Show Notes

• (00:44) Will Scary Future Events Mean More Tax and Highest Medicare Premiums? (Michelle, San Diego)
• (10:46) Market Timing, Pension & Roth Retirement Spitball (Percy, North Myrtle Beach, SC)
• (18:34) FERS & Military Pension Diet COLA Retirement Spitball (Joe and Barb, Tulsa, OK)
• (26:49) Can I Employ My 3-Year-Old and 2-Month-Old Kids to Fund a Custodial Roth IRA? (Michael, VA)
• (29:38) Capital Gains Exclusion: Both Members of a Married Couple Need to Be on Title? (Rocco, NYC)
• (35:16) COMMENT: Semi-Retired at 65 (Jetta Jay from Raleigh)
• (39:00) The Derails

Free financial resources:

EASIRetirement.com: New FREE Retirement Calculator! Try it out and send us your feedback!

WATCH | YMYW TV S9E9: Retirement Rescue Plan

Download this week’s special offer – for a limited time only!

Listen to today’s podcast episode on YouTube:

Transcription

How will a diet COLA on a pension affect retirement plans for Joe and Barb in Tulsa? Percy in South Carolina has a pension too. He’s timing the market, but should he change his investing strategy as he approaches retirement? That’s today on Your Money, Your Wealth® podcast number 445.  Plus, Michael in Virginia needs ideas to fund a custodial Roth IRA for his 3-year-old and 2-month-old kids, and Rocco in NYC catches Big Al on capital gains exclusions. But first, will scary future events mean Michelle in San Diego will have to pay more tax and the highest possible Medicare premiums? I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP®, and Big Al Clopine, CPA.

Will Scary Future Events Mean Paying More Tax and Highest Medicare Premiums? (Michelle, San Diego)

Joe: “Hey guys, I’ve been reading investment magazines for quite a while, but recently found your podcast.” Reading investment magazines.

Al: Wow.

Joe: Really fun hobby.

Al: Yeah. Is that what you do on weekends?

Joe: Yes. “Working through the massive trove of fantastic episodes. Love it. Gave you 5 stars. Wow.

Al: Wow.

Joe: All right.

Al: Fantastic.

Joe: “I’m a lightweight investor relative to what I’ve heard on your listener questions, but here goes. Michelle here, turning 67 in September, single, never married, no family, no debt, dog lover, chocolate lover. I drink coffee, seltzer, and hard cider, boring I guess.” I don’t think so.

Al: I don’t think that’s boring at all.

Joe: “I drive a 2017 convertible Mustang-” Ah, Big Al.

Al: Yeah, that’s cool. I have a 2004 red convertible.

Joe: “-that may redeem me in part from the boring drinking.”

Andi: Yeah, it does. Did you hear Al’s response? He was excited.

Al: Yeah, totally.

Joe: “My San Diego condo, bought it in 2020, stopped working, social scientist, 2015, as a research funding stream was drying up for my area. No pension, but walked away with a nice 403(b). I converted to a rollover IRA except for $270,000 I left in a guaranteed 3.5% return. I am not planning on taking Social Security until I have to. Other assets, $600,000 cash and CDs, money markets currently returning 4.5% to 5%, $875,000 in taxable accounts, $795,000 in a traditional IRA and $465,000 in a Roth.” Dude, Michelle’s a player.

Andi: Dude.

Al: Well, so I just added that.

Joe: What is she talking about? Lightweight investor.

Al: I know. That’s $3,000,000.

Joe: She’s a big baller.

Al: You know what? Let me be very clear to our listeners, $300,000 is a lot of money to me.

Joe: Right.

Al: And so it doesn’t really matter how much you have.

Joe: Exactly. It’s what you’re trying to do with the money, and then we can come up with a strategy or spitball to figure out, alright, do you have enough to do what you want to do?

Al: You know, some people have a big fat pension and $100,000 and they’ve got more money than they ever need.

Joe: Right. All right. “The above is invested in stocks, ETFs and mutual funds, mostly index fund, domestic and international with a smattering of tax-exempt bond funds in a taxable account, as well as small caps, value and mid cap.” Wow. She does read investment magazines.

Al: She’s got all the terms down.

Joe: Her vocabulary is top shelf.

Al: It’s good.

Joe: “The traditional and Roth IRAs are invested in similar vehicles, except that I’m tilting the tax-deferred ones towards more income production, where the taxable is more growth. I’m in the 24% tax bracket with gross income of $130,000, $170,000, depending on the mutual fund capital gains declared at the very end of the year, so it’s hard to plan very well.
Currently moving gradually to ETFs in the taxable account.”

