Marcus Garrett
ABOUT Marcus

Marcus Garrett is the host of the Paychecks & Balances Podcast and author of "Debt Free or Die Trying." Marcus obtained a Bachelor of Arts in Business Administration and has over a decade of professional experience as a Certified Internal Auditor. Marcus has also written about a wide range of topics including, current events and relationships. He focuses [...]


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
January 1, 2019

Marcus Garrett from Paychecks and Balances and author of Debt Free or Die Trying tells us the four simple actions he takes to make his New Years resolutions stick. Plus, Joe and Big Al answer your money questions: Do I owe taxes on a property gifted to me? Why would I use a financial advisor? And what are the small business owner limits on Roth and 401(k) contributions? Happy New Year from Your Money, Your Wealth®!

Listen to the podcast on YouTube:


Show Notes

  • (00:53) Marcus Garrett: How to Get Debt Free or Die Trying
  • (08:13) Marcus Garrett: Keeping Your New Year’s Resolutions and Making Passive Income
  • (20:50) Do I Owe Taxes on a Property Gifted to Me?
  • (26:21) Why Would I Use a Financial Advisor?
  • (31:58) What Are the Small Business Owner Limits on Roth and 401(k) Contributions?


Happy 2019 from Your Money, Your Wealth®! Today on the podcast, as always, Joe Anderson, CFP® and Big Al Clopine, CPA are resolving to answer your money questions: Do you owe taxes on a property gifted to you? Why would you use a financial advisor? And what are the small business owner limits on Roth and 401(k) contributions? How about you, have you made any New Years resolutions? Do you want to actually keep them this time? I’m producer Andi Last, and before we get to your emails, Big Al and I are talking to Marcus Garrett. He’s the co-host of the Paychecks and Balances podcast and he’s also the author of Debt Free or Die Trying: How I Buried Myself in Over $30,000 in Debt and Dug My Way Out by Age 30! Marcus may have an idea or two based on personal experience on how we can make our new year’s resolutions stick, whether they involve getting out of debt or starting a passive income stream.

:53 – Marcus Garrett: How to Get Debt Free or Die Trying

Al: Marcus, how are you doing?

Marcus: Hello. Thank you for having me.

Al: Hey you know what. First of all, and I know we got a lot to talk with you about, but you wrote this book called Debt Free or Die Trying. So I got to ask you about – what’s the story and what are some of the messages in the book?

Marcus: Well I’m trying not to get sued here, so… (laughs)

Al: (laughs) Tell us what you can tell us!

Marcus: Yeah. The motivation, I won’t say it was the actual source, but it’s actually Mr. rapper 50 Cent, Curtis Jackson I believe is his legal name, who had “Get Rich or Die Trying” and I was like, “you know what, that’s really catchy, but I don’t want him to reach out and sue me so he just motivated me strongly to come up with Debt Free or Die Trying because I believe that’s the other side of the coin, if you will. And more so the story that I can relate to, because I was not rich then, I am presently not rich now, but I am debt free. And so the quick version of it is, the tag line is “How I Buried Myself in $30,000 in Debt and Dug My Way Out by Age 30.” I’m six years senior to that now, so I’m 36. But the quick version is, I spent $26,000 in one weekend coming out of college.

Al: Oh no!

Andi: Marcus! (laughs)

Al: How did that happen? It must have been quite a weekend.

Marcus: People ask me, “do you regret it? Is it like the worst experience ever?” And actually it’s the complete opposite – it was the best experience ever. (laughs )I don’t know of anyone who’s ever tried to spend $10,000 in one weekend – that’s like a piece of it. So the short version of it, as detailed as you’d like to go – and the story is out there on the internet for anybody that wants to read it just Google it, because I’m not sure if it’s a record but I think I’m the only one that spent that amount of money in one weekend.  I graduated school with $9,000 in credit card debt. I had signed up for, of course, the t-shirt and the yo-yo like several other senior millennials like myself, when you go into the mall area of the campus and they had a t-shirt and a swag out and they’re like, “Hey, just sign your life away here and you get this t-shirt!” I’m like, “cool!” I didn’t really know what a credit card was. I maxed out three. And I still had a pretty good credit score somehow, and they sent me a debt consolidation offer in the mail. So I call that “the graduation and credit card debt.” And I didn’t really know what it was, still didn’t really understand what debt consolidation was. I think I applied for the one that looked the most friendly and they mailed me, a 22-year-old who had already spent $9,000 despite never making more than $19,000 in my entire life, a blank check – well it seemed blank at the time, they sent me a $10,000 check. In my head, I thought they would pay off all the credit cards on my behalf.

Al: Oh no. And you spent that too.

