Daniel Prince
ABOUT Daniel

Daniel Prince, CFA, Director, is Head of iShares Product Consulting for BlackRock's U.S. Wealth Advisory (USWA) iShares business. He is responsible for research and delivering product analyses and insights to intermediary clients and partners. Prior to this role, Daniel was a member of the iShares ETF Due Diligence team where he reviewed models, recommended lists [...]


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
May 8, 2017

Daniel Prince, CFA (BlackRock) explains exchange traded funds and what the future holds as investing evolves. Will Trump’s new tax plan simplify taxes and spur economic growth as promised? If you’re one of the 10,000 boomers a day now reaching required minimum distribution age, how do you avoid screwing it up? Why consider making a Qualified Charitable Distribution? And which is safer: Treasury bills or fixed indexed annuities?

Show Notes

  • Donald Trump’s new tax plan: more growth, simpler taxation? (:55)
  • Daniel Prince, CFA from BlackRock on exchange traded funds (12:46)
  • Daniel Prince, CFA from BlackRock, dives deeper into ETF’s (23:31)
  • Big Al’s List: Avoiding Common RMD Mistakes (32:58)
  • Why Consider Making a Qualified Charitable Distribution (QCD)? (40:40)
  • Audience Questions
    • “I’m 57 years old. If I retire and roll my 401(k) to an IRA within 60 days of separating from my company, will I be exempt from the 10% early distribution penalty in the IRA if I take distributions out of the IRA before 59 and a half?” (49:37)
    • “I’m interested in working with a specific investment advisor who has recommended a fixed annuity. I’ve been unable to find any information on this individual from FINRA after 2010.” FINRA is the financial regulatory agency. “How do I check them out?” (54:23)
    • “Are T-bills safer than an index fixed annuity when you take into consideration the debt our government has? I’m considering an index fixed annuity, I’m 60 years old and have less than $125,000 to invest or rollover into something else for my retirement. I do not trust the market, especially since it’s rising so quick.” (58:55)



“We’re seeing a big transformation around just how accessible information is today. How investors are demanding more out of their investments, either by demanding lower costs, or more transparency, lower risk. The needs of investors are really changing, and I think part of what’s going on in the ETF industry is really innovating to keep up with the demands of investors and how that’s changed.” – Daniel Prince, CFA, iShares by BlackRock

That’s Daniel Prince, CFA from iShares by BlackRock. Today on Your Money Your Wealth, he’ll tell Joe and Big Al all about exchange traded funds, and what the future holds as investing evolves. Also,  will Donald Trump’s new tax plan simplify taxes and spur economic growth as promised? If you’re one of the10,000 boomers a day now reaching the age where you must take distributions from your retirement accounts, how do you avoid screwing it up? Why might you consider making a Qualified Charitable Distribution? And, which is safer: government treasury bills or fixed indexed annuities? Here are Joe Anderson, CFP and Big Al Clopine, CPA, with some answers.


:55 – Donald Trump’s new tax plan: more growth, simpler taxation?

JA: We got a fun filled, packed, entertaining program here for you today.

AC: Yeah, as usual, right? I mean I am excited today. Because I know it’s going to be a great show.

JA: Donald Trump revealed somewhat of a tax plan.

AC: Yeah, it’s more of an outline. I would say bullet points. (laughs) In fact, that’s what the members of the press got, they got one page, maybe it was a page and a half, bullet points. But anyway, it was delivered by White House Chief Economic Advisor Gary Cohen and Treasury Secretary Steven Mnuchin. I learn how to pronounce it. Mnuchin. So, did you get a chance to see it? It was interesting. So here’s kind of the highlights if you didn’t see it. Right now there are seven tax brackets. The lowest bracket is 10%, it goes to 15%, the highest bracket is 39.6%, on the highest income levels. So they said, no, we don’t want seven brackets, we want three. And you’ll see a lot of this similar theme, which simplifies taxes. So the three brackets would be 10%, 25%, and 35%. So the lowest bracket would be roughly the same, 10%, the highest bracket instead of 39.6% would be 35%.

JA: So this is changed since the campaign trail.

AC: Yes, because on the campaign trail, Trump said he wanted 12% as the lowest bracket and 33% as the highest.

JA: Right. So what they were basically doing was blending in the overall rates. It was like, take the 10 and 15% tax bracket and call it 12%. So if you take an average of those two, it’s roughly around 12. So from 0 to, let’s say if you’re married, from 0 to about $75,000 of taxable income would be about 12%. And then from then, the 25% and 28% tax brackets, he wanted to combine and just call it 25%. So the 25% tax bracket starts at $75,001. And then, today it goes to about $150,000. Then the 28% bracket goes from $150,000 to what, about $220,000? So you combined those two, and say let’s get rid of the 28% bracket, let’s reduce that, let’s just call it 25%. So $75000 of taxable income for a married person to about $220,000 of taxable income would be about 25% rate. And then anything over that then would be 35%. So we’re getting rid of the 33%, 39.6%, kind of blending those rates, calling it 35%.

AC: Yes. Now it’s more of a, “let’s keep the lowest bracket at 10 and the highest three brackets 33%, 35%, 39.6%, maybe we’ll average that one. So that’s kind of where we’re at. It was not announced, Joe, what the income levels are. So that’s “to be announced.” So we don’t know yet. But pretty big changes in itemized deductions too, as the mortgage interest, they’ll keep that, the charitable contributions, they’ll keep that, but get rid of everything else.

JA: So state deductions. We pay a lot of state taxes, so we would not be able to deduct our state taxes.

AC: Right. And so it really kind of hurts those that live in states that have high tax rates, such as California, where we’re from. So itemized deductions, so only those two, the charitable deduction and the mortgage interest would stay. What goes away would be medical deductions, state taxes, property taxes, DMV fees, your miscellaneous itemized deductions, unreimbursed job expenses, or investment expenses, tax prep fees, that kind of stuff would go away.

JA: But then he’s also doubling up the standard deduction to $24,000.

AC: That’s right because the standard deduction for right now for a married couple is a little over $12,000, and so he wants to double it to $24,000, but then take away exemptions. So exemptions are around $4,000 per person. So a married couple right now it’s actually almost $13,000 standard deduction. A couple exemptions, that gets you to about, what? $21,000. And so it would up it to $24,000. What that hurts, of course, is people who have kids. Because there’s no such thing as exemptions anymore, so if you have 10 kids, which could happen, not as common as it used to be, but that would be $40,000 of deductions that would actually go away under this new tax law. Then we’ve got the 3.8% Medicare surtax. So this is interest income, dividends, capital gains, basically passive type income, rental income. If you’re married and your income is over $250,000, single, $200,000, you pay an extra 3.8% tax on those types of things. Capital gains too. Anyway, that would go away. We would have alternative minimum tax go away so that usually hits married couples somewhere around $200,000 of income. It’s different for everybody, and single people maybe $180,000, 170 something like that. So that would go away. The death tax would go away, that’s where, when you pass away if you have more than $11 million dollars of assets as a married couple, this is what the law is right now, you have to pay 40% tax over the excess. That would go away. The corporate rate, Joe, would go from 35% to 15%. And so that would be a big change, and of course the idea there is to have more profits retained by the companies, so they can invest in the future, hire more employees, create more jobs. And it seems like, to me, the overriding things in this whole outline is, one, to simplify, and two is to try to encourage economic growth for job creation.

