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 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
April 2, 2024

Will Duke and Daisy’s retirement spending plan work? If you’re a fan of hearing Joe and Big Al debate, you’re in luck, as they disagree on assumptions when it comes to retirement planning and withdrawals. The EASIretirement.com calculator says Chuck in South Carolina could convert even more to Roth, and the fellas spitball on the pros and cons. Plus, what should Chuck’s asset allocation be for his daughters, and how should Scott in Kansas City’s parents allocate their assets? Can Rothaholic undo his Roth conversion? Brian Fantana and his wife are in their 30s and want to retire at 60. Are they on track? Ricky in Alabama wants to avoid Medicare’s IRMAA, or income-related monthly adjustment amount. Should he spend from his IRA or from his Roth? Daniel in Whittier wants to know what exactly counts for IRMAA income, anyway? And finally, Elisa in Fremont wants to know, with the new SECURE Act 2.0 rules, when can you transfer 529 college savings funds to Roth? 

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Show Notes

    • (01:07) Will Our Withdrawal Rate Be Too High If We Retire in 3 Years? (Duke and Daisy, Charlotte, NC)
    • (11:28) EASIretirement.com Says I Should Convert More to Roth. Asset Allocation for Daughters? (Chuck, SC)
    • (22:13) Can I Undo My Roth Conversion? (Roth Aholic)
    • (27:55) In Our 30s, Want to Retire at 60. How Are We Doing? (Brian Fantana, WA)
    • (30:36) What’s the Right Asset Allocation for Aging Parents? (Scott, Kansas City, MO)
    • (32:51) IRA vs. Roth for Living Expenses? (Ricky, Birmingham, AL)
    • (35:50) What Counts for Medicare IRMAA? (Daniel, Whittier, CA)
    • (39:49) SECURE Act 2.0: When Can We Transfer 529 College Savings to Rot? (Elisa, Fremont)
    • (44:44) The Derails

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Andi: Will Duke and Daisy’s retirement spending plan work? If you’re a fan of hearing Joe and Big Al debate, you’re in luck today on Your Money, Your Wealth® podcast 475, as they disagree on assumptions when it comes to retirement planning. The EASIretirement.com calculator says Chuck in South Carolina could convert even more to Roth, and the fellas spitball on the pros and cons. Plus, what should Chuck’s asset allocation be for his daughters, and how should Scott in Kansas City’s parents allocate their assets? Can Rothaholic undo his Roth conversion? Brian Fantana and his wife are in their 30s and want to retire at 60. Are they on track? Ricky in Alabama wants to avoid Medicare’s IRMAA, or income related monthly adjustment amount. Should he spend from his IRA or from his Roth? Daniel in Whittier wants to know what exactly counts for IRMAA income, anyway? And finally, Elisa in Fremont wants to know, with the new SECURE Act 2.0 rules, when can you transfer 529 college savings funds to Roth? I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

Will Our Withdrawal Rate Be Too High If We Retire in 3 Years? (Duke and Daisy, Charlotte, NC)

Joe:  All right, we got a lot of questions here today and some of them are really long. So I’m just going to do what’s… FYI, or announcement?

Al: Okay.

Joe: To our listeners.

Al: Announcement. Yep, for your-

Andi: PSA?

Joe: PSA. There you go. Thank you, Andi.

Joe: Yes. Can we count them down a little bit? I’m reading for like pages and pages and I’ve tried to listen to this show and it’s absolutely terrible. So we’re going to abbreviate some of this stuff, so if we kind of edit your email, that is the reason.

Al: Yeah. Actually, a perfect length would be set it to font size 14 and do half a page.

Joe: Oh God.

Andi: Al, he can’t read a font size 14.

Al: I’m saying, I don’t want one page where it’s an 8 font.

Andi: Right.

Al: ’cause it’s like 3 pages.

Joe: We got Hello, YMYW Team, Duke and Daisy here from Charlotte, North Carolina.  We found your podcast about a year ago. Enjoy listening to the spitball retirement planning questions. Would you please do a little spit balling for us?” Of course we will. “Big Duke, he drives a 2018 Toyota Highlander and enjoys an occasional porter or stout. I drive a 2016 Toyota Avalon and enjoy sweet tea.” Oh, Charlotte, North Carolina. It’s a little tea with a ton of sugar in it.

Al: Sure.

Joe: “Duke and I hope to retire in 3 years when I’ll be 63 and Duke will be 65.  We currently have $800,000 in pre-tax retirement accounts, $110,000 in after-tax investment accounts.” All right. So $900,000.

Al: Right.

Joe: Duke earns $105,000 per year and he puts 12% into the 401(k). Daisy earns $65,000 a year and she puts $2000 into a brokerage account per month. I will receive a pension at 65 of $12,000 a year-“ but she wants to retire at 63, right?

Andi: Yes.

Joe: All right, so we got a little bridge, a little bridge going on. “The plan is to take Social Security at 67.” All right, so she’s working, she wants to retire at 63. She’s got some income at 65 and then some more income at 67. I see where this question might be going.

Al: I think so too.

Joe: All right, so “she’ll get $40,000 or $35,000 a year. Duke plans on taking his Social Security at age 70. So he’s got a 5 year bridge, which is anticipated to be around $50,000 a year. We are blessed to be debt free, including our home, which is worth approximately $600,000. They need $100,000 to spend annually.” So if they retire in 3 years, their concern is that the withdrawal rate for those years before Social Security and pensions is going to be a little bit too high. So in 3 years Al, they’re going to have $1,000,000.  So they want to spend $100,000.  They won’t have no fixed income in 3 years, correct?