Marcus: I had a girlfriend at the time who was also a financial enabler who was like, “Make it rain.” (laughs) And so we went out with that “blank check.” I spent $7,000 of it. if you will. I could even spend it all. I did manage to spend the majority of it. I paid off one of the three credit cards and then I bought a $13,000 used car, no downpayment, I was like, “You know what? I got $10,000. People with $10,000 don’t negotiate, that’s not what I do.” So I bought a used car – with rims because I had my taste. (laughs) For those keeping track at home, that brings me up to $23,000. And I bought – and people don’t believe this – a flat screen 32 inch TV and it was $3,000  at the time. So that gets us up to the $26,000 in 72 hours, and then I spent the next seven years of my life paying that off.

Al: Oh my goodness.

Andi: Seven years to pay off one weekend.

Al: So Marcus, a lot of our listeners are retirees, but they have a lot of kids and our grandkids that are in this kind of situation, and what would you tell them to get out of debt?

Marcus: Well, I would say no one is, I still think it’s to plan – and I think for those people if you’re gonna have a conversation with your grandchildren is not to lecture. It might be a little bit difficult but come more from a relatable place. So that’s why I tell that story. It’s actually a story I used to be very ashamed of. And some advice that I got was actually to take ownership of it because it’s both a unique story and a relatable story. So for those people who want to relate to their grandchildren, I would start with, “here’s a time or a lesson I learned or experience in which you can relate to,” so it doesn’t come across as a lecture. I still think that all folks can relate to the plan is the starting point. I kind of break it down, I use the acronym now, so it’s DEBT. So D would be “define a plan,” “define the problem,” really. So I’d like to go to AnnualCreditReport.com. There’s several different apps and websites of course that people can use now, but most people don’t even know how much debt they have. I did not. I just spent, and because I graduated college, like all college students, I thought six figures would come rolling in because that’s what you go to school for.

Al: And you were you were a business major so you figure you’re on easy street, right?

Marcus: Of course. (laughs) E is “establish a plan,” so whether that’s, I think the two most popular are the debt snowball, where you arrange your debts by – and made popular by Dave Ramsey, of course – you arrange all your debts by the lowest amount and then pay it off, and then the debt avalanche is you arrange all your debt by the highest percentage and pay it off. The reason he and I would also recommend the debt snowball is because it tends to be more psychologically beneficial. So you see that debt go down immediately, and a lot of people need that moral victory as well, especially in the beginning to stick to a plan.

Al: I think you’re right because you see one debt going away and you go, “Okay, I can do this.” And then you start to get more confidence.

Marcus: Yeah. I call in “not underestimating the power of zero.” Seeing debt at zero, there’s just an emotional, intangible win that comes from that.

Al: So congratulations, so you got out of debt and you decided, “I think I want to share this message to others,” and has the book been going?

Marcus: I self-published the book, and because the way that Amazon is set up – and I’ve actually self-published a separate one, “How to Build a Plan That You’ll Actually Stick To” as an e-book – I have no idea how many that I’ve sold, because Amazon has got all these weird algorithms that I’m trying to understand, but every month or so I get a royalty check. So I’m happy. (laughs)

Al: Excellent. Good for you.

Andi: I want to hear the rest of the acronym though – what are the B and the T in DEBT?

Marcus: So the B would be “build a budget.” I now currently use an 80/20 but I actually recommend people, when they’re starting out, to use a 50/30/20 – so 50 for needs, 30 for wants, and 20% is always allocated to something responsible, whether that’s debt management, saving for retirement, or building your emergency fund. And then T is just “trust the process” or “time will pass on its own,” whichever is applicable.

Al: That’s great.

Marcus Garrett’s Acronym for Getting Out of DEBT: 

D – Define a plan / define the problem

E – Establish a plan

B – Build a budget

T – Trust the process / time will pass on it’s own

If you’d like to read more about how Marcus Garrett triumphantly dug his way out of debt, visit the show notes for today’s episode at YourMoneyYourWealth.com to find the link to his book, Debt Free or Die Trying, as well as the link to Paychecks and Balances, the funformative millennial podcast about work and money that Marcus co-hosts with Rich Jones. And while you will find transcripts of every one of the last 201 episodes of this podcast at YourMoneyYourWealth.com, the transcript of this interview will be in the show notes by the end of the week – because let’s face it, working overtime heading into the holiday weekend was not one of my New Year’s resolutions! Speaking of which…

8:13 – Marcus Garrett: Keeping Your New Year’s Resolutions – and Making Passive Income

Marcus Garrett’s Tips for Keeping Your New Year’s Resolutions: 

1. Use a whiteboard (okay, it’s really a vision board) to make your goals visible

2. Break them into smaller chunks of time – monthly rather than yearly, for example

3. Take pictures or record to track progress and changes

4. Break the larger goals into sub-goals by making lists. (Lots of lists.)

Al: We’re at the time of the year where people are making New Year’s resolutions. So tell us how you think about that process?