JA: Yeah, we need it, because you look at the first quarter, it’s the lowest it’s been in, what, three or four years. .7% or something like that GDP growth.

AC: So the concern, of course, is that, yeah, I don’t think anyone disagrees with the fact that if you lower taxes, you’re going to get more economic growth. The question is, how much? Is it enough to cover the lower taxes and this is where it seems that it depends upon which party you belong to? This is your opinion. I will say without trying to be political, most economists, Republican or Democrat, say no this isn’t going to pay for itself. So I’m actually going to listen more to the economists than I am the politicians because that’s not their specialty. So I think that’s going to be the challenge.

JA: Yeah, but the politicians is what’s going to push this thing through.

AC: Right. But in terms of what’s real, I guess is what I’m saying. But you’re right. There are going to be the ones who push it through. And again,5 this is just an outline. This is just kind of a beginning discussion point.

JA: Al and I’ve been talking taxes for years on this show, and we’re just the tip of the iceberg here. What’s going to happen with like passive loss rules and carry forward rules? And everything else in between, that when you really kind of look at this and get in the weeds a little bit, I don’t know how simplified you can make this.

AC: Right. And I was reading on Friday, and this was from an anonymous source, so take that for what it’s worth. But he was saying, supposedly some kind of insider, he was saying that they’re looking at reducing or eliminating corporate deductions, so yeah we’ll reduce the tax rate, but you can’t deduct anything. So that actually, for many companies, could be a tax increase. So there’s just so much we don’t know right now, and I think the Republican Party that’s putting this together, Trump administration they don’t really know either. This is just more of an outline of what they’d like to have accomplished, and that the goals are good, I think, which is to reduce taxes and to spur economic growth. The tough part of this is if we had balanced budgets if we had no debt, cool! (laughs)  But that’s not true. We’re in deficit spending each year, meaning that we bring in fewer tax dollars than we’re spending as a government, and we’re just adding to our pile of debt from prior years, and it’s approaching $20 trillion right now. So there’s a deficit, which is what’s the current year shortage, and the national debt is actually cumulative. And you think well how does that happen? Well, the government issues Treasury bills and bonds and so forth, and we all invest in them, and they’ve got to pay it back at some point. And that’s how this is being funded.

JA: Yeah. I mean the treasury bonds are loans.

AC: Right. They’re assets for you, but they’re loans for the federal government. Because you’re giving them money. What are they doing with the money? They’re spending it.

JA: Exactly right. You’re lending the government cash, and they’re paying you an interest rate, the interest rate is not large, but they’re holding that to do capital improvements., pay Social Security, Medicare, building roads, paying for salaries, and so, yeah, if you do the math, it’s got to spur a lot of growth, because what that means is that, if I have less tax, that means I have more capital and more cash. And if I have more cash, the likelihood of me spending that is higher if I didn’t have the cash to begin with. And so if I’m going to the store, instead of buying one iPad I might buy two. Because I have a little bit more excess cash, or more discretionary income. So I’m going to go out and start spending a little bit more money, if I spend more money, that’s going to help corporations increase their overall profitability, as the increase in profits go up, well even though the tax rate is lower, but they’re taxing a lot higher dollar figure at a lot lower rate. So that should even things out if we get the growth that they’re anticipating.

AC: I think that’s a good way to explain it. In other words, we’ve got the companies are more profitable than before. And so they’re paying taxes on a higher profit level, it’s just a lower rate. And, hopefully, if you do this just right it equals out.

JA: Right. If I’m going to tax you 39.6% on a million, or 35% on $2 million, well it makes sense, because I’m going to receive more dollars, the tax rate is lower, but because you were able to increase your bottom line by another $1,000,000, or $500,000, or whatever the break even is on that. So stay tuned. There’s a lot of unknowns here. So they could do it. What I’m reading, and this is what happened with Bush too, back in 2000, with the Bush tax cuts. They sunsetted. That was supposed to last for 10 years. And so if this tax bill goes through, probably is going to be the same thing. So you got 10 years of this. So there’s a lot of different planning that you might want to do, and if it blows up, you better have all your money into a Roth. (laughs) Right? Or something like that.


It’s been three decades since the last major tax reform, but as you just heard, this could be about to change in a major way. That said, the President and the Republican Party are still divided on a number of key policy questions. Visit the White Papers section of the Learning Center at YourMoneyYourWealth.com to download the white paper “Tax Reform: Trump Vs. House GOP” for a deeper look into the proposals. How might income tax, estate tax, and business tax change? Are your tax strategies at risk? Download the Tax Reform white paper to find out more. Visit the White Papers section of the Learning Center at YourMoneyYourWealth.com


12:46 – Daniel Prince, CFA from BlackRock on exchange traded funds

JA: Hey, welcome back to the show, show’s called Your Money, Your Wealth, Joe Anderson here, I’m a Certified Financial Planner, with Alan Clopine, he’s a CPA. Alan, it’s that time of the show.

AC: It is, it’s our favorite time isn’t it? Because the show becomes a lot more… intellectual? Is that the right word?

JA: To say the least. (laughs) We always try to find someone a lot smarter than us, and I think we did it once again.We got Daniel Prince on the line, he’s a CFA, chartered financial analyst. He’s a director and he’s head of iShares product consulting at BlackRock. BlackRock, it’s a pretty small company. (laughs) They don’t manage much at all in regards to assets. So I want to bring Danny on right away, and I want to get into just educating our listeners and probably Al and I, more importantly, on the world of finance in the eyes of Danny Prince. Danny, welcome to the show.

DP: Great, thank you, Joe and Al. Nice to be here.

JA: So your specialty is in the exchange traded funds at BlackRock. How much money does BlackRock manage now? Like half the world?

DP: (laughs) Well, a little bit less than half the world, but we currently manage north of $5 trillion in total assets across you active and passive strategies on a global basis.

JA: ETFs are getting extremely popular, and they’ve been around for quite some time. Let’s go through the ABCs here of exchange traded funds. What was the genesis behind it? How do they work? Why would someone want to invest in an exchange traded fund versus maybe any other product that might be available to them?

DP: Absolutely. That’s a pretty broad question, I’m going to try to focus.

