution. She’s got a home worth $950,000, $260,000 mortgage, what if you sold that and you bought a home for about $600,000 and have no mortgage. That could potentially work. It’s not what she wants necessarily, but it’s a way to make this work.

Joe: She could downsize significantly too.

Al: That’s what I’m saying, yeah.

Joe: $600,000’s still hefty.

Al: I know, but at least she’d have no mortgage at that point. And maybe this comes a lot closer to working. It’s still pretty tight.

Joe: Yeah. It’s really tight. All right, that’s it for us. Thanks. The show’s called Your Money, Your Wealth®.

Andi: Dr. Pepper, Big Al’s birthday, the pronunciation of the Porsche Cayman, and the 60 year podcast in The Derails, so stick around. This show would not be a show without you. We’re grateful for your questions, your participation, and your paying it forward by telling your friends about YMYW, and leaving your honest reviews and ratings for Your Money, Your Wealth. You can do that in Apple Podcasts, Amazon, Audible, Castbox, Goodpods, Pandora, PlayerFM, Pocket Casts, Podcast Addict, Podchaser, Podknife, and Spotify.

Your Money, Your Wealth is presented by Pure Financial Advisors, 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.

The Derails



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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