Al: Got it.

Joe: “Average annual expenses for the past 3 years is $115,000, $40,000 plus of that is taxes.” Okay, so $115,000 is what she wants to live off, but that’s inclusive of taxes?

Al: Yeah, that’s what I read too. So I guess that means other expenses are $75,000.

Joe: $75,000 plus $40,000, okay. “Including $12,000 property tax. Other growing expenses in insurance, healthcare, home, car. I’ve been doing annual Roth conversions of about $50,000 since 2015. And that’s of course pushing up my taxes as well, most recently, my Medicare premium. Now, two scary events are looming in the not-so-distant future. I’ll have to start taking Social Security, estimated at $3800 a month for 3 years. Then 3 years later, at 73, I’ll have to start taking my RMDs, unless they push it off again. As per above, current amount will- that will be subject to that is $1,000,000, $270,000 plus $795,000. I fear I’m looking at a future of paying even more taxes than I do now, paying top Medicare premium. And I don’t like that picture. Am I missing something? Is there a strategy? Can I do something? Any wisdom? Thank you guys.” All right. That was Michelle from right here.

Al: San Diego.

Joe: San Diego. Okay. Not a lightweight. She’s a heavyweight.

Al: No, I’m very impressed, Michelle. So first of all, you got a lot of money. You drive a convertible Mustang. You like hard cider. It’s like, we’re about the same age, although I am married.

Joe: Oh, man. He’s like, wow, it sounds like my wife.

Al: Dreaming.

Joe: All right, so let’s see what can she do? First of all, $875,000 in a taxable account, so she gets these mutual fund distribution. So it doesn’t seem like she’s living off of any of these dollars.
So she’s switching these over to ETS, which I think is the smart play, because they’re more tax-efficient. And so that could get- she’s trying to take money out the 1040 because she sees, I’m going to receive Social Security. I have the pension- or these other dollars that are kicking out. And I might be in a higher tax bracket once my RMDs hit than I am today.

Al: Yeah, so to follow up on that, so with all, a lot of cash, as well as taxable accounts, I think first step is take a look at how they’re invested. They may not be the most tax-efficient investments. You can invest in things that are more growth oriented or Muni bonds to take that income off your return.

Joe: But she’s retired, correct?

Al: Yeah, but she’s got no pension.

Joe: But how is she in the 24% tax bracket?

Al: Well, she says her income is $130,000 to $170,000-

Joe: Depending on the mutual fund cap gains-

Al: I’m just thinking something- doesn’t quite add up. I mean, well, there’s 4%, 4.5% to 5% income on $600,000 cash. There’s taxable accounts. Maybe she’s getting something from the 403(b).

Joe: She’s doing a $50,000 conversion.

Al: Yeah. Right.

Joe: Right. But the 403(b) is tax-deferred. She’s making a $50,000 conversion. She’s got $24,000, $25,000, I guess, in interest. And then another-

Al: -a lot in the taxable. It doesn’t seem like very-

Joe: $875,000? Kicking up that much?

Al: It can’t be. So I think we’re missing something here, but I guess that’s the first thing I’d look at is are you invested tax-efficiently in your brokerage accounts?

Joe: She has to look at doing more conversions.

Al: Totally agree. Because given everything that you’ve said, your income’s going up. There’s no question because if everything’s the same, now you’ve got RMD, and you’ve got Social Security.

Joe: She’ll be in the 28% tax bracket.

Al: Could be. Yeah.

Joe: So you definitely want to make-

Al: – convert to the top of the 24% anyway.

Joe: Right. That’s a big bracket.

Al: It is a big bracket and Michelle, it’s probably bigger than you think because your capital gain income will sit on top of it. So you kind of calculate your taxable income without capital gains. And for a single person, you can go up to about $182,000 of taxable income, which is after your $13,000 standard deduction, right? So that, you know, call it $195,000, almost $200,000 of income, of ordinary income. And then your capital gains sit on top of that, which are taxed at 15%. So you may have more room than you think.

Joe: I don’t know. Would you look at munis?

Al: I’d like to know what she’s invested in. It seems like the income’s way too high.

Joe: But let’s say the $600,000 cash. It doesn’t seem like she needs a ton of cash reserves.

Al: No.

Joe: Maybe you look at a- you look at the tax equivalent yield on 4.5%, 24% tax bracket, State of California, 10%. Can you get maybe 3.5? 4%? Close to that in a Muni bond portfolio, tax-free?