AC: We only have three hours. (laughs)

DP: That’s good. It’ll probably only take two and a half. (laughs) If I had to simplify the ETF industry and how it’s grown, the first ETFs, or exchange traded funds, came out in 1993. And since then you’ve seen just an explosion of innovation, and just giving investors different tools and different ways to invest, and here we are in 2017, and the growth has been really tremendous in the space. There’s north of $3 trillion invested through exchange-traded funds today, iShares – which are ETFs built by BlackRock –  at iShares alone, we have just in the U.S. 337 ETFs. So for us, it’s giving investors tools to really build thoughtful portfolios. When I think about why investors are using ETFs today, bubbling up into a couple of key takeaways or value adds that ETFs bring: really low-cost exposure, tax efficiency, knowing what you own, most ETFs are transparent, so you actually know what you invest in, and could really help to diversify away from a single stock risk. So those are really the key attributes that have led towards this real explosion of growth in the ETF industry.

JA: In 2008, a lot of people lost a lot of money. Even back in 2000, when the mutual fund industry itself, there was some shenanigans going on, when some of the actively managed funds and some of the trading activities that they were doing. And I think this gives another alternative to an average retail individual investor, maybe to start constructing their portfolio more like an institution and get broad diversification that’s extremely transparent, so they know what they own at a very low cost, not to mention there’s a lot of tax efficiencies that go along with it.

DP: Yeah that’s correct. I think, speaking of 2008, I think it was a major shift in the asset management industry where, for the first time ever, I think investors started to value transparency more than opacity. And 2008 we had a pretty good year at iShares as far as flows, given the idea of actually helping to manage risk. When you need it most is in times like 2008. So we saw a big trend or a big shift, I would say, in 2008, for investors actually wanting to know what they own, and know what their exposure was, and really diversifying away from some of the single stock positions that they held that weren’t doing so well during that time period. So a major transformational year in the industry.

JA: What is the difference between an exchange traded fund, and let’s say an index fund? Because there’s a lot of similarities but there’s also a lot of differences.

DP: Yeah, I think from a strategy perspective, both index funds and the majority of the ETFs today simply track an index. So from a strategy or from what you’re trying to invest in, they can be very similar. In fact, we have index funds that track the same indexes as some of our exchange traded funds or ETFs. So from a strategy perspective, it can get pretty similar. One of the key differences between an index fund and an exchange-traded fund would be this structure, and how you trade, and sort of the tax efficiency behind an ETF, that’s less so on the index fund side. So some of it really comes down to how investors can buy throughout the day with an ETF, whereas an index fund, you can only really purchase it at the closing NAV (net asset value) of that day. So you get some liquidity advantages, also some inherent tax efficiency advantages with an ETF structure.

JA: Why did they come up with the ETF versus just index fund? Because of the trading of it? Institutions wanted to have a bigger block of a specific index where they didn’t have to buy those particular issues? Where could they just buy the exchange traded fund and trade it like a stock?

DP: That’s a great question. When the first ETF came out in 1983, I think a lot of skeptics were, “hey why can’t I just go get this through a traditional fund?” And at that time I think the first couple of ETFs were actually targeted more towards traders being able to buy the S&P 500, but do so intraday throughout the day. Also because it traded like a stock you can long and short an ETF, where you can’t do the same thing with an index fund. So there are some inherent advantages early on for traders, which as the industry evolved and grew and as we moved into the 2000s, we start to leverage the ETF structure more for long term holders, as opposed to just short-term traders. So it’s actually evolved on who the users of ETFS were from when they were first launched, and the inherent advantages that institutions were getting by trading markets as opposed to just buying and holding markets.

JA: So our listeners are probably not institutional traders, so let’s say I’m just average Joe, and I want to buy the Wilshire 5000, just total stock market, or maybe the S&P 500. And I have an opportunity to say, I can buy a S&P 500 index fund, or an S&P 500 exchange traded fund. What would be the difference there?

DP: From what you hold, there’s less of a difference between the two experiences. One reason why you might want to hold on an ETF could be that potential tax advantages that the ETF structure has, although when you look at it across the board, and you see the S&P 500 index funds or S&P 500 ETFs, they’re generally both fairly tax efficient. But if you if you weren’t looking to trade, that means there’s one less advantage of an ETF for you. But there are some inherent advantages that an ETF structure will have because ETFs are exchanged between a buyer and seller. So what you eliminate is a lot of the mutual part, where other shareholders coming into the fund and redeeming from the fund can impact the overall fund performance. You tend to externalize more of the cost of others getting in and out of the fund. And if I had to bubble that down into one bullet point, I would say ETF really democratized access and made an investor pay their own freight getting an out of the fund, versus the mutual aspect where others can impact your performance from moving in and out of the fund. But at the end of the day, they could be very similar from a cost and a return perspective.

AC: So are there any advantages of an index fund over an ETF?

DP: I get to the question a lot, and there is. It depends on the individual, and how you access markets, and how much you pay in commissions, and I’ll tell you about my friend, who called me up and he was excited to get started saving a little bit of money every month. And he was really excited to buy one of our bond funds. And he was putting in too few dollars where the commissions actually made sense, where the expected yield of the fund was actually less than what he was paying in commissions. And so I encouraged him – you should really buy a mutual fund with without a commission because based on how much you’re paying, it actually doesn’t make sense to buy the ETF. So if you’re sort of dripping money slowly each month, and you’re paying commissions, you may eat away some of your returns if you pay more in commissions for ETFs. Every platform is different, so it’s hard to say which costs you more, but just doing the math around how much you’re investing versus commissions could play a role there. Also, ETFs aren’t on every platform. So if you have a qualified account or a 401(k), you may not see ETFs inside of that platform, where you might see an index fund. And I think again, one of the key messages I want to get across: there’s not a big difference between an index fund and the ETF. Maybe nuanced differences.


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23:31 – Daniel Prince, CFA from BlackRock, dives deeper into ETF’s

JA: We’re talking to Danny Prince, he’s a chartered financial analyst. He works at BlackRock. So I guess to put in layman’s terms, if I’m buying an exchange traded fund, ETF, I would pick an area of the market. Large cap growth. And then I could track that index. So I’m going to buy all the stocks in that particular area of the market, and I could do that in a couple of different ways. I could hire a fund manager and buy an actively managed fund, I could buy an index fund that would just buy those particular stocks, or I could buy an exchange traded fund and buy those particular stocks. So I’m just basically mirroring that particular index by buying the exchange-traded fund, in real layman’s terms. Fair? Is that an accurate description?

DP: You summed it up perfectly. Absolutely.

JA: Well so there’s more choice to look at. Now if I’m buying these stocks, how do I want to hold them? And with an exchange traded fund, the major differences is how it’s traded. So if I’m buying and selling that exchange traded fund and I want to put options or whatever on this thing, I have that option because it trades like a stock, versus a mutual fund, where it’s going to close at net asset value at the end of the day. But the pricing is very similar to an exchange-traded fund in an index fund, correct?

