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 [...]

Published On
July 10, 2018
Your Money, Your Wealth®

7 Steps to Retire in 10 Years, 5 Key Retirement Questions You Need To Answer When You’re 50 Or Older, 10 Frequently Asked IRA Questions, and some questions answered, like, “The estate is in probate and the accounts are frozen, now what?” and “Where should you invest any extra money you have left over each month?” (Oh, and Joe and Big Al bicker like they’ve been married for years!)

Show Notes


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“Guaranteed I’m right.” “No, you’re not right.” “Fact Checker!! I said one spouse has a retirement plan the other spouse does not!” “That’s not what you just said.” ”REWIND THE TAPE! All right now let’s do this example. Both of us – I guess you and I, we’re married. It feels like you today.” “It does. Can I get a divorce, please?” “That hurt, Alan.”

What is going on on this show?? I guess Today on Your Money, Your Wealth we’ll find out. In the meantime, 7 Steps to Retire in 10 Years, 5 Key Retirement Questions You Need To Answer When You’re 50 Or Older, 10 Frequently Asked IRA questions, and some questions answered, hopefully without coming to blows! The estate is in probate and the accounts are frozen, now what? Where should you invest any extra money you have left over each month?  Now, let’s see if these two can be friends again by the end of this episode, here are Joe Anderson CFP® and Big Al Clopine, CPA.

01:31 – 7 Steps to Retire in 10 Years

JA: So, people want to retire in 10 years, Alan. You’ve got the article to set them free.

AC: I got all kinds of stuff today Joe. There’s a lot of discussion about FIRE, financial independence / retire early and so a lot of people – a lot of millennials – they kind of like this idea. “Gosh, what if I could retire at 50? Wait, how about 40? How about 35? And so I got an article, this is written by Millennial Money, and it says, “How to Retire in 10 Years,” so I thought that was kind of interesting for our listeners. Now, this could apply to our younger listeners that want to retire early, it could apply to someone who’s 55 that needs to get going. It could apply to a 70-year old that has nothing or maybe you fast track some of this and retire in five years. But here’s the concept. I think some of this is kind of obvious, I guess. But the first step is to create a retirement budget.

JA: Earth-shattering. (laughs)

AC: (laughs) We never heard that before. Some of this just comes down to mathematics. How much do you have, how much income are you going to able to create from what you have, and your Social Security and pension, if you have it? And then the other side of that equation is, how much do you want to spend? And a lot of times people want to keep their same lifestyle, and they have this notion that they’re going to be spending 70% of their of their pre-retirement spending because they read these articles and it says, “you don’t have to commute, and you don’t have to wear a nice suit.”

JA: Buy clothes.

AC: Well, you still do clothes. (laughs)

JA: You don’t have to buy them though, you can just wear old clothes, T-shirts.

AC: Wear old clothes, yeah. But I think the problem with that analysis is, and what we’ve seen is, most people that have any sort of wherewithal to retire with a lifestyle they want to retire, end up spending more. Because it’s like every day is a holiday. And typically you spend more on the weekends and holidays than when you’re working, because you have a lot more hours to spend.

JA: It’s funny, a lot of you that are looking at retirement at some point are looking at a budget of some sort. How much am I spending here? Oh, I can cut this, I can cut that, I can cut this, and sometimes I’ve seen that to the extreme. Where I just heard this morning at the gym, a buddy of mine – his wife is trying to save some money. “Oh, we’ve got to cut expenses.” So she’s unplugging every appliance in the house. (laughs) When they leave. My toothbrush? Yep, it’s unplugged every time I come home.

AC: Can’t keep that charged up while we’re gone!

JA: (laughs) That might save you seven cents.

AC: In a year!

JA: I know! But she’s still buying Prada purses, but let’s unplug your toothbrush. (laughs)

AC: Oh my. Well yeah. That is a savings, I guess. (laughs) The second thing in the article is to work to grow your career – kind of obvious. But I guess, particularly if you’re younger, invest in yourself. Keep going back to school. Read on your off time.

JA: Yeah, but get a job first too. (laughs) Yeah, just keep going to school! Keep educating yourself!

AC: 40 years old, I’m almost ready.

JA: Get a job that you enjoy and then enhance your skills within that occupation.

AC: The most successful people I know, i.e. Joe Anderson, Al Clopine, is we do a lot of reading. And I think reading makes you better at a lot of things, certainly professionally, depending upon what your profession is. And I would say reading is not only reading technical things that will help you directly in your career, but it’s reading other things that give you kind of a more worldview. I think all that’s important.

JA: Yeah without question.

AC: Scour your budget for savings.