Marcus: Something I started in roughly 2016 – I try to shy away from it but it actually is a vision board – it’s technically a whiteboard. And so I only shy away from it because I think “vision board” is like really corny, it reminds me of like #thesecret.

Al: (laughs) That’s exactly what I think when I hear vision board!

Marcus: (laughs) With that being said, I looked it up before the show. So 80% of New Year’s resolutions fail by February. A lot of people don’t even remember their previous year’s New Year’s resolutions, so I like to break it down into micro goals. So what I did in 2016 is I broke it down by quarter because I’m a crazy person, I’m also an auditor, so it’s very easy for me to fall into this. But what does that plan look like from month to month? You establish this huge, usually lofty, usually impossible or improbable personal goal and then it fails, and that’s because you didn’t really break down with those action items look like. So we like to call them The Big Ask or actionable tips on the show. What are you actually gonna do from day to day or week to week? One of the most useful tools, which is kind of funny to people is, they ask me what apps and which investment advice and what sites that I go to – the most useful tool I have is actually this little whiteboard calendar that I use that I got from Walmart for $9.99. I wipe it off every month and I just write down from January 1st January 30 what bills I have to pay, what action items I need to take to be successful this month, and it’s the most useful tool that I have. It’s actually the cheapest one I have next to free. And it still keeps me motivated from year to year. And what I’ve seen from ’16 to now going into ’19 is ’16 was this really crowded, overwhelming board. ’19 is very simple and I’ve been able to see the progress I’ve made, the things that I’ve been able to take off and keep track of, and I take either a picture or a snapshot and it allows me to see the progress.

Andi: I was going to ask you if you’re wiping it off at the end of every month, how are you able to keep track? But yes, taking pictures of the whole thing so you’ve got the entire process.

Marcus: Well that’s an excellent question, because I do take a picture each month, and I can even see simple changes like – there’s a company who’s not to be named, because once again, I don’t want to be viral on Friday, fired on Monday as we say on the show. (laughs) They raised my bill $6 every single time – it’s an insurance company, I’ll just leave it at that. And most people are like, “how do you even notice $6?” I was like, “because I track it every month! I’m angry about it every six months…” but that’s what I’m talking about, you need to have this practical, visual plan in front of you. And then, of course, it’s futile because I get mad every six months, I try to find a cheaper plan. They still somehow are the cheapest. That’s probably why they raise it $6. But I know that, and most people don’t even know kind of where their money’s going. They wonder where their money went. And this is one way that I was able to break out of that cycle.

Al: Just by writing down the goals and starting to break them into sub-goals, you started to get some clarity in life.

Andi: That makes it so tangible.

Marcus: Yeah. And I think especially in this day and age, people think it needs to be complicated, but I still believe in the KISS, the “keep it simple” and then there’s another S if you can figure out what that is. (laughs)

Al: Yeah I’ve heard this. (laughs)

Marcus: It still seems to be the most actionable for me is pen, paper, what do I plan to do either this week, this month, or this year, broken down into actionable tips that I can actually implement. So I do use my iPhone, don’t get me wrong. I do have a smartphone and I have a list in there. But to give you an idea of how crazy I am, I have 23 ongoing, actionable lists at any given time.  The most important one to me is my action items list, and the way I’ve broken that down is short term – so for me, that’s “by this weekend here’s what I want to do.” So it’s usually week to week. And then I have a long-term if you will, and that’s over 90 days, and then I just have a queue. Because you go throughout the year and you have this great idea. I used to call it conflicting goals. So I have complementary goals. So if I do one, that helps two, which builds on three, which makes four easy. Then I have conflicting goals like I want to do something that is completely off the beaten path. It has nothing to do with what I’m doing right now. I might need to put that in the queue if you will for right now because that’s going to take 80% of my time, even though it might have a 100% benefit, but ifdoI these other complementary goals, they build off of one another.

Andi: Wow, Marcus this is really organized. (laughs)

Al: Well he is an auditor, he has to be organized right? So let me ask you, I assume these are for all areas of your life, like family, finances, health? Is it kind of everything or you focus on finance?

Marcus The action items list is everything, the other 22 if you will, run the gamut. Some of them are just travel lists, like if I visit a certain city I’ll put a travel list together. Another one is a bucket list. I have a running bucket list that I’m always building on, and I also, the reason I like to keep all of these different lists – and to your comment, Andi, I didn’t realize these things were crazy, I thought everybody did this. I’m only realizing recently, I was like, “hey, I might have like some kind of virtual assistant entrepreneur gig here, because I’m extremely organized by accident, by being insane!” (laughs) So that’s another passive income stream that I’ll be looking into.