DP: Yeah. From an expense standpoint, yeah they can get fairly close. Pricing doesn’t differ too much. And I think you started to touch upon something maybe we didn’t dive into too much, but ETFs, because they do trade like a stock, you could start to incorporate trading strategies that you can’t do with a traditional fund. So if you want to use stop limit orders to help protect a position, you can do that. Or if you want to use an option, there are options on ETFs which do not exist for mutual funds. So if you’re an investor and you want to do, let’s say, a protective put option, or covered call option, that’s available to you only really in an ETF format and not through a mutual fund. So there are some additional trading strategies and options based strategies that you can do with an ETF that you can’t do with the mutual fund.

JA: Now there’s 350 different ETFs. What are some obscure ETFs that someone could purchase?

DP: Well I won’t call it obscure because we launched it just a couple of days ago, but just to tell you the level of granularity, two days ago we launched an Argentina fund. So here’s an ETF that trades on the U.S. stock exchange that gives investors the ability to buy a diversified basket of stocks exposed to Argentina. This is our most recent launch, not to say it’s obscure or not, but we do have a lot of investors who are trying to access different parts of the market as U.S. investors here, and that would be one of our more recent launches, giving you that sort of precise access to the Argentinian market. The way that we manage our lineup or the way that we think about the industry is giving investors choice. Our goal isn’t to confuse investors. At the end of the day, they’re transparent. You can look on our website and look at what they hold. You know what you own. We want to give investors the flexibility to really build their own portfolios and give them the precise tools as finely tuned as possible.

JA: Jack Bogle, I guess kind of one of the founding fathers of the index fund, big believer of buy and hold and kind of forget. And now with the birth of the exchange-traded funds, where they’re getting so niche, in a sense. I mean Argentina. Al, are you going to buy that Argentina fund? (laughs)

AC: Yeah, I’m gonna put about 15% of the portfolio in it.

JA: I mean it’s crazy now how precise that you can get into your overall portfolio, and how advanced Wall Street is getting. It’s pretty incredible. Where do you see the industry going?

DP: There are a couple of different avenues of growth we see here at iShares BlackRock. One is that the type of users that we’re seeing, and the shift among retail and institutional investors. On the institutional side, I think there’s been is this sort of moment over the last few years, where ETFs were viewed as indexing tools. So if you want to buy market, you can kind of get access to that market, you can get in and out. We’re seeing a lot of institutions who are actively managing their portfolios utilizing ETFs. We’re also seeing a lot of asset managers today who are running mutual funds and other strategies, who are using ETFs as tools in order to gain liquid and diversified access.  So one trend that we see growing here, is being active using indexes. So actively assembling a portfolio, but doing so not at the stock or bond level, but doing so at the ETF level. So that’s the type of users we’re seeing, a big shift, a lot of institutional investors are really starting to use ETFs today. From a strategy perspective, there are two main growth areas that we see. One is on the fixed income side, the bond side of the portfolio. We’re seeing a lot of adoption with fixed income ETFs and we see that growing at a faster rate than what traditionally was in the market around equities. The other is around smart beta. This idea that the indexes that we track aren’t necessarily market cap weighted, plain vanilla equities, but there’s something more strategic, or there’s something smarter about the strategy than just blindly buying the market. So we see fixed income and smart beta as two areas really growing in the marketplace today.

JA: That’s a great point. I’m glad you brought that up Danny. Let’s say if I buy an index fund or an ETF of the S&P 500 that’s market weighted. I would say and correct me if I’m wrong, a large percentage of my expected return in that particular investment is probably going to be in the top 25 holdings of the 500 companies, because of that market weight. Would you say that’s accurate, or somewhere close to that?

DP: Yeah. The top holdings have a higher weight because they have a higher market cap. It’s really meant to represent the market and not really take a viewpoint other than deliver where the average dollar is invested today. And so one of the top weights in the S&P 500 today is Apple. So yes, it’s fair to say that the top holdings garner more of the weight. Whether the top 20 holdings drives 50% of the performance depends on what index you’re tracking, but most have a higher weight towards larger companies today.

JA: Sure. And if I’m in, let’s say, a large company type fund. You’ve got Apple, ExxonMobil, Alphabet, the big boys, the huge market cap companies are going to drive a lot of that. But with the smart beta, or maybe an equally weighted index, it’s getting interesting how the science of investing is evolving. You’re a CFA, one of the smartest people when it comes to finance out there, but 30 years ago, when portfolio managers, they didn’t have that designation. There were bachelor’s degrees, maybe liberal arts. And now with the advancement of information, education, technology, it’s pretty exciting for this world of investing that’s going to take us.

DP: Absolutely yeah. We would fully agree with that. And we’re seeing a big transformation around just how accessible information is today. How investors are demanding more out of their investments, either by demanding lower costs, or more transparency, lower risk. The needs of investors are really changing, and I think part of what’s going on in the ETF industry is really innovating to keep up with the demands of investors and how that’s changed. And when I think about when I started in the industry, there was just not as much computing power to do what we do today, or you could achieve so much scale, and the way that we can operate and manage and launch ETFs has really evolved to the point where we’re really picking up on some efficiencies that we really couldn’t get in years past.

JA: We’re talking to Danny Prince. Danny, where can people get more information if they’re more interested in getting in the weeds on ETF ABCs?

DP: Absolutely. Just thinking about our website, iShares.com. We have a great website. We spend a lot of time educating investors on ETFs and how they work. So we’ve got a great site there, there’s a section called “About ETFs,” you can learn about what is an ETF and how to use them, and how to buy them, and go deeper into the mechanics. iShares is a market leader in this space, we have about a 40% market share in the overall U.S. ETF industry. So we spend a lot of time educating investors on just the structure, and how it works, and what the benefits are. So a good plug for our website, iShares.com

JA: All right that’s Danny Prince, folks. Thanks so much Danny appreciate it.

32:58 – Big Al’s List: Avoiding Common RMD Mistakes

AC: You’ve certainly heard, Joe, and you’ve said many times, 10,000 baby boomers are turning age 65 each and every day. Well, 10,000 baby boomers are now turning 70 and a half each and every day, and that’s when you have to take your required minimum distribution. So if you’ve got an IRA or a 401(k) or a 403(b), you have to start taking distributions out of that account. Just in round numbers, it’s about 4% of the account. So if you’ve got $100,000 in an IRA, you’ve got to pull out $4,000. Why? The IRS wants you to take that money out and pay taxes on it because you haven’t previously paid taxes on that. But, here’s the number one common mistake and pitfall is deferring required minimum distributions one year too late. There are penalties. I guess we’ll talk basically. You’re supposed to take your first required minimum distribution when you’re 70 and a half, and that’s that roughly 4% of your account. You actually can wait, Joe. You can wait till April 1st of the following year, but then you have to take two required distributions that year, so if it was $4,000 and you didn’t take it this year, you’d have to do two of them. You’d have to do $8,000, roughly.

JA: Where it gets confusing is where your birthday falls. Because then it’s like, I turned 70, so now I need to take that required minimum distribution, but if I turned 70 in July, I don’t turn 70 and a half until the following year.