Al: Yeah, I guess the first fixed income is $12,000, that’ll be two years after Daisy retires, so there’s something. Then two years later, she’ll get her Social Security at that point, and Duke maybe one year after that. So there’s, there’s different time frames. So, so-

Joe: If you combine the fixed income, so let’s just call it 50, 60, 70, 80, 90, they’ll have roughly about $100,000 of fixed income once Duke turns 70.

Al: Correct.

Joe: So we have to bridge a gap to Duke’s age 70. And so they’re going to work- he’s going to work until 65 and she’s going to work until 63. There’s going to be some added expenses for her because she’s 63. She probably needs medical. So what is the dilemma is that they could blow through their portfolio fairly quickly, right? Even though they’ll have a lot of fixed income down the road.

Al: Yeah. So let’s, let’s kind of put a little math together here. If, if you just look at that, what they’ll probably end up with based upon what they’re saving at a 6% rate of return over 3 years, they’ll probably have about $1,200,000.

Joe: $1,200,000. Okay.

Al: And they’re, as you say, they’re spending about $100,000, maybe it’ll be $107,000, we’ll call it $110,000. We’ll just round it because, because of inflation, right? So $110,000 into $1,200,000. So, so we’re looking at about a 9% distribution rate. Which is, as you’ve heard from the show, it’s too high, but it’s temporarily a 9% until the fixed income comes.

Joe: For 3 years.

Al: For 3 years. So I guess the way I might think about this is if you’ve got a 9% distribution rate, and if your portfolio earns 6%, then you’re basically losing 3% a year. So 3% on $1,200,000. What’s that? I’ll just round it up to $35,000, let’s call it they lose $100,000 in 3 years. So that, I mean, you want to see how much your portfolio you’re going to be missing, right? And so by the time then that they’ve got, let’s call it $1,100,000 because they’ve used their portfolio, does it still work? And the answer is yes, it does because there’s a lot of fixed income.

Joe: I totally disagree.

Al: Okay. What do you got?

Joe: Totally disagree. Because if they’re spending $110,000, right? So 3 years, they have no fixed income. So they’re going to spend $300,000, $350,000 from the portfolio. And then from there, from her age-

Al: You’re forgetting the growth on the portfolio.

Joe: You can’t assume growth, Alan. That’s the problem with people. I think there’s so much overconfidence in people when it comes to their retirement. It’s negative 10% or 20%.

Al: All right. Well, you didn’t let me finish.

Joe: Okay. Okay, well go.

Al: Okay good. So I mean, so that’s what the math would indicate that this works. Now if the sequence of return-

Joe: – is gonna blow them up.

Al: If it happens.

Joe: If it- but we don’t know that. So they got a hedge for that risk, right?

Al: Yeah. So if you let me follow through, then what I would say is- it’s me personally, I would want to actually lower my expenses for a few years or have some part time income to try to mitigate that risk.

Joe: I think they’ll have to pull out $400,000 or $500,000 from the portfolio. They got $1,200,000. They’re going to pull out almost half of their portfolio.

Al: You’re way off.

Joe: How am I way off?

Al: Because you’re assuming a zero to negative return. I mean, if you, if you assume that, then why do we even assume a 6% rate of return when we do these calculations?

Joe: What I’m saying is that I think where people get overconfident in their overall retirement is that we’re just talking back of the envelope math, and I cannot assume a 6% growth rate. There’s no way. I would not retire. I would not do this.  Because if the market turns 10% in one year, I don’t think they’d make it. I mean, they could live off their fixed income, but they might have to go back to work, or they’re going to blow out of all of their liquid assets potentially.

Al: Right. I don’t disagree with that. So, what I’m saying, trying to say is, I think if you use a 6% rate of return, it can work. I’m not completely comfortable with that, though, just because of the problems with the market, and it’s hard to count on it. So if it were me, I would have part-time income. I would reduce my expenses, or I might work a couple more years.

Joe: What’s the total dollar amount that has to come from the portfolio? What’s the demand for the portfolio? It’s got to be close to $500,000.

Al: Okay. So for 5 years? Yeah. 500,000.

Joe: Well, you’ve got 3 years of $100,000, and then they have a $12,000 buffer for a couple years until, and then she’s got Social Security of $30,000, and then that’d be 4 years 70, right? So if you add up, I guess all of those shortfalls, I’m guessing it’s over $500,000.

Al: Yeah. At zero growth.

Joe: 0% growth rate.

Al: Yeah. Yeah.

Joe: So then, I don’t know. That seems, could it, could there be a possibility that they get a 0% growth rate over 5 years?

Al: Sure.

Joe: Sure.

Al: I mean, but when we do financial plans for our clients, we assume a 6% rate of return.

Joe: For a 30-year time period.

Al: Sure.

Joe: You’ve got to bridge a gap of 5 years. You cannot assume a 6% growth rate over a 3 or 4 year period, I don’t think. Would it, because- When you’re looking at taking income from a portfolio, don’t we want to have at least so much money in cash or treasuries or fixed income?

Al: Okay, well then let’s go to yours. Okay, so we have $1,200,000, now we got, we got $700,000.  But their fixed income almost covers their expenses, so who cares?