Al: Been a while since I looked, but that wouldn’t surprise me.

Joe: So yeah, we would need to look at the tax return a little bit more, but I think she’s doing things great.

Al: I do too.

Joe: If she can continue to convert to the top of the 24% tax bracket, that’s going to reduce the RMDs. Slowly get the mutual funds and the ETFs, be a little bit more tax-efficient. Take a look at the interest that’s kicking out of your CDs and money market accounts and maybe you can convert that, maybe a little bit more tax-free or hold more of it towards growth, depending on really what your tax or your cash needs are.

Al: The conversions do affect Medicare premiums and that’s- but you’re going to have a problem with Medicare premiums-

Joe: -regardless.

Al: – all the way. So it’s not- no, no difference.

Andi: With the money you have saved right now, at what age would you be able to retire? 65? 70? Never? For many Americans, our financial health barely has a pulse and the condition is getting worse. The doctors are in the house in Retirement Rescue Plan, It’s the latest episode of Your Money Your Wealth TV! Watch it in the podcast show notes, and make sure you download the free companion Retirement Rescue Guide – it’s only available for a limited time, so download it before this Friday. Revive your retirement and go from just barely surviving to thriving! Click the link in the description of today’s episode in your favorite podcast app to go to the show notes, you’ll see the TV show and the guide, right before the episode transcript. To get a retirement spitball analysis of your own, or if you’ve got money questions, click Ask Joe and Al On Air in the podcast show notes, and send ‘em on in!

Market Timing, Pension & Roth Retirement Spitball (Percy, North Myrtle Beach, SC)

Joe: “Hi, Andi, Joe and Big Al. Love your show. Longtime listener, Richard here. 62 YOA, spouse 59.”

Al: I dunno what the A stands are.

Joe: I don’t know either.

Andi: Years of age. Instead of ymo.

Joe: Oh. “We on our North Myrtle Beach, South Carolina, no mortgage, no debt. I have $34,000 per year pension for life, with the COLA. A chunk of it goes to insurance, taxes, etc., with about $20,000 per year left after deductions to spend. Have about $1,300,000 between the following accounts, $250,000 Roth, $950,000 IRA, $31,000 brokerage, $135,000 in inherited IRA, that’s taking a $6000 per year RMD. We also have about $160,000 in cash. Okay, investment breakdown. Got a little 1% in cash, 1% international bonds.” Huge exposure there.

Al: Yep.

Joe: “U. S. bonds, 37.6%, international stocks, 13.6%.” Very precise.

Al: It is.

Joe: “U. S. stocks, 14. 6%. Alternatives, 1. 7%. Unclassified, .7%. Best guess, total stocks to bond is about 62% to 38%.”

Al: Yeah, perfect. So next time just say 60/40. Good enough.

Joe: 60/40. And we’re good. “I don’t have Roth accounts- I do have my Roth accounts a bit more aggressive that are around 80% stocks.

Al: I like it.

Joe: Yeah, I’m assuming I won’t have to tap into them for at least 15 years. I know I’m over invested in U.S. Bonds in my G fund, that’s in the TSP, and plan to move more into stocks as I convert to Roth. I have used the G fund as a buffer against the bad market. When the market goes down, I tend to push some into that S& P 500 funds. And when it appears overheated, I put about 5% into bonds.” Oh, he’s a timer.

Al: Yeah.

Joe: He knows when it’s overvalued.

Al: Yes, he sure does.

Joe: No, he knows when it’s undervalued.

Al: He should join our investment team.

Joe: He should. We got a little seat open in the old investment council. Sit right there next to Big Al.

Al: That’s right.

Joe: He’s trying to stay in that 12% tax bracket while it lasts. “We probably spent around $80,000 a year before taxes with a chunk of it non-essential spending, dinner out, grandkids, birthdays, etc. Current marginal taxes are about 12% federal, 7% state, so roughly, total spending with taxes is around $90,000 per year with personal exemptions in after effective tax rate in state taking into account. At 67, probably get $31,000 a year from Social Security and my wife will get around $15,000.
My questions are as follows. How do the numbers above look as far as being able to afford retirement? How should I change up the strategy as far as investing or reinvesting the funds I have? And the cash available. How should I convert each year to Roth and be most tax efficient? I drive a 2017 Thunderbird. Rarely drink, but like my 18-year-old Glenn Levin.” Ooh, little scotch. “Thanks in advance. Percy from South Carolina.” All right. Percy, I think, let’s see. You did some math there, Big Al ?