AC: Yeah, and most people don’t track their half-birthdays. (laughs)

JA: Right, yeah. So if my birthday is in July, I turn 70 and a half the following year, then I could take it that year, or I could push it to April 1st the following year. And then take two of them. So yeah, you got to follow your half-birthdays here. That’s where it gets a little bit challenging, because I think, “I heard I could push it out to the next year.” But if your birthday is in June, now you have to take it the following year. So it gets very, very confusing on these half years.

AC: Yeah. And to say it again, if it’s in June you’re supposed to take it this year. You can delay it until next year, but then you have to take two required minimum distributions next year. And if you don’t take them when you’re supposed to, it’s a 50% penalty.

JA: So, here’s another thing I think a lot of you need to really understand. It’s called your RBD. It’s your required beginning date. That is the date that you need to start taking your required minimum distributions. So that will help. Then you don’t have to – just figure that out, all right? Here’s my required beginning date, and then start taking your distributions from there.

AC: OK. Very well said. Number two: taking your required minimum distribution from the wrong account. This is easily done because the rules are so crazy. What if you have a 401(k), 403(b) because you worked for the government at one point, or 401(a), you have an IRA. It’s like, can I just take one out of my IRA? No. Why don’t you go over those rules, Joe because sometimes you can aggregate accounts, like if you have 10 IRAs you can pretend like you have one, but that doesn’t work with 401(k)s.

JA: Right. There are different rules for different types of accounts, depending on what the statute is under the IRS code. So, IRAs for instance, a lot of you have multiple different IRAs, so you have an old 401(k) that you rolled into an IRA at Vanguard, and then you have another one that’s at Fidelity, and then another one that you started at American Funds. So let’s say you have three different IRAs, you turned 70 and a half, you have to take a required distribution, but you can aggregate all of the different IRAs. So you have $100,000 in each of them. So then you look at December 31st of the year before your required beginning date, that’s the number they look at, and then they’ll say $300,000 in total IRAs, your distribution is, what, $12,000. Something like that. So you could take the $12,000 required distribution – and why they have this in the first place is, they want the money out of these retirement accounts. They want their taxes. So once you turn 70 and a half, you’re required by law to start taking money out of your retirement accounts, and so then you take the $12,000 out, you could take it out of all three, to add up to the $12,000, or you could take it from one. That’s pretty simple. That’s IRAs. But a lot of you have a 401(k), and maybe you have two old 401(k)s, from two old employers. Maybe you have a side business, side hustle, that you set up a SEP-IRA in. And then you have a spouse that has 403(b) and a 457 plan. Well now, it gets complicated, because each 401(k) plan needs their own separate required minimum distribution. You can aggregate that. Then you could aggregate IRAs. And a lot of times, Al, they’ll say, my spouse has $100,000, I have $100,000, $200,000. I’m going to take $3500 out for my distribution. I’m just going to take it out of my account. For everything. No, each account, if it’s titled as a 401(k), 403(b), 457 plan, all of those plans have their own separate. You cannot aggregate all of those together, so be careful.

AC: So let’s think about this. You have four IRAs, and you have four old 401(k)s because you never consolidated anything. Now you hit 70 and a half, you can consolidate the IRAs as if you had one account, you take one required distribution from the four IRAs in one IRA of your choice. That doesn’t matter. But the 401(k)s, that’s four different required distributions, so in that example, you’re going to have to do five different required minimum distributions: one out of each 401(k), and then you can aggregate the IRAs.

JA: That’s why you probably should consolidate.

AC: (laughs) Probably, right? Now, what if you have several 403(b)s?

JA: Same same. IRAs can aggregate. IRAs, SEP-IRA, simple IRAs, anything that has an IRA behind it, you can aggregate those, but then all of a sudden you get the 403(b) and then a 401(k) and a 457 – each of those different plans has their own separate required distribution.

AC: Right. And then, related to this is, and a lot of people don’t realize this if you’re still working at age 70 and a half, and some people are, is…

JA: You get an exception.

AC: Yeah, you don’t have to pull your required distribution out of that active 401(k), and a lot of 401(k)s allow you to roll old assets into that account, even from IRAs. So you might be able to take your old 401(k)s and your old IRAs, roll it into your current 401(k) and not have to have a required minimum distribution till after you retire.

JA: Right, unless it’s your own business. It’s 5% ownership on that. So let’s say if you work for a large company, we give that advice all the time, let’s consolidate this into your current employer’s plan. You could continue to delay that required distribution until April 1st the year after you retire. So but then you would have to take two.

AC: (laughs) So if you followed any of that, God bless you because you’re paying attention.


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40:40 – Why Consider Making a Qualified Charitable Distribution (QCD)?

JA: Hey, welcome back to the show shows on Your Money, Your Wealth. Joe Anderson here, Certified Financial Planner. Big Al Clopine, CPA. Thanks for tuning in. We were talking about retirement accounts, Alan. So there’s something that’s called a qualified distribution. A QCD. Qualified charitable distribution. So what that means is this: let’s say if you are taking a required minimum distribution. What that is is that, by law, it’s a mandate that you have to pull money out of your retirement accounts at age 70 and a half, for the most part. And if you do not take that required minimum distribution, you are penalized 50% on the distribution. So, a lot of times, if you have a lot of money, a lot of people don’t necessarily want to take these required distributions, because it’s pulling too much money out of the accounts, pushing them up into higher tax brackets. So they came up with a QCD, qualified charitable donation, or qualified charitable distribution, whatever you wanna call it. So that’s giving your required distribution directly to charity. Up to $100,000. Why would someone do that, versus, let’s say, a highly appreciated stock to charity?

AC: Yeah, it’s a great question to ask, because a highly appreciated stock is, if you give that away to charity, then you don’t have to pay taxes on the gain. So in all honesty, I would say Joe, it depends. It depends on how much gain you have in the stock, and of course, everyone’s situation is a little bit different. But as a rule of thumb, if you have a lot of gain in a stock that you hold outside of retirement, and you want to give to charity, you’re better off giving that to charity than your required minimum distribution. The math works out better.

JA: Because if I do that qualified charitable distribution, I’m not getting a tax deduction for that. That’s the major difference. Because it’s going directly to the charity, it’s getting out of my retirement account to the – whatever. Boys and Girls Club.

AC: Yeah, so let me explain it this way. So if you want to have your required minimum distribution go directly to charity, then let’s say it’s $8,000. So $8,000 goes to charity. It’s not counted in your income because you didn’t receive it. It’s also not counted as a charitable deduction, because you never paid tax on, it so it’s a wash. So your taxable income is the same as what it was.

JA: Right, like it never shows up.

AC: Right. On the other hand, if you’ve got a stock worth $8,000 that you bought for $500 or whatever, then if you give that to charity, you don’t have to pay taxes on all that gain. $7500 of gain. So that’s a better way to go.

JA: And then you get that tax reduction for the $8,000.