Al: Yeah got it, that’s perfect. Well so speaking of passive income, because I think all of us would like to figure out how to make a little bit more money, and I know that’s something that you kind of focus on. So speak to us about that.

Marcus: In preparing for this I actually looked on MarketWatch, a site that I like to follow, it’s a personal finance site as well.

Andi: We love MarketWatch.

Marcus: Okay. So they did a piece called, “How to Make $2,000 in Passive Income” and what I think was interesting about this, and kind of all of these reads is, there is really nothing new under the sun – not to say that it wasn’t. And I like to read this information just to see what other folks are doing, but I kind of broke it down into, of course, I like lists, like practical and unpractical, if you will. So the practical ones are pretty traditional – self-published books. A few of the other ones were real estate or stock market investing. I just feel like that’s something that anyone with some level of expertise can pick up and technically start tomorrow. And the reason is, most people, especially now as I move more into mentorship and coaching, so some advice I got when I was younger and I shared on one of our shows is, “use your 20s to learn, your 30s to apply, your 40s to teach and mentor,” so slightly ahead of the curve on that. I’m getting there slowly but surely. People underestimate the skills that they bring to the table, so they think the only money that they can make is a 9 to 5 because someone has already determined that they’re capable of this paycheck, if you will. I was like, “That doesn’t make any sense. This job has already determined that they’re going to pay you X amount of hours or bring whatever expertise you do to the job. So how do you then turn that into a revenue stream or a passive income stream or how do you help or lead others?” And there’s typically revenue tied behind that. You’re just kind of thinking of trading time for money because that’s all they’ve ever done. That’s typically what school teaches you to do. And so the other ones that were on here, for example, that I kind of saw as not practical, were maybe a little bit different for your audience given where you’re located, but app software, websites – like that’s something I’m never gonna do. I have really no desire to. Now, this is where it goes back to those complimentary goals. If I make enough income and I have a great idea, I will pay somebody to design an app or software or a website. But it would take me so many more years. And like I said, a conflicting goal, to learn that myself. I’d rather look at this self-publish, which, I love writing and reading already. It’s a skill I already bring to the table, it’s something I do for a living. I technically already know how much I can charge an hour because my job is paying me that. Now I can see what the market supports and then go out there and provide that expertise like I was talking about earlier – apparently being crazy and making 23 lists is a skill set. (laughs)

Al: (laughs) Who knew, right?

Marcus: Exactly! It’s a skill set that maybe I should be getting paid for in addition, so something I look forward to. The other one was like renting cars, I’m like, “Look, I like my car, that was actually a “present” to myself that I now hate every month because I went 5 years without a car payment, so of course, I was debt free. And I was like, “now, you know, I want to suffer through more car payments!”

Andi: So by renting cars you’re talking about like doing the Uber or Lyft type thing?

Marcus: I think this one was actually a rental car service, but yes that would be a rideshare service as well.

Al: Yeah well we did that. We went to Chile this last year and my wife’s cousin, one of his friends rented her car to us for the week we were there because there are no car rental agencies. It is interesting, my son, he makes about almost $600 a month on the side teaching guitar lessons. Almost anything is possible you just have to be creative.

Andi: It comes down to what your actual skill set is. like Marcus said. Talking about his organizational abilities. (laughs)

Al: Right. So Marcus, are you going to be writing some more books or what’s in the queue, or what’s on your list for the future?

Marcus: Yeah actually that is on the queue and I’m hoping to write a third book, and this one I’m hoping to go through a publisher for so I’ll be reaching out to my hint, hint, network out there to see if I can find…

Andi: Oh, sign us up, friend.

Marcus: Yeah. We talk about networking and mentoring and really expanding finding a career coach, a sponsor who can help you. You don’t know which doors behind that opportunity instead of waiting for opportunity to knock, sometimes you don’t know which doors to open. And so expanding your network to find those. So I’ll be looking to partner with someone who can help me write that third book and the third one is basically gonna be a culmination of everything I’ve learned, tying in the career as well, and it very well may be named Paychecks & Balances. Of course, that’ll be up to whomever that future book deal is with.

Andi: Right. So tell us about the podcast. What have you got coming up on Paychecks and Balances with Marcus Garrett and Rich Jones?

Marcus: So Rich has actually taken over the podcast, because looking at the subject matter expertise, that Rich’s expertise. So we split the house. So Paychecks and Balances, we kind of started off with “helping working professionals raise their paychecks and lower their balances,” hence the title, tagline being “we help working professionals make money, save money and get out of debt.” Our first episode, which is actually very popular still, I don’t even know why. Because it was extremely negative. (laughs) We came out the gate firing. So it was called The Paycheck Plateau, and stats from that episode was at age 45 and 38 for women, the bottom 90% of lifetime earners will see their earnings decline or become fixated, so you may see a raise, but it won’t be significant enough to overcome inflation. I was like, “Nobody’s gonna return to this show, what were we thinking, why did we start there?” And it turned out like I said to still be one of our most popular episodes, so…

Al: You know what, I think you fired up the millennials thinking, “I’m not going to be that 45 year old, I’m gonna be part of the 10%.”