Al: Yeah, this looks fine, Percy. So, you’ve got, let’s just, well, I’ll use your $90,000 spending and your $34,000 pension for life.
So, $90,000 minus $34,000 is $56,000, right? That’s the need. Divide that into $1,350,000. That’s a 4.1% distribution rate. Pretty close.

Joe: That’s not including Social Security, right?

Al: Correct. And then at age 70 with Social Security or actually that’s 67, with Social Security, now it’s a $25,000 shortfall. I haven’t done inflation. This is just back of the envelope, but it’s a 1.9% distribution rate, which is plenty of cushion here.

Joe: So when we’re talking distribution rates, and this is where everyone should be taking a look at. It’s just you add up your total assets and then you find out what your shortfall is. And Percy’s situation is that he’s got a pension. So he wants to spend $100,000 and he’s got a $50,000 pension, hypothetically, I forget what the numbers are. But he needs $50,000 from the portfolio. So you would just divide what the need is into the total value of your portfolio. And then that is what is called a distribution rate. So that is how much you’re distributing from the overall portfolio. So you want to be in certain ranges depending on your age. And so we like to be under probably, you know, 4% is kind of the general rule. But you know, today it’s probably 3%, 3.5% and Percy’s at like close to 1%.

Al: Yeah, 2%, but still it’s- and so, and the point is, even though we want you to be below 4% and at age 62, maybe you ought to be 3.5%, right? But if you’re going to be at a low distribution rate later because of Social Security, I’m not that concerned.

Joe: Right. You can spend a little bit more because you’re going to spend less because that- the Social Security is going to increase your fixed income.

Al: Correct.

Joe: And so when you look at conversion strategy, I think the allocation is fine. I think you’re 60/40. You’ve got some international exposure. You’ve got some US exposure, right? He’s doing some asset location. He’s a little bit more aggressive in his Roth IRA. He doesn’t need to touch the Roth. So yeah, you want to grow that a little bit more heavy, right? It’d be a little bit more aggressive, I should say. Roth conversions, let’s go, I don’t know, top of-

Al: Well, he says he’s in a 12% bracket-

Joe: – at least max up at 12%.

Al: Certainly do that. That’s kind of a no brainer. But it sounds like that’s probably the right bracket anyway, based upon what future income is going to be. So I probably wouldn’t go above that necessarily. So yeah, no, I think- I think this is good. And then just to kind of maybe put a bow on this distribution rate- take your spending. Subtract your fixed income. So in this case, spending is $90,000. Fixed income is a pension of $34,000. So that leaves $56,000. That’s the shortfall. Now divide the shortfall into your liquid investment assets, not your home and all that. You’re- and if you have rentals, then that’s fixed income. So track that out and so we got $56,000. We divide it into $1,350,000, got 4. 1%. So that’s pretty close to where we want Percy to be. But then at 67, when he takes Social Security, there’s another $31,000 of income. And of course, to do this right, you do inflation and all that, but just, you know, just quick numbers, $90,000 now minus the pension, minus Social Security, shortfall’s $25,000, that’s a 1.9% distribution rate. That’s. Very, very, very good. And so that, that’s how you can, in many cases, answer the question yourself just by doing that mathematics.

Joe: Right. I would stop timing the market. Rebalance is a better way to do this, right? So you want a certain percentage in stocks and bonds, 60/40. Let’s just keep it simple. So if the stocks are overvalued or overheated, you’re probably going to have more than 60%. So then you sell the stocks and you buy bonds, right? Because you want to keep that allocation 60/40. You don’t go on your gut. You go on the percentages.

Al: Yeah. You sell enough stock to get to 60% or stocks go down, you buy enough stock to get back to 60. Forces you to buy and sell at the right time.

FERS & Military Pension Diet COLA Retirement Spitball (Joe and Barb, Tulsa, OK)

Joe: Got “Good morning. Joe and Barb from Tulsa, Oklahoma. Appreciate the podcast, which I started listening to recently.” A lot of recent listeners.

Al: Yeah. Brand new. And I’ve got two cousins in Tulsa. I wonder if Joe and Barb know that.

Joe: Probably not. “I’ll have fun listening to many dozens of episodes I missed up until now.” You’re not missing much. Seriously. It’s the same, just rinse and repeat. “I drive a 2023 Ford Maverick hybrid. My lovely lady drives a 2018 Honda Fit. Tea and coffee are as exciting as it gets for us.” Okay. All right.