Joe: Okay, the math will work.

Al: Right.

Joe: But do you think they would stick with that plan?

Al: In what respect?

Joe: Okay.  That $1,200,000 million goes to $500,000.

Al: It goes to $700,000.

Joe: $700,000. Yeah. Do you think they’d stick with it?

Al: I wouldn’t. I would go back to work.

Joe: Right. I know. They would freak out.

Al: But all I’m saying, though, is if their fixed income mostly covers their expenses, it doesn’t, they don’t need the $1,200,000.

Joe; After age 70.

Al: Correct.

Joe: Okay.

Al: Well we just- I just did your math, right?

Joe: Yeah, yeah, yeah. Alright. So if, I mean, it could go down to $100,000. It doesn’t matter according to their, the math, because their Social Security and their pension just about – is gonna cover their living expenses.

Al: Now, would I be happy with that? No. I mean, I would go back to work if that happened, but mathematically, chances are they’ll be at a rate of return. You can’t, you don’t. You can’t really count on that, but if you take the worst case, zero, you know, full draw from the portfolio, I think it still works because of their fixed income.

Joe: I think that’s the reason why they probably wrote in.  I wouldn’t do it. There’s no way.

Al: To get us fired up. I would do it with, with the thought that I would need to figure out some part time income during, during a few, maybe at least the first couple of years.

Joe: Cut your spending in half.  That sounds like fun.

Al: I wouldn’t cut it in half, but I might, I might bring it down a bit.

Andi: When you shift from saving for retirement to spending in retirement, your financial strategies need to change too. Download the Withdrawal Strategy Guide from the podcast show notes and learn how to identify the most efficient plan for when and where your retirement income will come from, and which tax-smart tools allow you to keep more of what you’ve earned, and give less of it to the IRS. Just click the link in the description of today’s episode in your favorite podcast app, go to the show notes, and download the Withdrawal Strategy Guide for free. You can also quickly spitball your own retirement readiness just by clicking the free retirement calculator link there in the show notes.

EASIretirement.com Says I Should Convert More to Roth. Asset Allocation for Daughters? (Chuck, SC)

Joe: “Hi Andi, Joe, Big Al, new listener. Love the show.” Thank you very much. Chuck. He’s from South Carolina.

Al: Okay.

Joe: “My wife, two daughters, and a dog, we all live in South Carolina. I drive a 2021 Ford F150, my wife, 2022 Palisade, my oldest daughter, she drives a Jeep Wrangler.” What’s a Palisade? It seems like a bigger truck.

Al: I would guess.

Joe: He’s got a Ford F150.  Yeah. Palisade.

Al: Yeah. I would think it’s- I don’t know.

Andi: It’s a Hyundai.

Joe: Hyundai Palisade.

Al: Is it a big one?

Andi: We’re waiting for the picture to load. One moment, please.

Joe: Alright.

Andi: Ah, yeah, it’s an SUV. Okay.

Al: There we go.

Joe: “My wife, she sips on a little sauvignon blanc. And I enjoy- I enjoy just about everything.” Oh, Chuck.

Al: Chuck.

Joe: Yeah.

Al: Chuckie. Didn’t we go to college with Chuck?

Joe: We might’ve.  “My wife and I are 46, and we just retired late last year. Wow. 46 Al, retired.  What are you gonna do?

Al: I’m late to the game.

Joe: “We spend about $150,000 a year and we have the following. Okay, 46 yo.  $50,000 in HSAs, $200,000 in 529 plans, $450,000 in inherited IRA, $1,200,000 in a traditional IRA, $1,300,000 in Roth IRAs, and $1,400,000 in taxable accounts.”  Jeez! How do you accumulate $4,600,000 at age 46?

Al: I don’t know. I’d say that’s quite a success story.

Joe: That is phenomenal. All right. He’s got a couple questions for us, Al. “Would you guys do a little spitballing for us?”

Andi: No, why do you guys only spitball?

Joe: No, why do you guys spitball only doing Roth conversions up to the 22% or 24% tax brackets?” Well, because the math makes sense, usually.

Al: Yep.

Joe: But, I’ll read on.

Al: Let’s see what his comment is here.

Joe: “When I run the awesome tool on EasiRetirement.com-“ Oh, he liked the little EasiRetirement.com.

Al: Yeah.

Joe: “- I actually save about $20,000 in taxes if I convert all of the traditional IRA over the Roth in two years, reaching the 35% tax bracket versus doing it slowly at $225,000 a year over 7 years at a 24% tax bracket, which has me paying tax on nearly $1,600,000 and not just the $1,200,000 that’s in the account today. Seems like some folks are overemphasizing tax bracket and less on tax dollars.”  So here’s the pro and con of this statement.

Al: Yes.

Joe: Is when you play with calculators, it’s going to run a certain rate of return and I’m not sure what Chuck ran.  So, the faster you convert, the more compounding is going to happen in the Roth IRA. If you keep the money in the IRA at the same rate of return and convert to whatever bracket, you’re going to have more money compounding in the IRA and you’re trying to get that money out so you have actually more money in IRA that you potentially will pay more taxes on.

Al: That’s correct.

Joe: So that’s why the calculator is telling you that could be a better idea. However, you might wanna be careful.