Marcus: Well yeah. And I think one of the compliments that we continue to get in the reviews is that it’s relatable, and they’re talking about something (they being us) talking about something that we want to do differently and they’re already seeing it. The oldest millennials – which, that’s why these articles are a little bit annoying – are 37. So like you see these articles like, “Millennials!” and they’re like eating pizza on their couch. I love pizza with the rest of ’em but I haven’t been in a dorm room in like 15 years! (laughs)

I can’t really wholly relate to this article anymore!” And they’re shifting now, now they’re making fun of Gen-Z or whatever comes after.

Al: Well you refer to yourself as a senior millennial right?

Marcus: Yeah, I’m on the cusp. I’m 36 going on 60.

Andi: He’s practically an Xer with me.

Al: Yeah. Very close to that border. Well Marcus, any other final thoughts or words of wisdom for our listeners?

Marcus: I would just say that I do still strongly believe that with a plan anything is possible. That’s something that we’ll be looking forward to and exploring in 2019, and then like I said, as we split the house, look for us at Paychecks and Balances on all the social medias, and we’ll have the blog, I’ll be expanding that and I’ll be taking over that side of the house, and of course the podcast will still be out there for the listening audience.

Al: Fantastic Marcus Garrett, host of Paychecks and Balances, author of Debt Free or Die Trying. Marcus, we had a great time with you. Thanks so much for joining us.

Marcus: Thank you.

In the coming weeks on Your Money, Your Wealth®, Devin Carroll of the Big Picture Retirement podcast and Social Security Intelligence blog will tell us how sex can save Social Security! We’ll also talk to Chris Hogan, host of The Chris Hogan Show and author of the upcoming book, Everyday Millionaires. You can listen and subscribe to the podcast for free, on-demand YourMoneyYourWealth.com, and if you aren’t sure how to do it, I’ve made a video that’ll walk you through it – you’ll find that at YourMoneyYourWealth.com too. Now it’s time to get into that email inbox. Got a money question? Send it to info@purefinancial.com


20:50 – Do I Owe Taxes on a Property Gifted to Me?

Joe: Hilary from Laguna Niguel, California. She’s got a question for you, Big Al. “Do I owe taxes on a property that was gifted to me when I sell the home? So “My mom gifted me her house last year. If I don’t rent it, I am thinking of selling it. What percentage of taxes should I expect to pay? I think she bought the home for around $450,000 or $500,000 and it’s worth probably double now. I don’t work but will file jointly my husband. His income is roughly $55,000. Do I owe taxes on the property if I sell the home?” What say you?

Al: Hilary, yes you do. You do owe taxes on that. And let’s say let’s say it’s worth a million and the cost basis is $500,000. That’s what she bought the home for. So you got a $500,000 gain, fully taxable when you sell it. You got federal taxes. You have state taxes. You’re in California so that has a pretty high tax rate. So I would look at it this way: given your income, a lot of the capital gains will be taxed at 15% but some at 20%. So let’s round that to 16, 17% just for a number. Then you’ve got state taxes 9.3%. So let’s round that to 10% could even be a little bit higher. So now we’re – 17 and 10 is 27%. Then you’ll have the Medicare surtax on any income that’s over $250,000 that’s 3.8%.

Joe: Happy holidays, Hilary.

Al: Yes. So now we’re over 30%. So to be safe, I would say a third of your profits would be what you’d pay in California and feds and tax. So a third of $500,000 is what, about $167,000, call it $170,000 or something like that.

Joe: $170,000 in tax. Well, the good thing is you’ve got a million dollar asset. The bad news is you got to pay a couple hundred grand in taxes. You still net 8-something.

Al: Now I don’t know your situation but for other people’s benefit, if you’ve got a parent that’s older and they’re deciding whether to gift you a property before they pass away or after, if you gift a property while you’re still living, you get the same tax basis as the person that gave it to you, in this case $500,000.

Joe: So the gifter and the giftee. So if I’m giving you a gift, Al, you carry my basis, whatever I purchased it for.

Al: Whatever you paid for it. And then when I sell it, I gotta pay the tax. Now if I wait till you die and I receive it as part of your estate, I get a step up in basis from now it’s a million bucks in this example, and then when I sell it I pay no taxes. That’s a real key point if you have aging parents is, “what should we do with the properties?” And the answer is, wait till they pass away because there’s a step up in basis.