AC: That’s right. But Joe, I do want to emphasize, even though these qualified charitable distributions – so it’s like what’s the point.  I have less income, I’ve got fewer deductions, but I’m in the same spot. There’s actually eight different reasons why you would do it, and still save taxes, depending upon your circumstance. So first of all, if you don’t have the required minimum distribution, you have less adjusted gross income. If you have less adjusted gross income, less of your Social Security may be taxable, because the taxability of Social Security income is based upon your provisional income, which is essentially all your income except for Social Security. They’ll take half of Social Security, and then you add your tax-free interest. That’s your provisional income. And if you’re below certain levels, less of that Social Security is taxable. So that could be a reason that you might want to do this.

JA: Do the qualified charitable distribution.

AC: Yeah. And now I’m comparing doing a qualified charitable distribution as opposed to taking your required minimum distribution and giving it to charity. Another one is if you’re married, and you are adjusted just gross income is above $250,000. You would have less required minimum distribution on part of your AGI, so you’d have less of that 3.8% tax.

JA: Right, because anything over $250,000, now you’re subject to the Medicare surtax at 3.8% on any capital asset.

AC: Likewise, Medicare premiums, if you’re adjusted gross income for married couples is above $170,000, you will pay a higher dollar amount for your Medicare premiums.

JA: How does that work? Is it $1 over?

AC: Yes. It’s a cliff. So it’s $1 over, that’s right.


AC: Yeah. (laughs) Another one, Joe, is if your income, married, is above $300,000, single $250,000, your itemized deductions start getting phased out. So again, if you’re reducing the amount of your adjusted gross income, your gross income if you will, then you’re going to have less of your itemized deductions phased out, maybe less of your exemptions phased out. So that’s another one. Real estate losses, if you’re a real estate investor, once you make more than $100,000, you start getting limited on what you can write off on your rental property. So that would be another one. Roth contributions. Yet another reason why, if you or your spouse are still working, and you want to do a Roth contribution, at certain income levels you’re not allowed to do it. If you take a required minimum distribution off your adjusted gross income, then maybe all of a sudden, you can make that contribution.

JA: So Roth contributions do not have an age limit, where IRA contributions do have an age limit. But another driving force is income. So you need to have adjusted gross income to make contributions to retirement accounts. So, if you’re in your 70s and still working, then you can absolutely make Roth contributions, as long as you’re under the income threshold, and that is $186,000 to $196,000 if you’re married. It’s $116,000 to $132,000 if you’re single. You’re going for your cheat sheet and I’m off the top of my head here.

AC: I think it’s $133,000 but let me see here…

JA: 117 to 133 or 116 to 132?

AC: It’s $118,000 to $133,000 single, $186,000 to $196,000 married.

JA: So I had married right, whatever. Close enough. I was off a buck.

AC: You were pretty close. Here’s maybe the biggest reason why you might want to do one of these qualified charitable distributions, is if you don’t itemize your deductions. Because charity is an itemized deduction. In other words, if you take the standard deduction, which if you’re married, it’s a little over $12,000. If you don’t have enough itemized deductions, then you use the standard deduction. So if you give to charity, you don’t get any benefit, because you don’t itemize anyway. And the majority of people actually don’t itemize. Now our listeners, I bet the majority do. But if you’re in that situation, then you certainly, if you want to give to charity, you might as well do this qualified charitable distribution, because you’re going to get no tax benefit otherwise. One more big one, if you want to be super-generous to charity, the IRS says that you can only give 50% of your income.

JA: To get the deduction. You can give more.

AC: Right, and then whatever you don’t get carries over for five more years. But let’s just say you make $50,000, and you want to give $50,000 to charity. You’re probably going to use other assets, other resources. But if you have them, and you want to do it, IRS says no, you made $50,000 we’ll only let you gift $25,000. And so, therefore, the other $25,000 you can’t take currently as a deduction. Well if you do the qualified charitable distribution, you can give any amount up to your required minimum distribution, up to $100,000 per person. So that would be yet another reason.

JA: So I’m working, I’m over 70 and a half. I have retirement accounts that are outside of my current active 401(k) plan, and I make $75,000 a year. I put $25,000 into my current 401(k), $24,000, I’m rounding, just to get the $50,000 number. Or maybe my spouse is taking them. So I could then take $100,000, that’s the maximum, from my retirement account, and I could give that to charity, and then that would be $100,000. Well, that one that wouldn’t give me a deduction.

AC: No deduction, but no income, and so there’s no 50% income limitation. So you’re avoiding that.

JA: Or if I wanted to give my paycheck to the United Way, I could only give $25,000 of it to get the tax deduction.

AC: That’s correct.  You can only give up 50% of your income, and interestingly enough, if you give away – we were first talking about giving away appreciated stock, which is actually the best thing to give, because then not only do you get the tax deduction for what the stock’s worth. You don’t have to pay the tax on the gain.


Joe and Big Al are always willing to answer your money questions! Email info@purefinancial.com – or you can send your questions directly to joe.anderson@purefinancial.com, or alan.clopine@purefinancial.com 


49:37 – JA: This is to you, Alan. “I’m 57 years old. If I retire and roll my 401(k) to an IRA within 60 days of separating from my company, will I be exempt from the 10% early distribution penalty in the IRA if I take distributions out of the IRA before 59 and a half? I’ve heard conflicting stories if the 401(k) is rolled over within 60 days of separating whether an IRA is then also exempt from the 10% early tax penalty, just like the 401(k) would have been.”


AC: That’s a good question, and I think a lot of people don’t know that if you retire, separate from service, and you’re 55 years or older, but in this case, we’ll say younger than 59 and a half, 55 and older, you can actually take dollars out without the 10% penalty. The normal rule that most of us know is, 59 and a half, we’ve gotta wait till then for an IRA to pull money out, of course, we pay taxes either way. But then there’s no penalty after 59 and a half. In a 401(k) world, it’s 55. As soon as you roll money out of a 401(k) into an IRA, you’re in the IRA world. So it’s going to be a penalty if you take it out before 59 and a half. There’s 72(t)  elections and there’s some ways around that, but if you’re going to retire, if you have a 401(k) and you’re 55 years old, let’s say, and you want to retire, so obviously you’re younger than 59 and a half, then keep the money in your old 401(k), so you can access those dollars without the penalty. Now at 59 and a half, you can roll it at that point. That’s fine if that’s what you want to do.

JA: I think this e-mailer is confusing two rules. Because he or she keeps referring to 60 days. “If I roll my 401(k) out within 60 days of me separating from service then I was told that now the IRA is exempt from the 10% penalty.” No, there’s a 60-day rollover. That is with IRAs, not with 401(k)s. A 60-day rollover is, you take money out of the IRA, there’s no taxes, there’s no penalties, as long as the money gets back into the IRA within 60 days.

AC: So you’re saying, I can’t I can’t afford my rent payment, so I can pull the money out of an IRA, and if somehow I can get some money before 60 days, I can put it back in within that 60 day period, at any age, there’s no tax, no penalty.