JA: Oh yeah unplug that. (laughs)

AC: Get that coffee maker, when you leave, unplug that and then… (laughs)

JA: “Honey, I’ve got something to talk to you about.” (laughs)

AC: Eat all your food and refrigerator and then unplug that. (laughs) In fact, don’t eat, just put it in your suitcase. Eat it on your trip, cause you don’t want to be going out to restaurants. (laughs)

JA: Dry ice. (laughs)

AC: “Sir, what’s that smoke coming out of your backpack?” “Oh, it’s dry ice. Is that a problem?” “Well yeah. It’s doesn’t qualify on airlines.” (laughs) Also, begin investing immediately instead of waiting.

JA: Yes, immediately, please. (laughs)

AC: That implies you have something to invest, I guess. Develop a side hustle. I’m a fan of that.

JA: Yeah, we had Nick Loper on – Side Hustle Nation.

AC: He’s got what, 250 side hustle ideas on his website?

JA: Yeah that was great.

AC: I looked at all of them. I’m retiring tomorrow because I can be a dog walker. (laughs)

JA: I think on the other side of that, which I find very interesting is that, yes, some of you might need a side hustle or side work, to get some compensation to help with your daily expenses. But on the other side of it too, I think a lot of retirees, after a couple of years they get bored. But now if you can do this side hustle, maybe start building a small business, you might not make a ton of money, but still – a couple hundred bucks? It feels good. A little beer money, whatever you need.

AC: Yeah. Yeah exactly. Or just that extra money to save. To kind of supercharge this. Number six, don’t accumulate debts. So if you can’t afford it, don’t buy it. But there are exceptions to that, I would say. One is your home. A home is probably a good thing to buy and borrow against. In some cases, your education. Preferably you don’t have a student loan, but some jobs require a lot of funding. And if you don’t have the resources or your parents don’t have the resources, you might need to borrow. But I think the key there Joe, is that when you’re when you have to borrow for college, you want to do a cost-benefit analysis. In other words, if you’re going to spend $300,000 to be a basket weaver, you may not recoup those costs.

JA: Right. You have to take a look, do a little bit more homework. College is great because you can get out there, experience life and have fun and get out of the house and grow up and all of that. But just maybe spend a little bit more time on it. It’s tough though. When I first started college, I had an idea of what I wanted to do, but I wasn’t dead set on it.

AC: Right. So what do you think about cars? Should you pay cash for your cars and if you can’t, buy a junker, or should you borrow?

JA: Depends on your situation. If I have capital to pay for the car, but if I can get a zero financed loan, I don’t know I’ll probably take the zero finance loan.

AC: Yeah that’s a good point. What if you don’t have capital?

JA: Then if you don’t have capital then yes, you buy a junker until you have capital.

AC: I like that. The last step would be to keep at it. Because it can get discouraging, particularly if you’re trying to do this in an extremely short period of time, you’re going to probably have to make a lot of sacrifices, and I can honestly see people doing this for three months and being all excited, motivated. Then month number four, “well this is too hard.” And then they drop it.

JA: My buddy is a partner in a gym and they do the six-week challenge every six weeks. And so they get 100 people to sign up for the six-week challenge, so they do diet and there are exercises, they have a bunch of classes. They have the weigh-ins and everything else. And so I think it cost, for the six weeks, let’s call it $400. And then if you hit your goal after the six weeks, you get your $400 back. So there’s added motivation – not only are you improving your body and health, but you can also do it for free if you hit your goals.

AC: Yeah. OK.

JA: I’m like, “how many people actually hit their goals?” He goes, “the place is packed the first month, and then it slowly dies off. Maybe 5-6%.” So the problem is always keeping at it. Because we get highly motivated in the beginning, and then we’re fully charged, you’re buying your Fitbit. You get your new shoes. You gotta get the outfit. You got to find it within yourself or find a coach or find someone to help keep you motivated. A little motivation buddy. You got one of those?

AC: No. I need one. But you know what I find interesting at the gym, and I go to the gym a fair amount too. In the old days, you used to go to the gym first thing.

JA: You do some cardiovascular? (laughs)

AC: Yeah. But what I was going to say was, you wore like a ragged pair of shorts or whatever. Your hair is all goofed up, you workout, then you go back and shower and get presentable. Now it’s like you have to look good before you even get there.

JA: Well you go to The PAC, first of all, which is in Southern California, which is one of the nicest clubs in Southern California. (laughs) People go there to find their spouse.

AC: Well I’ll go with Anne sometimes on a Saturday morning, and I’m thinking OK let’s go.

JA: And then how much do you actually work out?

AC: I work out a lot. I do.

JA: No, when you’re at the gym.