Al: Yes, because there’s something called the present value of money. And when you look at paying taxes today, it’s more expensive than paying those same dollars in the future. And here’s why. I’ll try to be simple. If you think about investing $1, and in 10 years that dollar’s worth $2, this works in reverse, right? The $2 that you have10 years from now, spend 2 years from now, is like spending $1 today. It’s for the same principle, right? So you just have to look at when you’re paying the taxes and how this all works. It’s not just a raw number. You have to look at when those payments were made.

Joe: But there is a lot of benefit to him converting, ripping off the band aid. The guy’s got $4,600,000 at 46, and he’s going to have several years of compounding tax-free growth at 35%. I mean, he’s going to pay 35% over a couple of years and pay the tax, bite the bullet, and then never, ever have to worry about taxes ever probably again.

Al: Yeah, except for dividends and taxable account and Social Security, but that’s about it.

Joe: Right. I mean, if he tax manages the account, it would be minimal. Sure. Right. He can use tax efficient ETFs. Sure. So would I do this? Um, the answer is probably no. I would still convert to the 22% or 24% at 46 still. But-

Al: I would too, because I think if you- I’m guessing what Chuck- Chuck is just looking at a run that he’s paying taxes on a higher balance.

Joe: And it’s because it’s a straight line rate that you love to run because you live it. That’s your life, Al.

Al: Everything is very measured.

Joe: All right. So he’s got a second question here about his asset allocation. He goes, “Today I’m 100% stocks, low cost index funds. I hear you guys tell people in the 30s who have 20 to 30 years until retirement to be in stocks. If my goal is to leave as much possible to my daughters, which God willing will be 30, 40 years from now, shouldn’t I be 100% in stocks as well? Really appreciate the spitball. And again, love the show, Chuck.” I hear you guys tell people in their 30s who have 20 or 30 years until retirement to be all in stocks. Well, he’s gotta live off of some of this money, doesn’t he?

Al: Yeah. Well, sure.

Joe: At 46, he wants to spend $150,000 a year. Does he still stay all in stocks?

Al: Well, there’s no pensions. So here’s what happens. So the market does a correction like the great recession. It goes down 50% and you’re still pulling money out. It makes it harder to recover. That’s what we would tell you. And here’s the other thing that happens is psychologically, maybe Chuck, you’re different than most, but most people, when the market has a big decline, they get so nervous that they’re losing their nest egg that they sell and what does that do?

That locks in the losses. So. There are exceptions. If, if you’re the, if you’re the one out of 100 that can follow this through and just keep staying the course, you’re going to probably do better. But most people can’t seem to stomach that.

Joe: All right. So when you’re looking at income strategies in regards to asset allocation, a couple of things that people look at, there’s like a bucket strategy. Right. So you want to bucket certain safe dollars for a certain amount of years, 3 to 5, 10 years, depending on risk tolerance. Right. So let’s say he wants to spend $150,000 a year and you’re like, okay, well, if I need to pull $150,000 a year from the portfolio, maybe I want 5 years of safe money. That’s $750,000. I divide that into $4,600,000. So maybe he has 16% in bonds or safe money and the rest in equities. Right. Just to weather out the storm, if the market drops 20%, 30% over a couple years and you give it 5 years to recover.

Al: Sure.

Joe: Another way to look at this is that he wants to spend $150,000 a year, and he’s all in stocks, and he’s got $4,600,000.  So depending, he’s in low cost mutual funds, so I’m guessing total stock market mutual funds.  Yeah. Look this up. I don’t know enough. I’m guessing the dividend yield on a total US stock market fund is a couple percent.

Al: Yeah, that’s usually-

Joe: 2.5%?

Al: Maybe 2%. Somewhere between 2%, 2.5%, I’m guessing.

Joe: All right, so let’s go 2.5% there. So that’s $115,000, $120,000. He wants to spend $150,000. Maybe the dividends almost covers his living expenses.

Al: Maybe so.

Joe: So if there’s a down year, usually the dividends will hold even though markets drop.

Al: Didn’t hold during COVID.

Joe: Oh, some, some stocks won’t, they’ll cut their dividends. So it really depends. The dividend yield on a total US stock market fund, it’s not going to go to zero. Right. Right. There’s still be some income or- or depending on what that portfolio looks like. So I don’t know. There’s a couple of different ways that, that he could look at this. It’s VTI, it’s what, 1.4%?

Al: Yeah, I mean, I think- I think when you look at a globally diversified portfolio, you know, it’s, we’ve usually seen around 2%, maybe a little more, but anyway, I think that’s a good way to look at it. I think to me, I say I would probably go with the 5 year, $750,000 in safety, just-

Joe: That’s what I would do.

Al: – if nothing else, just psychologically, but- but the truth- the truth is, I think you could run almost every scenario unless that the market declines and never goes back up, which that’s never happened. But anyway, if it’s, you’re- you’re going to probably do better long term 100% stocks, no matter what you do, if you can stay the course. And that’s most people can’t.

Joe: When you see your account balance from $4,600,000 to $3,200,000, how eager is he going to be selling some of those securities to pay, you know, take $150,000 out for his income?

Al: It gets harder, right?

Joe: It’s really difficult to do that.

Al: And then what can happen, now it sounds like, uh, Chuck, this is not your case with your investment strategy, but some people, we’ve heard of a case where someone had $13,000,000, but it was most, it was highly concentrated.

Joe: Oh, that was you.

Al: In a few stocks.