Al: Good enough.

Joe: “Married 55 years old. My wife excited- Oh, exited the workforce 5 years ago.” I need to get glasses, man, or something. Excited. It was like exited. And I said, excited. Yeah.

Andi: She might’ve excited her workplace as well.

Joe: Yeah. She might’ve got excited.

Al: I would say in your defense, those are close words.

Joe: That’s right. Thanks Big Al. “I am a federal employee eligible to retire soon and intended to punch out at the end of 2024 after 38 years of service. My first pension will be $41,000 after SBP deduction, but will have no COLA until the 1st January after my 62nd birthday. So that’s 6 missed COLAs. Then the pension gets a diet COLA from then on. The diet COLA basically seems to mean each year, the potential what does that exist to receive up to 1% less with the inflation COLA, which is awarded to the Social Security recipients.” So it’s a little mouthful.

Al: It is.

Joe: “Or retirement age until 62, I will get the first supplement that will equal approximately $22,000 a year.” Oh man, this is long. Oh boy. I hope he just kind of shortens his stuff up a little bit. All right. “I have a military reserve COLA pension.” He loves the word COLA. I think I’ve said COLA like 45 times and we’re only kind of a quarter way through this.

Al: Yeah, by the way, that’s cost of living adjustment.

Joe: And we’ve got diet COLAs, we got regular COLAs, we got no COLAs. Oh boy. Then we got a COLA that’s up to the Social Security, half a COLA.

Al: Yeah, I’ve never talked so much about sodas before.

Joe: So, “I will have a military reserve COLAd pension that begins at age 60 that will equate to $12,000 a year. At the end of the next year, when I retire, we’ll have $1,000,000 between my TSP and my wife’s IRA. About $200,000 will be robbed and $860,000 pre-tax. My Social Security, which I plan to take at age 70 is indicated to be $47,000, but I always cautiously consider only 75% of this amount, thanks Congress, which is $35,000. My wife is eligible for $14,000, same 25% haircut. This scenario seems difficult to put into any traditional calculator because of the COLA of my pension from the federal government.” Oh boy. I mean-

Al: It’s all good.

Joe: Yeah, he’s like, I think he’s gonna be just fine. I am almost positive.

Al: I can already tell you he’ll be fine. I did some math.

Joe: Okay. “Best I could see is that first 6 missed COLAs devalues the pension buying power from $41,000 to approximately $40,900.”

Al: This is like, spot on.

Joe: Oh my god, this guy, I wonder how many spreadsheets he has.

Al: You know there’s tons of them. He’s trying to do a COLA on each one?

Joe: Exactly, and he’s just running it up.

Al: It’s like, wait a minute, math isn’t right.

Joe: I just can’t get this right. I’m off by $.37. “The 6 missed COLAs devalues my pension to $41,000 to approximately $34,000 during the first 6 years, assuming a 3% inflation rate.
Further, the $34,000 is devalued over 30 years, age 92 to $25,000 if you consider a COLA that is 1% under real inflation. My stretch goal for a budget retirement is $100,000 per year, but we have been consistently living at $85,000. Home is mortgage free and multiple avenues of healthcare coverage through military veteran retirement that will keep the healthcare costs from retirement consistent with what I’m experiencing while employed. Time frame for retirement.”

Al: Do you wanna read all that?

Joe: Nah, so-

Al: I’ll just summarize. He’s got in- he’s got shortfalls for 57 to 60, 61 to 62, 63 to 70 and 70 to 72, which I will respond to in one second.

Joe: So he’s mapped this thing out. Probably multiple times. And then he’s got COLAs and half COLAs and multiple COLAs and diet COLAs.

Al: Makes, it does make it more complicated.

Joe: And so, he’s got some gaps and he is like, all right, well what’s your thoughts? Can I retire? I think the answer is yes.

Al: I think the answer is yes too.

Joe: So he’s got $50,000. Let’s just call it round numbers. Let’s say he doesn’t get a COLA. I’m gonna take his guy-

Al: This is Coke zero?

Joe: This is Coke zero. All right, he’s done. He’s got $1,000,000.

Al: He’s got all this income.

Joe: He’s got a ton of fixed income. He’s got a military pension. He’s got a first pension. He’s going to receive Social Security. He only wants to spend $100,000, but he’s actually only spending $85,000. Fixed income without a COLA is going to cover most of his fixed income.