JA: Correct. But it looks to me that this individual is retiring. 57, got a 401(k), gonna roll it into an IRA if I roll this thing into an IRA within 60 days is it exempt from the 10% penalty? No. If it’s in the IRA, it doesn’t matter. There’s no 60-day rule from a 401(k) to an IRA. Get it out of your plan within 60 days? No. You move it into an IRA, at any point, the next day, or five, ten years after you retire. But the rules when it comes to IRAs is that there’s a 60-day rollover that you have 60 days you could pull it out, but this is only one time in a 12 month period.

AC: Yeah, and that’s new. That was about three years ago they came up with the ruling, or actually, an interpretation, guess, of a ruling which was this: because, here’s what people were doing. They would have six or seven different IRAs, and they take $50,000 out of one IRA, and then 60 days later they would roll it back in, and then they’d take $50,000 from another IRA, or whatever the number is. And they’d just keep doing this shell game, over and over and over again.

JA: Or they would take the $50,000 from another IRA to put it in the other IRA. Because the money’s gone.

AC: That’s what I meant. Exactly right. And so, they’d just A to B, B to C, C to D and so forth, and the IRS said no, we don’t want this. You guys are taking money out of the IRA, and that’s not what we intended to do. So now they said, I don’t care how many IRAs you have. We’re going to treat it as if you have one, and you can only do it one within that particular year. And it’s not a calendar year, it’s a year after you do it. So if you do it right now, we’re in May. So then May of next year, 2018, then you could do it a second time. Boy a lot of people get tripped up on this because sometimes they roll accounts from one IRA to another, they forget to do a direct trustee to trustee transfer, so they get the money. But they can put the money back into another IRA within 60 days. But you can only do that once in a year period.

JA: So, we get these e-mail questions from Investopedia. Well, I do. Alan answers them, and then I take credit for it.

AC: (laughs) Yeah. And you get the socks, too.

JA: Yes I do, thank you very much.

AC: You just got one pair though. That means they don’t really like your answers. (laughs) Otherwise, you’d be getting a sock each week,


54:23 – JA: I should, probably, right? And maybe some boxers. (laughs) I’m just kind of reading through the headlines here, and there’s a lot of questions, like this one for instance. “I’m interested in working with a specific investment advisor who has recommended a fixed annuity. I’ve been unable to find any information on this individual from FINRA after 2010.” FINRA is the financial regulatory agency. “How do I check them out?” So what do you think is going on with this particular advisor?

AC: (laughs) I don’t know, you have to answer that one.

JA: So FINRA is a regulatory agency. So if you are licensed through a brokerage firm, such as a broker-dealer, so I might have a series 7 license, a series 6 license, a series 24, 51, 53, 57, and a 2. Those were all of my old licenses in my old life.

AC: Is that every single (I think I know the answer now, but) every single advisor that sells security type product has to have those licenses?

JA: Yeah. When you get started in the business, you take your series 7. It depends on, if you are more on the insurance side, I think its a series 6. A series 6 allows you to sell mutual funds. Series 7 is more in depth. It’s a really challenging, it’s a tough test. I took it 20 years ago. Getting old, Alan.

AC: Yeah. You’re almost as old as me. (laughs)

JA: Yeah right, I’m 20 years from that.

AC: 17 to be exact. (laughs) That’s the accountant in me. It’s 10. Ish. (laughs)

JA: Yeah, give or take. (laughs) So then FINRA. So you could go to brokercheck.com if you ever want to check out a broker. Has that broker has gotten into trouble? Filed bankruptcy? Any criminal actions? Any of his clients, or her clients, sued that broker? So you could go to a brokercheck.com, that’s under FINRA. And so they’re saying, “hey I looked him up under FINRA, but I couldn’t find anything after 2010.” Because this individual dropped their licenses in 2010.

AC: Yeah, and so why would an advisor drop their licenses?

JA: Well, in this case, he’s selling fixed annuities. I think he just doesn’t want to deal with the regulatory agency, because they’re very strict on advertising, what you can say, what you can’t say.

AC: So fixed annuities don’t have any securities in them.

JA: Right. Now you’re regulated by the state insurance board, which is loose, I mean these people are saying all sorts of things. (laughs) So that’s why this person can’t find them. They’re not securities licensed anymore.

AC: So they used to be.

JA: Yes, they used to be. They just probably said, “I don’t wanna deal with that side of the business. I just want to sell insurance.” Something like that.

AC: Now I suppose you can become an investment advisor, with a registered investment advisor, let’s say, a hybrid type firm?

JA: Yeah, but you still have a series 65 to be a registered investment advisor.

AC: Would that show up in FINRA?

JA: Well, then you would have to look under the IAR. It wouldn’t, because if you don’t have a series 7 license… Yeah. I mean, I haven’t looked myself up on FINRA, because I had all those licenses. I still carry the 65, because we’re a registered investment advisor, or if you have certain credentials, and things like that. But yeah, the name should show up. But if they’re a registered investment advisor, they’re not selling fixed annuities, in most cases.

AC: In most cases, yeah. Not always. (laughs)

JA: (laughs) True. We’ve met a couple. That’s a very good point, Clopine. Very good point.

AC: There’s a few people out there that, on the one hand, I’m this. On the other hand, ooh, I got that!

JA: Hey Deb, go to FINRA looked me up. (laughs) Because we are under the Securities Exchange Act of 34.

AC: Well, I’m series 65 too, so I should be there too I guess.

JA: Well yeah, you are a registered investment advisor. Well, the firm is there. And you are a representative or whatever.

AC: Yes.


58:55 – JA: Hey Alan, what do you think, “Are T-bills safer than an index fixed annuity when you take into consideration the debt our government has? I’m considering an index fixed annuity, I’m 60 years old and have less than $125,000 to invest or rollover into something else for my retirement. I do not trust the market, especially since it’s rising so quick.”

AC: OK. Well, that’s actually a reasonable question. Now let’s talk about government T-bills. So those are backed by the U.S. government. And let’s think about that for a second. So, the industry, the finance industry calls the government T-Bills the risk free rates. In other words, there’s virtually no risk. And here’s why they can say that, is because the U.S. government prints its own money. So theoretically, it can’t ever go in default. They would just print more money to pay it back. Now if they print too much money, it causes inflation, and there’s all kinds of problems. But that’s why it’s the risk-free rate. Now let’s go to an insurance company. What’d you say, fixed indexed annuity? Well, that’s backed by the insurance company. Does an insurance company have the ability to print its own money if it gets into trouble? The answer is no. So the answer is, the government T-bill is going to be safer than a fixed indexed annuity.

JA: Right. “I’m struggling to determine which contributions make the most sense for my situation. I make $100,000 annually. Time is not on my side. I’m contributing to a traditional to get my employer’s match, and have been contributing above and beyond that amount to a Roth. Right now I’m saving 5% in a traditional, 6% in a Roth, and my employer’s matching 5%. It’s hard to know what tax bracket I’ll be in retirement. I also hear that if your traditional payouts in retirement are too high, Social Security could get taxed away. Is that true? Am I better off saving mostly in my Roth to avoid this?”