Joe:  Was it, wasn’t that you?

Al: No.

Joe: You wrote in?

Al: It’s my brother.

Joe: That you wrote in?

Al: And then ended up. Losing, getting all the way down to about like $2,000,000 or $3,000,000. And that was a life changer.

Joe: But yeah, it wasn’t, didn’t your neighbor kind of blow up?

Al: Well, yeah, that was another case too. Stock options.

Joe: We had someone came in and just a week, but they had millions in what was a snow 3 days stocks down, you know, 40%.

Al: Yeah. Yeah. The, the, yeah. One that I’m referring to, it was a high tech company right before the dotcom bust, the stock price went from $180 to $4.  So that’s it- so that’s why we, we like concentrated positions. If you’re on the right side, I mean, that’s how you build wealth. But in terms of keeping wealth, you want a globally diversified portfolio because you don’t want to be so reliant on one stock.

Joe: At 46, you got $4,600,000.  I mean, what’s enough?

Al: Yeah.  Well, clearly they have the ability to earn money if they- if they need to go back. Because, I mean, if, if it was all in a taxable account, then you would think, okay, well, inherited or maybe you were lucky with your company, got a whole bunch of equity, but you look at 46 with all this retirement money, these guys know how to, know how to make money and save.

Can I Undo My Roth Conversion? (Roth Aholic)

Joe: We’ve got a Rothaholic. “Hello gang. Love the podcast while I’m trying to burn some calories. I’ll spare you and the listeners, the details of my life, as I typically get depressed while thinking about my boring life.” As the World Turns, here. “Drinking would help, I’ve been told, but been run over by that lousy sobriety, sobriety-” I can’t even say it.

Andi: He can’t even say the word sobriety.

Joe: – sobriety-

Al: Or you don’t wanna say it.

Joe: “- sobriety wagon a decade ago.” All right. Well, congrats.

Al: Yeah. Absolutely.

Joe: “Each January I contribute the max amount after-tax to a traditional IRA, and shortly after do 100% backdoor conversion to the Roth IRA. I don’t have any other IRAs, so relatively easy to do the tax reporting. This year I did the old backdoor Roth conversion January 9th, but 19 days later, I want to undo the after-tax Roth conversion because I now believe I’ll be taking a lump sum of for the pension.” So he did after-tax contribution, converts it right away, everything’s honky dory, does it in January, which I highly recommend a lot of people do. Because you get the compounding tax-free effect of the whole year. Instead, people usually wait till later in the year. I get it because sometimes this happens.

Al: This happens. So, basically, if you don’t have any other IRAs, then this works great, right? Because you put the money in, you convert it, none of it’s taxable. If you have other money in IRAs, then you’ve got to do the pro-rata rule to figure out how much is taxable. And unfortunately, the IRS looks at the amount of money you have at IRAs at year-end, not at the time you do the conversion, but at year-end. So the question here is, can he undo it?

Joe: So he did a 2024 backdoor Roth conversion of $8000.  Estimated lump sum is $410,000.  He’s going to roll the $410,000 into an IRA. Yep. So now he has $418,000 in IRAs.  Yep.  “Being that the $8000 was after-tax, do I need to factor in the new traditional IRA that will established?  Losing sleep on how to fix this, so I appreciate your spitballing.”

Al: Okay, so now, now with these numbers, the way the IRS is going to look at it is you’ve got $8000 of basis and you’ve got a total IRAs of $418,000. So roughly 2%ish  of your conversion will be tax-free. The rest will be taxable. That’s-that’s the, the pro rata and aggregation rules where they figure out how much is taxable.

Joe: What did you say it was taxable?

Al: 2%.  Let’s say, ish.

Joe: Tax-free. 2% would be tax-free.

Al: Sorry, 2% is tax-free. I said it backwards. Yeah, 98% is taxable.

Joe: All right. So $160 is going to be tax-free of the $8000 convert. But $8000 was after-tax, so he converted the $8000 in after-tax dollars. So he never paid tax on the $8000, Al.

Al: Okay. And if, if he- if he wasn’t going to do a lump sum in the same year, that would- that would, that would work just like he’s always done.

Joe; But he’s thinking, man, I’m losing sleep. And only 2% of that conversion is going to have the after-tax component, but each year as he’s doing conversions, he’ll get another 2%.

He’ll get another 2%. You’ll finally get the whole $8000 out at some point. Yeah. But you gotta pro rata. Yeah. Do the pro rata rule on the basis versus the pre-tax lump sum pension.

Al: Now before the SECURE Act 1.0, you could recharacterize a Roth conversion, which was a really nice feature for this problem. Now you can’t do that anymore. Once your Roth conversion is made, you can’t undo it. You can’t recharacterize it.  Personally, I wouldn’t lose sleep over this. It’s just, okay, lesson learned. I’m going to have to pay taxes on, on almost the whole $8000. But now you know the rule and you won’t do that again.  That’s how I look at it. I think life’s too short to worry about paying taxes on $8000.

Joe: Yeah. Well, it’s, the net effect could be a lot less than this, if you really want to start playing with the numbers.  So he’s got $8000 that he converted. So you take the $8000, see what that grows to, because you want to convert in the beginning. That’s still in the Roth IRA. He’s going to have to pay tax on the conversion, but the $8000 is still in the Roth, right? So let’s say that the market does- the markets doing pretty well this year so far, right? So let’s say the market does 10%. He’s going to make $800 on the $8000, right? He did the conversion, he’s going to have to pay tax on $7800 because you said he gets 2% free, 98% is going to be taxable, assuming he’s in the 25% tax bracket. I don’t know, what’s that, $1800?