Joe: A lot of times I think they don’t understand the estate tax and they’re like, “let me get this money out of my estate so I don’t have to pay estate tax.” Well, the estate tax exemption or exclusion depending on which way you look at it is pretty high.

Al: Yeah it’s it’s over $11 million per person – $11.2 million or something like that.

Joe: And if both folks were alive, you’re looking at 22 million bucks.

Al: Yeah. In other words that would pass to the next generation estate tax-free and the beneficiaries get the step up in basis, so they don’t pay capital gains when the property or stocks or whatever is sold.

Joe: Yeah I remember my uncle and aunt were giving money to my cousin, and we were sitting around Thanksgiving, this is a few years ago, my uncle was dying of lung cancer. And I’m like, “well, what are you doing?” He’s like, “Well, I don’t want the government to get it.” I was like, “it’s only a few hundred thousand bucks. Keep it in your estate.”

Al: Yeah. And that point the exemption is probably 5 million or something.

Joe: Yeah right. So there’s probably confusion, “this will be easier. I’d much rather give it to you while I’m alive so we can do the deed, and you know…”

Al: “Because I don’t want to make it too complicated for the kids, so I’m just gonna give it to them now.”

Joe: Right. It’s so much easier after the passing.

Al: Yeah. The taxation is way better.

Joe: And don’t do joint too, we see this too. “You can habit when I die but let me just put you on title right now so we’re joint with rights of survivor.” So mom and daughter, in this case with Hilary, let’s say if they were joint, and then mom dies, well yeah it avoids let’s say probate and it does all of that, but it also loses some of the tax benefit if it’s joint because you only get a half of step up.

Al: Correct. If it’s joint that’s right. In other words, half of the property gets stepped up to fair market value. The other half is in your name. It’s the original basis. And in California, which we’re in, a community property state, actually interestingly enough, even if husband passes away and wife survives or vice versa, the survivor gets a full step up in basis. But you have to have it titled as community property or in your trust.

Joe: So you’ve gotta look at titling. There’s just a small little checklist that you need to use check some items off. It’s not as complicated as you might think but I think people put themselves in a deeper hole or pay more unnecessary tax because they think they’re doing something that’s maybe easier or smoother transaction.

Al: Yeah so, in this case, let’s just say if Hilary’s mother is older and not going to live that much longer, then that was a $170,000 mistake.

26:21 – Why Would I Use a Financial Advisor?

Joe: All right, Brian from Knoxville, Tennessee. Why should I pay someone 1% of my gross portfolio to do something I could easily do using a few simple tools? Well Brian, I don’t know, why don’t you do it yourself?

Al: Yeah, that’s fine by us but let’s go on.

Joe: All right. Brian, he’s 59 years old and he plans to retire in 13 months at the age of 60. Congratulations. “I have always used a financial advisor. The people I’ve used have spread my money around so if the market goes up, I go up just enough to make it look like I’m doing okay. And if it goes down, it doesn’t go down as much as the market does. My risk tolerance has always been moderate to aggressive. Now that retirement is setting in, I’m looking a little harder at what they have done in the past. It seems that I could just as easily have taken my asset allocation wheel and picked funds, bond, stocks, just like them and done just as well or better. Why should I pay someone 1% of my gross portfolio to do something that I could easily do using a few simple tools?”

Al: Yeah, good question.

Joe: Great question.

Al: And I will say there are much better tools out now than there were a year ago or five years ago or 10 years ago. There’s asset allocation tools that you put in certain variables and it will kind of spit out what your allocation should be. So I do concur. There are decent tools. What we find though happens, in many cases, is when a person manages their own money they get emotional and they tend to buy when things are doing well.

Joe: They chase returns.

Al: When the market’s high. They look at last year. “Let’s do that because it went up,” and they tend to sell when markets correct or crash because they’re fearful. And that’s a recipe for not doing so well because you tend to buy high and sell low.

Joe: But Brian’s going to say, “I don’t do that,” and that’s fine.

Al: Yeah. And maybe you don’t.

Joe: Here’s my answer to Brian: if he’s got the knowledge and the time and the passion to take a look at this, to do it appropriately, to manage it effectively, then by all means, save yourself the money. But there are other things that you should look at besides a simple asset allocation. If someone is charging you 1% to do an asset allocation then yeah, I don’t think that’s worth 1%. It’s probably worth probably 25 basis points.

Al: I agree with that.

Joe: And so you have to receive value for anything that you’re purchasing. Iif you don’t find value, then don’t buy it.

Al: Yeah. So if you go to a financial planner that’s doing cash flow planning, that’s helping you with your wills and estate, that’s doing tax planning? Then maybe there’s enough value to justify that fee. But you’re right, Joe, if it’s a simple asset allocation, that probably is a little bit high.