AC: I don’t like to socialize, I don’t like people. (laughs) That’s not true. Just said it for effect. But here was my point.

JA: It was a huge effect, Al.

AC: (laughs) I want to go at 8:30. We don’t go till 10 30 because Anne’s getting ready because you have to look a certain way to actually work out at the gym.

JA: Gotta get the Lululemons on. C’mon.

AC: I guess, right?

JA: Yeah. I’m there 530. Done. Get in, get out.

AC: So you don’t worry about what you look like when you get there.

JA: No, I just throw a cap on, shorts, a half shirt.

AC: Yeah, there ya go.

Joe in shorts and a half shirt. Well, now there’s an image! Find out if you’re on track for retirement, download the Your Money, Your Wealth Quick Retirement Calculation Guide for free from the white papers section of the Learning Center at YourMoneyYourWealth.com. This handy one-pager will give you the formula and the necessary steps to find out if you’re ready to get from here to there. Download our Quick Retirement Calculation Guide from the white papers section of the Learning Center at YourMoneyYourWealth.com Time now for Big Al’s List: Every week, Big Al Clopine scours the media to find the best tips, do’s and don’ts, mistakes, myths and advice to improve your overall financial picture – in handy bullet-point format. This week, 5 Key Retirement Questions You Need to Answer When You’re 50 or Older

13:05 – Big Al’s List: 5 Key Retirement Questions You Need to Answer When You’re 50 or Older

AC: I guess the preface is, you should have a written retirement plan. Do you agree with that Joe?

JA: Yes, most definitely.

AC: They go on to say it doesn’t have to be hundreds of pages long or even dozens of pages. But surveys show that those who started with written plans are more satisfied in retirement than others, and I would agree with that too. So what are those five questions? How long will retirement last? That’s a tough one. What’s your life expectancy?

JA: I have no idea.

AC: And the thing is, if it’s 10 years or 35 years after retirement, that’s a completely different answer. And so it’s actually impossible to answer that question with certainty, but what you can do is look at your brothers and sisters if they’re older. Look at your parents, look at your nephews. Consider what kind of health you’re in, at least to come up with a game plan. And whatever you come up with, add five or 10 years to that.

JA: I think you should just plan for 95.

AC: And that’s what we do without knowing anything else. Just go to 95.

JA: We get some people, “I’d like to see this said 80.” I’m like, you’re always saying that because you haven’t saved enough.

AC: (laughs) Right. But I think that’s the miss, Joe, is that people underestimate how long retirement is going to be. The second thing is when will you be ready to retire? This is a non-financial question – the answer often determines how satisfied you will be in retirement. Age should not determine your retirement date, retirement readiness should.

JA: I like it. Yeah. There’s a lot of factors that have to go into that. Retirement readiness could be not necessarily your age or dollars. It’s just your state of mind.

AC: Look at that, the next sentence: “retirement readiness is a state of mind.”

JA: Oh, boom!!

AC: Killed it! (laughs)

JA: Did I write this? Stealing stuff from me!

AC: It means that you are content to leave behind your workplace, including colleagues, structure, a sense of purpose, activities. You’re ready to spend more time on other activities – and I think that’s the key. You have to have things to go to.

JA: I’m going full disclosure here.

AC: Talking about your own? Ice fishing in Minnesota?

JA: (laughs) Yeah right. Some clients of ours that were extremely successful, very active, high profile jobs, stressful jobs, and now they’re like, “I didn’t think I’d be drinking this much!” Because it’s like what do you do? I’m going to go on the boat, or I’m going to go golfing. I’m going to do this, hang out on a Tuesday afternoon. Next thing I know I’ve got a couple of beers.

AC: Right. And so it’s every day.

JA: Yeah, I think that sounds fantastic, but I don’t know about every day. So you just got to be prepared to say, it’s not going to be like this 30-year vacation. You still want to make sure that you have the content in your mind of what the next phase is going to look like.

AC: What will you do in retirement? This is a sneaky way of determining how much will you spend. Do not rely on rules of thumb. Develop a personalized spending estimate based upon your interests and planned activities, and I think that’s key. I think you can start with what you’re spending now, but then you’ve got to adjust it. Maybe some expenses will be lower, maybe you won’t have the commuting time and that cost, but you’ll probably have more leisure time and you’ll be shopping more, probably. So it actually, in many cases, we see expenses going up – at least for those that can afford to.

JA: Absolutely. And don’t fool yourself to think that you’re going to spend a lot less. Again, people that say that, we can’t predict the future of what’s going to happen. It’s more or less a comfort level for them to say, “well we’re going to spend a lot less,” because potentially they might not have the assets to put them through.