Al: Yeah, but he got earnings in the Roth.

Joe: He got $800 of earnings in the Roth because he converted in January versus waiting until December where he would not add any earnings in the Roth because all of the earnings would have grown in the IRA.

Al: Right. Another way to look at this is this is the exact same tax and math if you did a Roth conversion from an IRA. So don’t lose sleep over it. You got the money in the Roth. Good job.

Joe: Great job Rothaholic.

In Our 30s, Want to Retire at 60. How Are We Doing? (Brian Fantana, WA)

Joe: I want to go to Brian Fontana.

Andi: Fantana.

Joe: Fantana. “Hey guys, this is Brian Fantana.” Okay. He lives in Washington. We got Brian Fontana. “Love the show. Hoping for a little spitball here. Wife 31, yo. Me 33, yo, $200,000 in traditional, $100,000 Roth, $200,000 in income, $135,000 me, $65,000 wife, contribute $40,000 a year to our 401(k)s. We think we want to live off about $150,000 in retirement in today’s dollars. I’d like to hold off on my Social Security until 70, since I’m in a higher income earner and provide some longevity insurance for my wife.” Oh, look at you, Brian.  “Enjoy my job.  I can see myself working into my 60s but would like to plan to be able to retire at 60. Wife would love to retire tomorrow and move to Hawaii with Big Al.” Oh, there you go, Big Al.  “If given the opportunity, how we doing? One kid with another on the way, if that matters.” Yes, that matters, sir.

Al: Would you know about that?

Joe: Oh, my God. Do I ever.

Andi: Does that change your expenses a little, Joe?

Joe: It’s crazy. It’s unbelievable. It’s unbelievable.  And then you- it’s like, you can’t even spend money on yourself anymore without feeling like the guilt.

Al: Yeah. Right?

Joe: It’s like, I cannot splurge. Remember when we used to do this segment of like the stupid purchases I would use to do?

Al: Yeah, yeah. You don’t have those anymore.

Joe: No.

Andi: The giant golf bag, the Star Wars helmets.

Joe: $2000 on a Darth Vader helmet or something stupid like that.

Al: I remember that.

Joe: Oh, it’s great. Yeah. Now it’s in a box in the attic. Right. And then if I spend like $100 on something, I was, I just feel, Oh God, maybe I should put that in a 529.

Al: Wow.  Wait a minute. Are you becoming a dad?

Joe: No.

Andi: Things have changed.

Joe: Yes, I am.

Al: You are a legitimate dad now.

Joe: It’s yeah. Anyway, if you’re on track, I’m sure you ran some numbers, Al.

Al: No, I didn’t, but, but you’re on track. So, here’s, here’s my quick calculation for someone that’s young. Is, your goal is to get up to 20% savings. And you’re already there. Yeah. Saving $40,000 out of $200,000.

Joe: Just wait until that other kid comes along. Forget about it. Dance class, gymnastics-

Al: Try to keep saving 20%, but here’s what we often happen, you’ll save a little bit less for a few years and then you’ll start saving a little bit more and catch up, blah, blah, blah. But Brian, you’re- based upon what you just told us. And you’re going to work until you’re 60s. If you told us you want to retire at 41, yeah, you need to be saving 60% or 80%. I don’t know, whatever, but yeah, what you told us in broad terms. Yeah, I think you’re doing the right thing.

Joe: Very good.

What’s the Right Asset Allocation for Aging Parents? (Scott, Kansas City, MO)

Joe: All right, let’s go to Scott from Kansas City, Missouri. “I have two siblings and aging parents with a large retirement balance that do not need money. I’m not managing their money. What type of asset allocation I have for them knowing that most likely the money will get passed on. Currently they have 50% stocks, 25% bonds, 25% money markets.” Okay, this seems about right. “Can you give me a little spitball? Like a little Coors Light, my wife likes Pinot Grigio.” What do you think? I don’t know, is asset allocation good? I totally forgot his question.

Al: Well, he’s got aging parents that don’t really need the money. It’s probably going to him and his two siblings. He’s got an allocation of 50% stocks, 50% bonds and cash. Is that right? Should it be more aggressive? I think- I think that’s what he’s trying to imply. Should it be more aggressive? Cause it’s really probably going to be for myself and my two siblings. Now I would, here’s how I would answer it. I think it’s about right as is because you don’t know that your parents are not going to need it. So I would rather have some safety here and maybe a lot of safety. Just because as people age, if they need extra care, that can be pretty pricey. I’d want to have safety for that to cover that. But you still have 50% in stocks if they don’t need it, which will help you guys.

Joe: Yep.  Yeah. I’m on board with that.  Okay. Thanks, Scott.

Andi: If you haven’t been to our website in a while, this would be a good time to check the podcast show notes for some brand new free financial resources. Our latest blog post will walk you through choosing a qualified financial advisor that meets your needs. If you’re a self-employed small business owner, we’ve got a new guide that will tell you what you need to know before filing your taxes. You can watch our newest tax planning webinar on-demand to learn how tax loss and tax gain harvesting, net unrealized appreciation, the Roth conversion and the Backdoor Roth can save you money in taxes. And download this week’s special offer, the Retirement Lifestyles Guide. Click the link in the description of today’s episode in your favorite podcast app to go to the show notes and get immediate access to all these latest free financial resources. Have you shared the show and the resources with anyone lately? It’s a good time to do that, too.