Joe: So yeah, but I mean hindsight’s always 20/20 isn’t it?

Al: Of course yeah. Because you always assume that you could have done as well or better. And we know with the behavior gap. Carl Richards. He kind of looks at this and he draws little drawings that shows that people tend to buy when the market’s high because of greed and they tend to sell whn the market’s low because of fear, and then Dalbar, a company back East looks at what’s the actual investment return versus the actual investor return, and the investor return is you and me trying to pick the investments, generally is a fair amount lower because emotions are getting in the way.

Joe: So I have a personal trainer. And I’ve been working out with him for the last couple of years, 3-4 years, something like that.

Al: Yeah. And you look great, by the way.

Joe: Hey thanks. Andi, you like Fat Joe? She’s like, “Oh my God, you were so fat.”

Andi: (laughs) He showed me video from 2012.

Joe: I could go back and say, “you know what, it wasn’t worth it.”  I could have done it myself. But no, some people need some sort of coaching, accountability, or different programs so you’re not bored. If I sit there and just lift the same weights, I’d be like, “I don’t wanna do this.” So if someone is there to kind of mix it up? I also have a golf coach.

Andi: I hear you need that.

Joe: I definitely need all of the above. I’m not good at certain things and I find value in hiring someone to help me to become better.

Al: Yeah. But that’s a personal choice.

Joe: Right now my laundry…

Al: You’re hiring somebody for laundry?

Joe: Well no, like my dryer – it doesn’t dry clothes and it’s a brand new dryer. So I think it’s clogged up, so I don’t know how to do that, so now I’m gonna have to hire someone to do that. But after he gets done and he goes, “here , here’s that stupid lint, you take that step out, here I want my $500.” What am I going to say? Damn, I coulda done that! That’s five hundred bucks I could saved!” Guess what? When it happens again I’m calling him! I ain’t gonna do that!

Al: You’ll forget.

Joe: Anyway. Hopefully that helps Brian.

Another thing a financial advisor can help you with is determining if whether or not you’re ready and able to retire. This week on the Your Money, Your Wealth® TV show, it’s the 365 Day Countdown to Retirement: Are You Ready? Watch online at YourMoneyYourWealth.com. Click Special Offer while you’re there to download Big Al’s Quick Retirement Calculation Guide for free. Now, we’ve got one more email question to answer.

31:58 – What Are the Small Business Owner Limits on Roth and 401(k) Contributions?

Joe: We got one from Anita from Providence Rhode Island. I don’t know I said that with an accent. (laughs)

Al: Yeah, it makes me want to listen now. (laughs)

Joe: “As a small business owner, is there an income limit for a being able to contribute to both my Roth IRA and my independent 401(k) as long as I don’t exceed the $55,000 cap for the year?” Can I contribute to my independent…. – so I’m guessing what she means by independent is a solo 401(k).

Al: Yeah that’s my guess too. In other words, she has no employees. It’s just an individual 401(k).

Joe: “…and my Roth IRA during a given year? My gross revenue as a small business is approximately $180,000 with business expenses averaging around $55,000. My spouse has a W-2 job that brings in $55,000 gross. I understand and can compute my estimate business tax and make quarterly payments. I can compute my allowable contribution based on net income for a given year. Is there any income limit for being able to contribute to both my Roth IRA $5,500 and my solo 401(k) (total contributions currently over $40,000) as long as I don’t exceed the $55,000 cap for the year? My financial advisor is under the impression that I make too much. He recommended I hire a tax professional. I have read all the IRS documents and can find no rule that indicates I cannot take advantage of maximizing out my Roth IRA every year and contribute to a sizable amount of my independent 401(k).” Anita. All right. Well, you called the right place. Fire your financial advisor.

Al: That’s the first thing. So let’s break this down.

Joe: Roth IRA contributions and 401(k) contributions are two totally separate things.

Al: Yep, and different rules.

Joe: Different rules. Section 401(k) is under a totally different section of the IRS code. You could contribute the maximum to a defined contribution plan is $55,000; $56…?

Al: It’s $55,000 in 2018, $56,000 in 2019.

Joe: So $56,000 is the maximum. I know a lot of your listening and saying Joe, I don’t know, I don’t think that’s right because I can only put $18,500 in my 401(k) plan. That is true, but she has a solo 401(k) plan, and she can also do a profit-sharing plan.

Al: Right. And so she says she’s got gross income of $180,000, and expenses of $55,000, so that means her profit is $125,000. And so roughly 20% of that, gonna be a little bit less, 25, we’ll call it $23,000 is probably her employer or profit sharing or match. So $23,000 plus the $18,500 for 2018. So that would be $41,000. So you don’t make it, you can’t make it to the f$55,000 cause you don’t make enough. So in the sense of a 401(k), you have to make enough to be able to max it out. In the case of a Roth contribution, it’s the opposite rules. If you make too much you can’t do any.