AC: Yeah. And I think what we have seen is that couples or even single retirees, they do tend to spend a little bit more those first several years – they do travel, they do a lot of things that are kind of pent up that they wanted to do. That might taper off, but then often cases, medical and long-term care take its place, so you don’t want to forget those as well. When will you be able to retire? This is just a mathematics question. Now we’re into dollars and cents. And it’s like, you came up with your retirement budget. Let’s call it$80,000. You’ve got Social Security and pensions or $40,000, so you’re short by $40,000. So how much do you need to have invested to be able to pull that off? And I hate to give a rule of thumb, but I’m going to give you one anyway, just so that you’re not at least shooting in the dark. Take that $40,000, multiply it by 25, you get a million bucks. So that’s roughly how much you need in retirement. Now the truth is, you may need more. You may be able to get by with less. There’s a lot of factors, but that’s at least a starting point.

JA: So a million dollars is a ton of money. But if you equate that to an income, it’s 40 grand. So if you’re spending 250 a year, which some of you do, and you don’t have a lot of money…

AC: …or you don’t have a lot of fixed income or a lot of rental properties, paying a lot of money… So look at your fixed income. Fixed income we would define as like Social Security, for example. Things that come to you without you having to manage your investments. Social Security, pension, and I would even put real estate, because that’s a non-liquid asset, even though you could turn it into a liquid asset if you want to. But real estate – maybe add those three things together if you have them, that’s your fixed income. Look at what you want to spend, what’s your shortfall? Multiply that by 25. Now the truth is, if you want to retire younger, you might need to multiply that by a higher factor. Or if you want to work into your 70s, then maybe it’s a lower number. There’s a lot of factors here, but that at least gives you a starting point. And the last one is how to manage and spend your nest egg. Management, a lot of people think, “gosh, maybe I should have a more conservative portfolio,” and I think as a blanket statement I would agree with that in retirement. However, a lot of us are living 25-30 years in retirement, so we’re going to need to have some growth to stay ahead of inflation.

JA: And then creating the income from it. How are you going to do that?  What type of investments should you have? How should the portfolio look? What’s the tax implications?

AC: Yeah, where are they located? Is it in a Roth IRA or a 401(k)? Which accounts do I pull from to keep me in lower tax brackets?

JA: Yeah. So there’s a lot more to it, I think once you do retire.

Get some help answering those questions before you retire – visit YourMoneyYourWealth.com and sign up for a free two meeting assessment with a Certified Financial Planner – just go to YourMoneyYourWealth.com and click that big green “Free Assessment” button in the upper right. Now it’s time to dip into the email bag, with financial questions courtesy of Advisor Insights from Investopedia, and you, the Your Money, Your Wealth listeners. Joe and Big Al are always willing to answer your money questions! Email info@purefinancial.com 

20:17 – Estate in Probate, Accounts Frozen – Now What?

JA: “My mother passed away a few weeks ago.” Oh, I’m very sorry to hear that. “She did not have a trust and I’m the executor in probate. I had power of attorney before she passed away, and the document doesn’t specify if the power of attorney ends upon her death. She left five heirs who want to assure that the inheritance is not going to be subject to market risk before it is distributed. Settling the estate is going to take months. I told her advisor to liquidate most of her portfolio, but he said the brokerage firm has frozen the account. What can be done?”

AC: Oh that’s good. That’s a legal question. (laughs)

JA: I know, Big Al. You’ve got many hats.

AC: I’m going to take an educated guess, because I’m not an attorney, but I do think the executor would take over the power of attorney would probably cancel it. But I’m not 100% sure about that.

JA: We have a situation like that at our firm. They froze the account because the gentleman died. Actually, he committed suicide and he had his ex-wife as the beneficiary of all of his accounts. And all of a sudden it’s like we want to distribute it, but then the custodian goes, well no, this is the ex-wife.

AC: Right. And when you got divorced it canceled out the beneficiary statement.

JA: Yes. California is a little bit gray in this area on how they handle it. Other states that are very specific, like Arizona, for instance. So if you were divorced and died and had a beneficiary of your ex-wife, they’ll be like, “hey, no, this cancels out the beneficiary. This should go to the estate.”

AC: Right, it doesn’t count. In California, it’s presumed, unless you have evidence to the contrary.

JA: Correct. Very good. Yes see, you could be a lawyer. (laughs)

AC: (laughs) I don’t think so. I don’t really like to read that much.

JA: So what do you think? What can be done? So the account’s frozen. They’re going to have to go through some sort of legal proceeding.