Al: Agreed. So here to put proof to this, I just did that distribution rate at these different periods, 57 to 60, 4 years, 3.4%. Not bad. Maybe a little high. Maybe you want it 3% if there’s no other income, but fine in this situation. 61 to 62, his distribution rate’s 2.8%. Looks good. 63 to 70, inches up a bit. It’s about 5%. However, 70 to 92, it goes down to 1.3%. Now I’m, this is just spit balling. I have not put this into a software, but I’m pretty sure this is going to work out pretty good.

Joe: Do you know what we got to do with Joe and Barb? They got to go to our new little software gadget-

Andi: EASIretirement.com, E A S I retirement.com.

Joe: Yeah. We got this little pilot.

Al: We do.

Joe: Joe and Barb- Joe’s gonna love this thing.

Al: Yeah. Yeah. Yeah. So, EASIretirement. Is that what it’s called?

Andi: Yeah. With an E-A-S-I. Yes.

Al: Put it in the show notes. And Joe, give it a whirl. See if that helps you.

Joe: Yeah. You know what? It’s probably not because this is like a 5-minute financial plan. This guy needs a- he wants a full double decker industrial-

Al: I sort of agree with you, Joe.

Joe: Joe, nevermind. Don’t go there.

Andi: If you want to try our new pilot program, go to EASIRetirement.com – that’s EASIretirement.com – and take a couple minutes to plug your income, savings, and expenses and see where you stand on the path to retirement. It’s a quick, easy, and free way to find out how likely you are to run out of money in retirement. E-A-S-I stands for education, assessment, strategy, implementation: these are the building blocks of a sound retirement plan. You’ve already got the education part, you’re listening to YMYW. Next, you need to assess your financial wellness. So go to easiretirement.com and pick either the quick two-minute path, or the comprehensive 8-minute path, and the free retirement calculator will help you map out your next step – your strategy. Play with the numbers right there in the EASI retirement calculator and see instantly how, say, working just one year longer or taking Social Security just one year later could change your entire retirement plan. Start calculating your free retirement plan now at EASIRetirement.com. That’s EASIretirement.com. Try out the new pilot program, let us know what you think – we’d love to hear from you.

Can I Employ My 3-Year-Old and 2-Month-Old Kids to Fund a Custodial Roth IRA? (Michael, VA)

Joe: “Hey, Joe and Al, I’m a big fan. I’ve been listening to your podcast for the last 3 years or so. 35 years old, married for the last 5 and they have two kids, 3 years old and two months. I’m looking to open up a custodial Roth IRA for my kids. Are there any pros and cons to call out?” Well, first of all, are they child actors?

Al: They’re a little young, but let’s go on.

Joe: “My big question is, since they are young, how do you report any earned income? I have a rental unit and could employ them to do some cleaning service or something like that.” You have a two-month-old?

Al: Right, can’t even crawl yet? Put a little diaper on, and when you do crawl then we’ll pick up some dust.

Joe: I told you to clean the bathroom! Did you get her over to that rental house yet?

Al: How about the 3-year-old? Do you think a 3-year-old could-?

Joe: It’s called child labor laws. I mean, this guy’s thinking he’s living back in the ‘20s.

Al: It’s like, Dad, what do you want me to do? I’m gonna go play with my dolls.

Joe: Yeah, you could videotape her and put her on YouTube. See if you- see if she could be an influencer. “I have a daughter who’s almost 3 and a two month year old and looking to get the two set up. I already have 529 plans in the savings account. So I want to add on. I’ve heard of this loophole work, but not sure logistically how to implement it. Especially when I would report taxes year in and year out. Any insight would be appreciated, thanks.” Ah, yeah, that’s funny.

Al: Yeah, and this is Michael, Virginia. Michael, I’d wait till- it has to pass the smell test, right? Would a person normally employ a two-month-old to do cleaning? Even a 3-year-old, that’s quite a stretch. I mean, you got young kids.

Joe: Hey, we got a job over here. We’re looking for a two-month-old baby.

Al: So would Benjamin? Would he do maintenance around the house and clean?

Joe: Oh, yeah. He washes my car.

Al: I pay him $6000 for a car wash. I think that’s a bit of a stretch, Michael. I like your thinking though. Let’s just, let’s wait a few more years till it’s, at least it’s, it could pass some kind of smell test.

Joe: Oh God. That’s aggressive. That’s a little aggressive.

Al: It is. Well, I like the thinking.