IRA vs. Roth for Living Expenses? (Ricky, Birmingham, AL)

Joe: We got Ricky from Birmingham, Alabama.  “68, currently in the process of Roth conversions and managing to stay away from IRMAA.” He wants to stay away from it.

Al: Yeah, IRMAA equals bad.

Joe: IRMAA’s a little bad neighbor. “My IRA drawdown  currently 41%.” So what is he saying here? 41% of living expenses, 59% of Roth. So that equals 100%. So out of his IRA distribution, he’s living off of 41% of it and converting 59% of it?

Al: Yeah, I think that’s what he’s saying.

Joe: You think he’s an engineer?

Al: Well, it wasn’t 59.35.

Joe: Yeah, I suppose. “Social Security covers all of the income taxes and the rest of my living expenses. What would you advise? Keep doing it this way or let the entire drawdown go to the Roth and use the Roth to pay the rest of the living expenses?  Thanks. P. S. Yes, I’m the LSU guy in enemy territory.” Oh, yeah. I remember, Ricky. Ricky’s real fast.

Andi: I knew that was coming.

Joe: Ricky – Ricky’s real fast.

Al: Yeah. I think that’s what you said last time.

Joe: Yep. Ricky Anderson loves talking in third person.

Al: He does – or did? I haven’t heard from him in a while.

Joe: So, I don’t think it matters.

Al: It doesn’t matter at all. I mean, you’re paying the same tax. In other words, whether you put the whole thing in a Roth, and pay the tax and then pull some out to pay your living expenses or you take what you want directly to your brokerage account and then- and then the- what you’re doing is just fine. I mean, so what could be the difference? I guess- I guess it’s compounding. Yeah, if the account goes up, then you’ll have- you’d be happy you put it in the Roth because more will be in the Roth. So that could be- if the account goes down, you’ll be sorry you did it.  I wouldn’t worry about it. Just take what you need in each.

Joe: Yeah, I think that’s, that that’s, that’s right.  You want to leverage as much money as you can in the Roth, let’s say is a high rule of thumb.

Al: Yeah. And the market, based upon the last 100 years, goes up two years and down one, if you just look at it that way.

Joe: But if he’s, he’s got more money in the Roth IRA, that’s just more shares in the Roth versus taking money from the Roth. I guess I wouldn’t want to take any money from the Roth if I didn’t necessarily have to, if I’m doing conversions.

Al: Yeah. Well, I mean-

Joe: Then why convert? If you convert and then the next day take it out, don’t convert, just give it as a distribution.

Al: What’s the difference? I think it’s just the time the money’s in the Roth maybe is the question.

Joe: Well, if he can live off of the Social Security and take a distribution, so let’s just say in round numbers, $100,000 is what the distribution is, so he’s converting $59,000 and living off of $41,000. And then the other, whatever dollars that he has in Social Security is paying his taxes and the other living expenses. That’s what I would do. Then I would convert the $59,000 and continue to convert and not take any money from the Roth.

Al: Yeah, agreed. But it’s kind of the same same.

I know. We’re splitting hairs.

What Counts for Medicare IRMAA? (Daniel, Whittier, CA)

Joe: I got Daniel from Whittier-

Andi: Whittier.

Joe: Whittier.  Thank you, Andi. Whittier, California.

Al: You ever been there?

Joe: No, never heard of it.  You?

Al: Yeah, it’s near LA. LA?

Joe: LA? Like Thousand Oaks?

Al: I’m not sure where it is. I just know it’s in LA somewhere.

Joe: Got it.  “Hi guys and Andi. Love, love, love, love the show.  I always look forward to Al’s wisdom and Joe’s humor.”  See, I’m laughable. You’re the smart guy.  “I like to listen to the show while driving in my 2007 Toyota Tacoma or on long trips in our motorhome-” Ooh, that’s cool.

Al: Nice.

Joe: “- 22 Renegade Valencia, which we tow our 16 Jeep Wrangler.” Oh, one of those.

Al: Wow.

Joe: I wonder if they got a little tire cover that says ’Life is Good’.

Al: You know, they probably do.

Joe: They probably do.

Al: Because life is good.

Joe: Life is great. “Here’s our financial history. My wife and I are both retired. We have a combined Roth IRAs of $700,000, IRAs of $400,000, and $100,000 in the bank.”  So what $1,100,000, $1,200,000.

Al: $1,200,000. That’s right.

Joe: Okay. “No bills except the utilities.” That’s it. That’s all they have is utilities. Al.

Al: Okay. That’s pretty good. They don’t- they- they learned a way not to eat.

Joe: Or bathe or-

Al: Don’t need any toiletries.

Andi: Never go out.

Joe: They just hang out in the motorhome. Yeah. Alright. And somehow they get free gas along the way.

Joe: Got it. “House, cars and motorhome are paid for. This information has nothing to do with my question, but I thought I’d include it.”  Right.  Thank you for that.

Al: Yeah, okay.