AC: I would think so, yeah. And again, I don’t really know. I’m guessing. Well, of course, there may have been a will, there may not have been a will. So if there was a will, the will would probably indicate the executor and the executor to me would probably take over for the power of attorney. I would guess that’s what would happen. But I don’t know that for sure. But either case…

JA: To unfreeze the account you’re going to have to go to an arbitrator or something.

AC: Either case you’re going to have to get a court order to be able to get at these.

JA: That’s what I meant. Good luck with that. This happens so often.

AC: It does, and people don’t think about it. A trust solves all of this stuff because it’s already figured out. You don’t have to go through court. The trustee is the one that takes over and then distributes the assets in accordance with the wishes of the trust, as it’s written out in the trust. Very simple. When there is no trust, by the way, will or no will, when there’s no trust, you’re going to be going through probate at certain asset levels.

JA: You know it’s funny. It sounds like this lady died without any type of legal documentation.

AC: But she had a power of attorney.

JA: Right. He’s in probate. So what the hell happened here? He’s like, “my mother said that she doesn’t want anything subject to market risk.” Where the hell was that written out?

AC: Right. That’s what she told them maybe.

JA: Come on! I don’t know.

AC: It’s a mess. And what you said is true, it’s common. We actually see this all the time. And I think one of the big reasons, Joe, is people don’t really like to think about their own demise. So they put it off.

JA: Right. So when you’re a vegetable, who do you want to feed you? Oh my god. (laughs)

AC: Do you want to pull the plug or not? Who gets your heart and your liver?

JA: It’s like property casualty insurance agents. I don’t know if I could ever – let’s say that was the last job on earth. I would starve. No offense to any of you property casualty agents out there, but we would have some of these individuals, to educate all of our advisors at the firm, to talk about property casualty insurance. “This is what’s going, on this is what’s new. Here’s kind of the coverage that you should have.” Every single one of them, without question, had the awful story. “Well, do you like to play golf? Well, there’s one time where the guy, he tripped out of a golf cart, hit his head on a rock, and now he’s a paraplegic.” OK! (laughs)

AC: “And his best friend got hit by lightning.” (laughs)

JA: (laughs) It’s like, oh my god. I’m having a panic attack. I can’t breathe.

AC: And you stopped playing golf.

JA: Yes. Everyone’s got the story. “Oh yeah. Do you have bear insurance?” “What the hell is that?” “Well let me tell you a story!”

AC: “What if a meteor hits your home?”

JA: “Let me tell you a story because my cousin was in Yosemite Park…” Get an estate plan, I guess that’s the moral of that story.

25:42 – Where Should I Invest Extra Money Left Over Each Month?

JA” All right, you ready for another one bud? OK. Here’s one. This individual, “I’m a 47-year-old married man and I have approximately $97,000 tucked away in only three stocks, which I’m aware is against most people’s advice. Regardless they performed outstanding over the last eight years.”

AC:  Sure. Because it’s been the biggest bull market in our lifetime. You could’ve actually kind of thrown darts. But nevertheless…

JA: “I’m a genius, by the way…” He also has $20,000 in a CD. OK. “I do not have a 401(k), because I personally don’t see the use for them.

AC: Really? When he’s 65 he will.

JA: “My house and two cars are paid off. I have no outstanding debt. I have approximately $20,000 combined between my checking and savings account. Between my wife and I, our yearly income is $45,000. I have some extra income left over consistently, and I’m not sure what I should do with that money. Should I invest in an IRA, mutual funds or more stocks? Should I hire a financial advisor to help me decide what to do?” Well, you came to the right place my friend.

AC: Yes. It’s not that hard to answer this question.

JA: So all right. He’s a genius. He’s got $97,000 tucked away in three stocks, he’s not going to sell those. Picked the right stocks. Netflix, Amazon. Facebook. (laughs)  What do you think? I guarantee you I know exactly what those three stocks are. Never met this guy before in my life.

AC: The FANG stocks. Yeah, well, first of all, you’re making $45,000, which means, if that’s your married income, you’re in the lowest tax bracket.

JA: So I can see a 401(k) doesn’t make any sense to them, I get that, but a Roth 401(k) makes a ton of sense.

AC: Or if you don’t have a Roth 401(k) option, at least do a regular 401(k) contribution. For you and your wife. So that would be 47 years old, that would be $5,500 each. So that’s $11,000 going into Roth, instead of putting that into your brokerage account or a CD or something like that, now it’s in a Roth, Put your high flying stocks in there. Then all the growth is tax-free.

JA: Yes. Since he’s so good at picking stocks.

AC: It’s kind of a no-brainer.

JA: No brainer. So what are you doing here, Bub? It’s like, sell some of the $97,000, max out the Roth as much as you can.