Capital Gains Exclusion: Both Members of a Married Couple Need to Be on Title? (Rocco, NYC)

Joe: Rocco from New York City. “Dearest YMYW Titans. You guys are the absolute most inspiring workout podcast for a 40-something husband and father of one.” Wow. Workout podcast.

Al: I’ve never heard that.

Joe: Yeah. Keep grinding. “Trying to focus on the future.” All right. He’s getting dialed in. You got to get- Yeah. You know, some things-

Al: Get all inspired.

Joe: “I believe one of you said on a podcast that in order to qualify for the full $500,000 capital gain exclusion on the sale of a principal residence, both members of a married couple had to be on the title. That was news to me, and online sources seem to be contradicting it. Is this true? How could Big Al be wrong?”

Al: Rocco, thanks for educating me. You are right. I had learned years ago that both spouses had to be on title. Either I learned that wrong 30 years ago, or it changed and I wasn’t paying attention. You are exactly right. So let me read this from the Journal of Accountancy, which was written in 2002. So apparently I’m a little behind. Apparently, they’re off. Okay, The maximum gain exclusion for an individual taxpayer is $250,000. Taxpayers who jointly own a principal residence but separately file returns may do $250,000 gain each. A husband and wife who file a joint return may exclude up to $500,000 of the gain if either spouse meets the two-year ownership requirement.” Either.

Joe: I was wrong. Not and.

Al: Either. Both spouses must meet the two-year requirement. So both spouses have to live in it for two years, the property, and neither spouse excluded a gain from a prior sale or exchange of principal residence within the last two years.

Joe: So, okay, I remember the question here. I think it’s our girlfriend that lives down in OB. I forget what she goes by. And she drinks anything that’s wet, besides gasoline.

Andi: I’m not remembering her name either.

Joe: Remember, she’s like hunting for a husband to save money in taxes. Yeah.

Andi: Oh, Gidget.

Joe: Gidget, right.

Al: Gidget. That’s right.

Joe: Okay, so, and I think, hey, do I have to marry this guy for two years to sell my house? So both spouses have to be living in the house for two years. So the 121 tax exclusion is on your primary residence. So you have to live in the house two out of the last 5, as your primary. As long as you lived in the house two out of the last 5 years, you qualify for $500,000 if you’re married-

Al: If you’re married, right.

Joe: $250,000 if you’re single.

Al: Correct.

Joe: So the rules state that if, let’s say I’m married to Gidget for a day, but I’ve lived there two out of the last 5. And we file a joint return that year. Do I get the $500,000?

Al: I believe so.

Joe: She’s lived with me for two years, but we haven’t been married for two years.

Al: Yeah, I think that’s fine. In fact, I think you could sell the property and marry on December 31st because it’s what your status is on the tax return, which would be married.

Joe: Interesting. Yeah.

Al: So you thinking about something with Gidget?

Joe: No, I’m already- Sorry, Gidget.

Andi: See, she said you were confusing her on the TV show not wearing your ring. Now you’re confusing her even more.

Joe: Yeah. No, married. “ For context, I bought my house 4 years ago. My wife and I married a little later. She is not on title or the mortgage which I pay.” That sounds familiar.

Al: Can you relate to that?

Joe: No, I can’t.

Al: You can’t. You’ve heard that.

Joe: A friend of mine- A friend. A neighbor-

Al: Got it.

Joe: -talks to me all the time about it. “But we both-“

Al: Good save, by the way.

Joe: “But we have both lived here since then and will probably for at least a few more years. We had no special reason to put her on title until driving, okay in a rental car and while not drinking- ahem-“

Andi: -ahem-

Al: Okay.

Joe: I’m missing something here?

Al: No, I think they were driving in a rental car and they heard me say misinformation.

Joe: Oh, so you blew Rocco up.

Al: I blew up their trip.

Joe: Got it. “-and heard this mentioned on your podcast of a title requirement. We expected to sell in the next few years and realized more than $500,000 in appreciation by then. Do I really need to put her on title to benefit from the full $500,000 exemption?

Al: No, don’t listen to me.

Joe: “We have been married, filing jointly and both live here as our only residence in 2019. We love the devil out of the podcast-” We love the devil out of it. I love that. “-especially as it keeps our newborn baby asleep in the backseat-”

Al: That I’m not surprised.

Joe: “-and lets us eagerly toward the future upon the front. Your fan, Rocco. PS. I have no moral or-“

Andi: -amorous objection.

Joe: Thank you. “Amorous-“

Al: It’s a little strange.

Joe: “-objection to putting my wife on title, but NYC co-op rules and mortgages might turn into a huge hassle.” All right, well-

Al: Rocco, good news.