AC: That’s a good question, and we certainly don’t have near enough information to answer it properly. But I guess I’ll tell you what you ought to be looking at. First of all, you probably have been listening to our show because that’s kind of what we recommend is, in the order of savings, is save into your 401(k) up to the employer match., and then after that go to a Roth, and maybe this is the Roth option in the 401(k), it sounds like. So that’s good. We like that as a general rule. But there’s a hundred exceptions, and the exception to that would be if you’re in a really high tax bracket now, versus a lower bracket later, you might want to rethink that. If you’re subject to alternative minimum tax right now, you certainly want to rethink that, because your tax rates are really high. As far as what your tax rate will be in retirement, well then you’ve got to kind of do a little analysis there. What’s your Social Security income going to be? Do you have pension income? How much do you have saved in your 401(k) so we can compute the required minimum distribution? Do you have money outside of retirement that’s going to produce income, or rental income, or things like that? So you add all those up together, and you look at, what are your expected itemized deductions? Are you going to continue to give to charity if you have been? Do you have a home mortgage? You can calculate what this will be. That’s why you go do a little forecasting. It’s not that hard to figure out your future tax rate, you just have to do a little analysis.

JA: Assuming that tax rates don’t change.

AC: Yeah. And they maybe they may.

JA: They will. So I mean, if they never change, then yeah it’s fairly easy. It depends. If you’re 22 years old, versus 52 years old, and 62 years old, you’re going to have different types of assumptions going into this. But I really like what this person’s doing, in regards to tax diversification, because he’s hearing some things, or she’s hearing some things, but that’s the problem with shows like this. Because they might just hear a glimpse of what someone is talking about, and it’s like, “oh like Social Security is going to be taxed away?” No, your Social Security will be subject to tax, the state of California is not going to tax Social Security, plus, you get 15% tax-free.

AC: Yeah, even if it’s fully taxed.

JA: Even if it’s fully taxed. So no, that’s a myth. Even if you’re in the highest tax bracket, it’s not going to get taxed away. It’s just going to be subject to ordinary income tax. But the fact that looking at, “well here, I got some money going in pretax, getting that tax deduction, having that grow tax deferred, then looking at the Roth option, have tax free availability of my money once I do retire,” then yeah. But there’s a thousand other factors that you have to look at.

AC: Yeah. So here’s a little easy math just from what we do know. So this individual makes $100,000, and 5% is going into the 401(k). So that would be $5000. So they’re paying tax on $95,000 of salary. Now let’s just presume for simplicity there’s no other income. If they are married, which we don’t know, but let’s just say they are, even if it’s a standard deduction and exemptions, that’s about $20,000, that means their taxable income is about $75,000. Well, that’s right at the top of the 15% bracket. So in other words, if you saved more into the traditional 401(k), you’re only saving at a 15% rate, which is probably going to be your retirement rate. I mean I don’t know, but that would be a reasonable guess. On the other hand, if you’re single, now you’d have $95,000 minus about $10,000 standard deduction and exemptions, so now you’re $85,000. Now you’re getting right towards the top with the 25% bracket, really close to the 28% bracket, it might be a little bit different answer.

JA: That’s a great point, Al. Just looking at it like that, I wish most people would do that. I’m making $100,000, I’m saving $5,000 in the 401(k). OK. So that’s $95,000, minus $20,000 from there. That’s $75,000, if you’re married you’re right at the top of the 15% tax bracket. Any other dollar that you should be saving should be going into the Roth because you’re not getting the big bang for your buck.

AC: Right. 15% is a good bracket. I don’t care what the future is. That’s a good point.

JA: Yes, pay the tax and let all of that money grow 100% tax-free for you. You’ll be happy that you did it. But then if it’s single, well now that’s a totally different story. Now you’re in the 25%, close to the 28% bracket. I still like the fact of tax diversification. And if this individual was maybe 20 years old, 25 years old, I might have a different approach to it than if they were 55 or 65 years old.

AC: I agree with that. All we know is time is not on their side. So does that mean they’re about to retire?

JA: (sings) Tiiiiiime, is not on his side.

AC: Or terminal disease?

JA: I have no idea buddy. They just send me this crap, I read it.

AC: I think she found you on FINRA?

JA: See. Pretty good. No red flags. I’m on FINRA.

AC: No complaints.

JA: No. Knock on wood.

AC: None of our listeners? (laughs)

JA: I got plenty of complaints from this radio show. But not the advice I give. (laughs) Yes, daily I get emails blasted to me.

AC: “We like Big Al, but we don’t really like Joel that much.”

JA: Yea. Joel. My name is Joe, by the way. If you’re going to address me and barrage me, I would like you to at least say the right name. Joe. Joseph. “Hey, Joel. Listen to your show. Really like Big Al.”

AC: Well I’m on (FINRA) too. Perfect record. No strikes. (laughs)

JA: Anyway, we’re done. We got a minute left. I’m all frustrated. Please e-mail me how much you hate the show.

AC: (laughs) It seems like we’ve been getting a lot more positive feedback these days.

JA: Hey if you do have a question, if you want us to read your question on the air, you can always go to info at pure financial dot com or just e-mail. Al or I directly at Joe Anderson appear financial in Alan.Clopine@PureFinancial.com. Or just go to PureFinancial.com and you can see asking an advisor. I watch. One of the 400 videos that we have we probably already get answered it there probably is probably approaching 500 now. I don’t know compliance. I’m sorry for what I said approaching for a 401(k). I guess it’s more than four.

All right everyone. We’ll be back again next week hopefully enjoyed the show go to iTunes listen to it there if you’ve missed. We’ve got some great interviews lined up in the future. We have Dr. Daniel Crosby last week there was a lot of fun and that’s it for us today. And we’ll see you on the flip side.



So to recap today’s show: Right now, “The Biggest Tax Cut Ever” is more like a list of bullet points. Knowing your required beginning date and making sure you take your required minimum distributions out of the correct accounts can help you avoid costly RMD mistakes, and since the government can print its own money and insurance companies can’t, T-bills are definitely safer than fixed index annuities.

Special thanks to Daniel Prince, CFA from iShares by BlackRock, for telling us all about ETFs and the exchange traded funds industry, where the future is looking at fixed income and smart beta.

Subscribe to the podcast at YourMoneyYourWealth.com, through your favorite podcatcher or on iTunes, where you can also check out our ratings and reviews. And remember, this show is about you! If there’s something you’d like to hear on Your Money, Your Wealth, just email info@purefinancial.com. Listen next week for more Your Money, Your Wealth, presented by Pure Financial Advisors. For your free financial assessment, visit PureFinancial.com

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.

Your Money, Your Wealth Opening song, Motown Gold by Karl James Pestka, is licensed under a  Creative Commons Attribution 3.0 Unported License.