AC: Now if you have a Roth 401(k) option, then put $18,500 into that Roth. And you can still do contributions of $11,000 if you’ve got the excess money. And why wouldn’t you? You’ve got $140,000 outside of retirement, so fund those things up into a Roth. A lot of people don’t realize a Roth is just a shell. You can invest in anything in a Roth. In other words, you can buy the same three stocks, or mutual funds, or index funds, or ETFs, whatever you want in a Roth. You don’t have to have a brokerage account to do it.

JA: Right The question implies, like most people here, it’s like, “should I invest in an IRA or mutual funds or more stocks?” (laughs)

AC: Right. What’s an IRA pay? It depends what you invest it in.

JA: Yes, you can invest in your stocks in the IRA or you can invest mutual funds in the IRA.

AC: Right. We’re going to suggest that you go globally diversified. But the problem with a globally diversified fund for somebody like this is that it’s always going to be a kind of market. And so he wants to beat the market, so he thinks he can find the three stocks that will beat the market. Maybe he can, maybe he can’t. History would tell us that most people cannot over the long term.

Email your money questions to Joe and Big Al at info@purefinancial.com, or call (888) 994-6257, leave it in a voicemail and we’ll put you on Your Money, Your Wealth to get your question answered live! Email info@purefinancial.com or call (888) 994-6257. Speaking of IRAs…

29:51 – 10 Frequently Asked IRA Questions

(Make sure it’s the correct link)

AC: I’ve got ten frequently asked IRA questions since we’re kind of on that theme. So I’ll start asking you – some of these are pretty simple, but a lot of times we get very simple questions, which is, “what can I invest in with my IRA?”

JA: Anything you want besides life insurance and collectibles.

AC: Yeah, a lot of people think you go to the bank and the bank says, “our IRA is paying 2-4%.”

JA: That’s a CD.

AC: Yeah exactly. That’s one investment, but you can invest in stocks and bonds and mutual funds. Kind of think about going to Schwab or T.D. Ameritrade, opening up a non-retirement account. What are your choices? Well, you’ve got all kinds of stocks and mutual funds and ETFs. These are also available in your IRA. Of course, it depends where you go. If you’re going to go to the bank, they might only have limited choices. If you go to a T.D. Ameritrade or Schwab, Fidelity, they’re going to have a whole variety of choices. Vanguard, they’re going have all kinds of stuff that you can pick from.

JA: Absolutely. Yeah. So I guess the lesson there is just understand that the Roth is a shell or any IRA is a shell, I should say, that you can invest in anything that you want, but if you go to the bank, just know that the bank is going to want to sell you bank products. And if you go to a certain advisor, they might have a shelf of products that they would like to sell you, which is not bad or good. You just have to understand that. So if I’m going to a Chevy dealer, I’ve used this example, I’m expecting to buy a Chevy. I’m not going to look for, “hey, I want to buy a Ford.” But I think sometimes when someone will go to the bank and say, “oh, you got Roth IRAs. OK. Yes, I would like one.” “All right, $5,500,” boom, and it’s in a CD. So that’s what they think a Roth is. But no. The Roth is something a lot larger than that, you just purchased a product within the Roth that is a CD.

AC: I would say a mistake that we sometimes see is people hear they ought to have Roth accounts.

JA: But my Roth sucks.

AC: But they’ll go to the bank because that’s what they know. They go to their bank and they say they, “do you have Roths?” “Well, yes we do.” And they say they open up a Roth and they end up with a savings account.

JA: Or you know what, I’ve heard this too. Someone opens up a Roth IRA and they bought some mutual fund, and the mutual fund didn’t perform, because either the market didn’t perform, or maybe it was some sort of sector bet on whatever. And then they’re like, “I’ve had Roths before, but they don’t work, I don’t care for them. Mine was terrible.”

AC: The 401(k) works better. (laughs)

JA: My 401(k) is a lot better than my Roth. (laughs)

AC: (laughs) So yeah, it depends on what you invest in. Second question, how much can I contribute to my IRA?

JA: $5,500, $6,500 If you’re over 50. IRAs though, you have to be under 70 and a half to contribute to an IRA. If you’re over 70 and a half, you cannot contribute to an IRA. You also need earned income to contribute to any type of retirement account. So it’s what, $132,000-$135,000 is the phase of for single, $199,000 for married.

AC: And also you have to have earned income, so to be able to contribute to an IRA or a Roth IRA, and it’s kind of either/or, or a mix. So it’s $5,500 for most people, and if you want to do half of it in a Roth and half of it in a regular IRA, that’s OK. But you can’t do $5,500 in a regular IRA and then another $5,500 in a Roth.