Joe: Good news or bad news. Whatever. You’re all good.

Al: You don’t have to put her on title.

Joe: All right. Great question. Thanks for keeping Big Al- we used to do a segment called Stump Big Al. I think Rocco just stumped Big Al.

Al: Certainly did.

COMMENT: Semi-Retired at 65 (Jetta Jay from Raleigh)

Joe: Well, we got this real special picture here from our boy Jay from Raleigh.

Andi: He called himself Jetta Jay in his email.

Joe: Wow.

Al: Is that what we call them?

Andi: No. He drives a Jetta. That’s why.

Joe; Yeah. He’s the one that’s infatuated with Jettas, right?

Andi: Yeah, I think so.

Joe: Yeah. He sends us a picture in the Speedo.

Al: And that’s what we guessed and we were right.

Joe: I was like, we get all sorts of goodies here on Your Money, Your Wealth®. He goes, “yeah, I’m just sitting at my condo pool listening to y’all read my email on the podcast. As you described, I’m wearing my Speedo with my earbuds and drinking my Corona.”

Al: Just as we imagined.

Joe: “You guys certainly did make me laugh while you were reading my email, my spitball, my annuity questions. Seriously, though, I do want to thank you for giving me another perspective when looking at the returns of my annuities. I’m still deciding whether I should sell them or take the distributions, obviously a work in progress. Lastly, I heard you say that the email you read before mine from E Dog included a photo. So I wanted to do the same.” Thank you very much, Jay. Very beautiful photo. Looking good, brother. That’s what retirement looks like, I can’t wait to get there.

Al: And Jay’s in shape.

Joe: Yeah, he’s stacked.

Al: He’s a rock. He listens to our podcast while he’s working out. Alright. Is that it, Andi? Are we done?

Andi: That is it. Yep.

Joe: Thanks for all your emails again this week. Keep ‘em coming. We’ll keep spitballing. We’ll see you next time. Show’s called Your Money, Your Wealth®.

Andi: Dog photos we do share in the podcast show notes on occasion, but for the sake of Jetta Jay’s privacy, we won’t post his Speedo photo. All right, so real quick before we end for the day, Big Al, we’ve finished our sixth annual YMYW podcast survey. So that means we have to choose a winner for the $100 Amazon e-gift card.

Al: Wow, so we’ve done this six years in a row? It seems like we just did it. So I guess another year’s past is what you’re telling me.

Andi: Every August, that’s the time.

Al: Okay, well this is an exciting time then.

Andi: Yes, exactly. So give me a number between 1 and 52.

Al: 1 and 52, huh? Okay, I will do 33.

Andi: All right, congratulations to KRC. KRC is the winner of our $100 Amazon e-gift card. KRC, thank you so much for filling out the sixth annual YNYW podcast survey.

Al: Yes, KRC, congratulations, and it just so happens I was 33 years old when my son was born, so good thing you’re number 33.

Andi: Is that how you picked the number?

Al: That’s how I picked it.

Andi: Nice. All right, well, thank you, Big Al.

Al: My pleasure.

Andi: KRC, check your email for that Amazon e-gift card. Convertible Mustangs and workout podcasts in the Derails so stick around. Help new listeners find YMYW by telling your friends about the show, and by leaving your honest reviews and ratings for Your Money, Your Wealth in Apple Podcasts, and any other podcast app that accepts them.

Your Money, Your Wealth® is presented by Pure Financial Advisors. Click the “Get An Assessment” button in the podcast show notes at YourMoneyYourWealth.com or call 888-994-6257 and schedule your free financial assessment, in person at one of our seven offices around the country or online, at a time and date convenient for you, no matter where you are. Chances are, one of the experienced financial professionals on Joe and Big Al’s team at Pure will be able to identify strategies to help you create a more successful retirement.

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.

The Derails

_______

Listen to the YMYW podcast:

Amazon Music

AntennaPod

Anytime Player

Apple Podcasts

Audible

Castbox

Castro

Curiocaster

Fountain

Goodpods

iHeartRadio

iVoox

Luminary

Overcast

Player FM

Pocket Casts

Podbean

Podcast Addict

Podcast Index

Podcast Guru

Podcast Republic

Podchaser

Podfriend

PodHero

Podknife

podStation

Podverse

Podvine

Radio Public

Rephonic

Sonnet

Spotify

Subscribe on Android

Subscribe by Email

RSS feed

See All Platforms