Joe: So yes you can still contribute the $41,000 into the solo 401(k), and you can contribute to a Roth IRA, as long as you qualify for a Roth IRA contribution. And how you qualify for a Roth IRA contribution, there are two basic rules. One is that you have to have earned income. Check the box, Anita, you’ve got earned income. Second is that you can’t have too much earned income. And you are married. And so that threshold is $189,000 to $199,000.

Al: Right. And if you’re net income is $125,00 and your husband makes $55,000, that’s $180,000. $180,000 is below $189,000 so you can do the whole $5,500.

Joe: So you can contribute $5,500 into your Roth IRA. Your husband can also contribute $5,500 into his Roth IRA.

Al: That’s right. And if your husband is working and has a 401(k) he could do $18,500 into his 401(k).

Joe: So I wish you would’ve called us earlier because that would’ve saved you a lot of time looking at IRS docs.

Al: (laughs) Well maybe it’s that’s not all that bad. You learn a lot of stuff when you read the IRS documents.

Joe: Oh my God. I learn not to read it again. (laughs)

Al: Just ask Al, he knows. (laughs)

Joe: This question is common and I’m glad Anita that you wrote into us. A lot of times it’s like, “well no I have a 401(k) I can’t contribute to an IRA.” Well yes you can. You can contribute to a 401(k) and you can contribute to an IRA. The only confusion is that if I want to do $5,500 to an IRA and $5,500 to a Roth IRA, that is where it gets muddy. You cannot do that. The IRAs have the limit of $5,500 so you could split the $5,500 half Roth, half traditional.  Or any combination there. But section 401(k) and IRAs are two totally separate animals.

Al: Now if your income, let’s say you have a better year business-wise and your income is higher, and let your over $199,000, that’s the end of the phase-out period where you can not do a Roth contribution. There’s something called a backdoor Roth which you may qualify for. So that simply means if you do not have another IRA, then all you simply do is make a non-deductible IRA after-tax contribution, and then you turn right around and convert that to a Roth. And because you didn’t get a tax benefit, when you do the Roth conversion, there’s no tax to pay.

Joe: There’s tax basis in it because it’s after-tax $5,500, there’s no deduction.

Al: Yeah because you take it out of your savings or checking account. You’ve already paid taxes on it. So you do this non-deductible IRA contribution and then you convert that. Now, if you already have an IRA, this gets much more problematic because now there’s this thing called the pro-rata rule and aggregation and all this stuff, and yeah, you’ve got to be a lot more careful. But if you don’t have an IRA, and a 401(k) doesn’t count as an IRA, it’s a completely different animal as you just said, different code section.

Joe: So let me explain the pro-rata and aggregation rules real quickly because it’s fairly easy, but you just have to be a little bit good at math. So Alan’s got a calculator but I’ll do the math somewhat easy. So let’s say that someone has $95,000 in IRAs and they put $5,000 into a non-deductible IRA. So they have a total of $100,000 in retirement accounts, in IRAs. $95,000 is pre-tax. $5,000 is after tax. Two totally separate accounts. That $95,000 was an old 401(k) that I rolled over into an IRA. And then I hear you on the radio in the podcast saying, “hey backdoor Roth IRA. That sounds pretty good. I’m gonna do that. I’m gonna put a $5,000 non-deductible IRA contribution into a separate IRA at Fidelity and I’m gonna convert it.” Well, the problem is, the IRS says, “No Alan, you don’t have only $5,000, you have $100,000, $5,000 into $100,000 is 5%. So if I did a conversion of that $5,000, only 5% of that conversion would be tax-free.

Al: Yeah and that’s 250 bucks. And so the aggregation rule means that all your IRAs get added together as if they were one account.

Joe: And the pro-rata rule is just that math. How much is pre-tax versus after tax? You do the calculation, that’s going to determine how much is taxable and how much is tax-free. Look at that, backdoor Roth IRA in less than two seconds. Want to thank our lovely producer Andi Last. For Big Al Clopine, I’m Joe Anderson. Happy New Year. Thanks for listening and we’ll see you next week. The show is called Your Money, Your Wealth®.


Special thanks to our guest today, Marcus Garrett – find links to his book, Debt Free or Die Trying, and his podcast, Paychecks and Balances, in the show notes at YourMoneyYourWealth.com. If you enjoyed this episode or if you learned something from it, do us a favor and make a New Years resolution to share it! Write it on your vision board…

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Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this broadcast and does not represent that the securities or services discussed are suitable for any investor. Investors are advised not to rely on any information contained in the broadcast in the process of making a full and informed investment decision.