JA: Yeah I learned that the hard way in my first year in the biz.

AC: Tried that?

JA: Yeah, with my father. Worked out well. (laughs) He goes, “What the hell? You are not going amount to anything in this business.”

AC: So he only gave you $2,000 to invest?

JA: That was it. I put it into Putnam New Opportunities because I looked at the trailing 10-year. It was the tech boom – I got in the business in ’98. I was like, “Dad! 20% returns! Let’s do this!” As soon as I put it in there, it was like all of a sudden, 2000. Boom, the thing blew up. We’re talking about, what, 10 frequently asked IRA questions?

AC: Yeah. This is from Motley Fool, the next one, Joe, is why contribute to an IRA instead of a standard brokerage account?

JA: That is a really good question. And some of you should invest in a standard brokerage account versus an IRA, and some of you should put the IRA versus the brokerage account. But the difference is this: the IRA, potentially you could get a tax deduction in an IRA. If we’re just doing straight IRAs here. So that income limit is what… no, it depends on if a wife. No, why am I saying wife? Because I’m a male. Spouse. If a spouse does not have a retirement plan that they can contribute to, it’s the same limitations as the Roth IRA to get a deduction.

AC: No. That’s not right.  Oh, if you have a plan?

JA: I don’t have a plan. My spouse has a plan. My limitation is the Roth limitations.

AC: No it isn’t. (laughs)

JA: If I have a plan, it is a lot less.

AC: No you got it wrong, totally wrong.

JA: Guaranteed I’m right.

AC: No you’re not right.

JA: Fact Checker!!

AC: (laughs) So if neither spouse has a retirement plan…

JA: If neither spouse, there is no income limitation.

AC: That’s what I thought you were saying.

JA: I said one spouse has a retirement plan the other spouse does not.

AC: That’s not what you just said. (laughs)

JA: REWIND THE TAPE!  The guy doesn’t have his glasses or his hearing aid!

AC: I’ll just repeat then. So if neither spouse has a retirement plan, you can have a deductible IRA if you have earned income.

JA: No, you’ve got to be under 70 and a half. (laughs)

AC: (laughs) Now we’re getting picky! True. You can have a million dollars of income. Right?

JA: Yes you can. You can have Big Al type income.

AC: Now, if one spouse has a retirement plan and the other spouse does not then you cannot do the IRA.

JA: No you can’t.

AC: You can, it’s just not deductible.

JA: No wrong. Fact check. I could contribute to an IRA. Let’s say I don’t have an IRA at my job. My wife, well, hypothetically speaking of course, does he have a wonderful job and she has a 401(k) plan that she’s contributing to. I do not have a plan. I can still contribute to an IRA. I can take the deduction from the IRA, but the income limit is the same as the Roth. It’s $189,000-$199,000.

AC: That’s what I thought I was trying to say. But anyway.

JA: You said you couldn’t contribute to it. Well anyway. Maybe I’m the one that’s a little buzzed. (laughs)

AC: Well I agree with your statement. In other words, the Roth limit, to contribute to a Roth…

JA: No no no. IRA.

AC: I know, but I’m just saying…

JA: I’m sorry.

AC: Hold on one second. We’re gonna have to rerun this whole tape see where we screwed up. So if you’re trying to do a Roth contribution and you’re married, it starts phasing out at $189,000 and by $199,000 you cannot do a Roth contribution. With an IRA, if your spouse has a retirement plan, then you cannot take that deduction, and you have the same numbers. 189 phase out to 199.

JA: Yep. Absolutely on the same page.

AC: I think maybe I said it wrong. That’s what I was trying to say.

JA: All right now let’s do this example. Both of us – I guess you and I, we’re married. It feels like you today. (laughs)

AC: (laughs) It does. Can I get a divorce, please?

JA: That hurt, Alan. (laughs)

AC: We were only married a minute. Already seems too long. (laughs)

JA: (laughs) It’s all right if both spouses have retirement accounts, then the income limitation to make that contribution deductible, is…

AC: If we’re married, it’s for married it’s $101,000 to $121,000. And single, it’s…

JA: Watching you read small print… (laughs)

AC: $63,000 to $73,000?

JA: Yeah I knew it was 60 something. All right. So next question, please.

AC: What’s the difference between a traditional IRA and a Roth IRA?

JA: Oh boy. You could have skipped that one. One’s deductible, one’s after-tax…

AC: 30 seconds. OK. What’s the deadline for an IRA contribution?