Joe: “We’re both collecting our Social Security, which is about $38,000, $32,000 of it’s taxable. I get yearly CalPERS medical pension of $120,000, but only $45,000 taxable. I was hurt on the job and was forced to retire.” I’m sorry to hear that. “We also have converted IRA money to the Roth yearly. So far about $450,000 over the past 4 years. We both turned 65 years old in September and November of 2024. My question is about Medicare and IRMAA. I know IRMAA is based on two years prior. So I’ll list our incomes.” All right, so they “converted some money, they got pensions, they got Social Security, total taxable income was roughly $202,000.  I know this number is close to the top of the lowest bracket of IRMAA, so I’ve got two questions for you. Does the standard tax deduction get deducted for IRMAA?”

Al: No.

Joe: “Does my tax-free medical pension get counted for IRMAA?”

Al: No.

Joe: All right. There you go.  “I tried to research this, but get conflicting answers. Thanks for your help. Lastly, we don’t drink. Sorry, Joe. I know you always look forward to that info.” So the whole discussion about open container, it was, it’s irrelevant.”

Andi: Well, for Daniel, but not necessarily for Joe, if he wants to get a motor home.

Joe: I don’t know. He lives in Whittier. Maybe he comes down to San Diego, picks me up, have a Coors Light in the back.

Al: Then we’ll need to know. Right?

Andi: Yep.

Joe: Oh, I’ll answer some more questions on IRMAA. Yeah. All right.

Al: So IRMAA, it’s an income calculation where you figure out how much tax you have to- not tax, how much you have to pay for Medicare premiums. You look back two years and you use your adjusted gross income. Plus, tax-free interest, right? Tax-free interest. So it’s no more complicated than that. Daniel, the reason why you got conflicting advice is there’s probably 20 different modified adjusted gross income figures for different things. And it’s super confusing, I agree with you. But in terms of this one, it’s not very complicated. Adjusted gross income plus the tax-free interest. And don’t worry about anything else.

SECURE Act 2.0: When Can We Transfer 529 College Savings? (Elisa, Fremont)

Joe: We got Elisa from Fremont. “Hi, Joe and Big Al.” Oh, left out Andi.

Andi: Sometimes it happens.

Joe: “Continue to enjoy your show.” She does. She continues to enjoy it.

Al: I was worried. I’m glad she wrote in to tell us.

Joe: I don’t know how you continue to enjoy this crap. I really don’t.  “We have excess funds in the California 529 that we would like to roll over to our son’s IRA, since he did not use all the funds.” All right, so they’re going to do a little SECURE Act. Okay. 529 jobber.

Al: Brand new.

Joe: “My husband is shown as owner and son as beneficiary. The rule states it must be 15 years old, which it is, and the contributions and earnings that you transfer must be 5 years.  So since our son graduated in 2019, we have not used money from that account for years, but it has been earning money over the last 4 years. We have to wait another year, would appreciate your input on this. Still driving that Honda inside taking care of our Yorkie poodle.”  I have no idea what the answer is here.

Al: Well, let’s recap the rules. So- so the SECURE Act 2. 0 allows you to take extra money in a 529 plan and convert it to a Roth IRA with- with a lot of stipulations.

Joe: But you can only put $25,000, something like that.

Al: I think it’s $35,000 total. The account must have been opened 15 years ago. The last contributions had to be, well, or at least the ones you’re converting, have to be at least 5 years old. And you can only convert the amount of what a IRA- IRA or Roth contribution is, right?

Joe: So basically you’re taking the money from the 529 plan and it’s eligible for a contribution. So you’re just transferring the 529 plan into a Roth, but there’s all these stipulations. You have to have earned income, right?

Al: Yeah, that’s the other one. You have to have earned income to be able to do this for like a contribution, but you’re doing this instead. So, so at any rate, I think what it says is that the contributions have to be at least 5 years old. I don’t recall it ever said anything about earnings. I think it’s- I think-

Joe: – contributions?

Al: Well, the original contributions in the plan. So in other words, the plan’s at least 15 years old and the last contribution made was at least 5 years ago. That’s what, that’s what it’s saying. And I, so I think you’re fine. I mean, I don’t think it’s the earnings because if it were, you could never get it all converted because there’s always earnings before you convert. So I think you’re okay, Elisa.

Joe: Thank you for continuing to listen. Yeah. What else? Are we good?

Andi: If you wish, yes.

Joe: All right. Yeah. I think I’m good today.

Al: Okay. Great show today, Joe.

Joe: Phenomenal show. Way to go, Andi. Wonderful show.

Andi: Hey, well, thank you. Well done, Joe. Thank you for sticking it out for us.

Joe: Yes. I’m a little tired.

Andi: Yeah. A little.

Joe: Yeah, I’m getting my butt kicked here at the office lately, so. I’ve been drinking like Celsius, like no one’s-

Andi: That’s what’s been kicking your butt. You need to be getting enough sleep, Joe.

Joe: Yeah, you’re right. Because I didn’t get enough sleep. And then I got a little one comes into my bed at two o’clock in the morning and says, I want to cuddle for 5 minutes. And it’s like-

Andi: Awwwww-

Al: And then you’ve got a new dog too. No rest.

Joe: It’s just, yeah. All right. Well, it’s all good.

Al: Yeah. Yep. Cool.

Joe: All right. We’ll see you guys next week. Thanks for everything. The show’s called Your Money, Your Wealth®.

Andi: Introducing me, motorhome life, pino grigio vs. pinot noir, and movies vs. documentaries in The Derails, so stick around.

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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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