JA: April 15th. Depends on the IRA though. How about if it’s a SEP IRA? Then you’ve got until the deadline, October 15th with an extended tax return. On a sole proprietorship. I’m being Mike Bernier. (laughs) We’ve been doing this radio show now for what, we are probably in our 13th year-ish? Something like that? It’s got to be more maybe, even more than that. But let’s just call it more than ten. Just so compliance doesn’t bite my…

AC: (laughs) Yeah because they’re going to look it up.

JA: Right. SEC audit. “Oh, you said 13 years, it’s only 12 and a half.” So it’s over 10. I know that for sure. So Mikey Bernier, good friend, been with our company for years.

AC: One of our best advisors.

JA: Absolutely.

AC: Still.

JA: Hopefully he doesn’t go down. He’s only in his 30s. Still? (laughs) He’s one of our best advisors! He hasn’t laid an egg yet! (laughs)

AC: (laughs) No I meant he didn’t leave us!

JA: Oh yes! Because usually, our best advisors leave us!

AC: And I guess he didn’t die. (laughs) But he didn’t leave the firm. He’s still here.

JA: Got it. He would sub for me, or I think I needed a sub three times in 12 years, where I needed a sub like three times a month for Alan. (laughs) Especially in the summer months. But what Mike would do, you would say a statement, and he would just repeat it, but maybe change two words. (laughs)

AC: Yeah, I’d say a statement and then lead to the question to set him up, and then he would say the same thing. And then we’d spend eight minutes setting it up and then I would answer for two minutes.

JA: (laughs) Yes, one small topic took an hour per show, because he would just repeat everything you said. Anyway, I digress. Go ahead.

AC: Can I borrow money from my IRA?

JA: No you cannot. Don’t even go there. Steal it. Don’t touch your IRA money!

AC: (laughs) Steal it!? Can I contribute to an IRA even if I have a 401(k)?

JA: Yes you can. But you have to qualify. You need the income limits that we’ve just exhaustedly talked about earlier. (laughs)

AC: (laughs) What if I retire before 59 and a half? Are there any options?

JA: For IRA dollars or 401(k)?


JA: Yes there’s a 72(t) tax election that you could do. You can take dollars from a retirement account if you’re under 59 and a half. IRA specifically. And avoid the 10% penalty. It’s also called SEPP – separate equal periodic payment. There are three different ways that you can calculate that payment.

AC: So you have to pick which way to calculate it, then you’re stuck with that.

JA: Yes, until you turn 59 and a half or five years, whichever is longer. There was one caveat, I do remember. After 2000, the dot-com bust, there was a lot of individuals that did the 72(t) tax election for some reason. You’d get younger professionals that were in tech, that made a lot of money in tech, the stock prices went up and things like that. So they were doing these 72(t) tax elections at a lot younger age because that’s where the bulk of their assets were and they wanted to retire. Then the market went to hell, and they still had to continue to take those distributions out until they turned 59 and a half. So the IRS did give a caveat one time to reset.

AC: Got it. And I think the 72(t) election, for those that know about it, it’s not like you have a lot of flexibility. You have three methods, as you said, to be able to calculate it. You gotta pick one of those three. Then you have to stick with it. It’s not like you can say, “well, I want $100,000 this year and $50,000 next year and $2,000 next year. No, it’s that equal periodic payment.

JA: It’s not a really good planning strategy. So a lot of times people will come in, “hey, I heard of this, or you talked about this, can I take a look at it.” I would shy away because you are locked into that and markets are volatile, and a lot of times when people are dipping into their retirement accounts at that age to try to avoid the 10% penalty, that money needs to last that much longer. And then if markets turn on you, and usually if you’re younger you’re taking on more risk, and then that thing turns on you and it could blow you up. So we’ve got time for one more. Whaddya got?

AC: I want to say now, it’s a little different with a 401(k).

JA: Yeah, 55. Which is cool.

AC: So if you separate from service and you’re 55 or older, you can pull the money out as long as it stays in the 401(k). And that’s a mistake people make – they’re 55 or 56, they retire, and then they roll into an IRA and it goes in the IRA rules. So now it’s 59 and a half and the only way they could get access without penalty is the 72(t) election. Had they kept it in the 401(k), then they can go ahead and start pulling money out at 59 and a half, then they could roll into an IRA, then they’re fine.

JA: Sure. But you have to be separated from service at 55. So let’s say you have an old 401(k) plan, you turn 55, you get fired. You try to go back to that old 401(k) plan, it’s not going to work. It’s your 401(k) plan, active participant. You have to be 55 or older and separated from service. All right. That’s it for us. Rapid fire today, a lot of IRA tax talk, hopefully enjoyed it. Big Al Clopine, wonderful job. My name is Joe Anderson, we’ll see you next week. Thanks for listening.


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