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
April 20, 2021

Joe and Big Al field emails on a wide range of personal finance topics this week on YMYW: ex-spouse Social Security benefits, paying the mortgage or buying long-term care insurance, how the FIRE community uses the Roth conversion ladder, tax rules for sole proprietors hiring minors, using excess 529 plan education savings, paying taxes or paying back a Coronavirus Related Distribution, and when to file form 8606 to report IRA contributions.

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Show Notes

  • (00:59) Should I Take Ex-Spousal Social Security Benefits? (Sharon, Waukesha, WI)
  • (04:43) Pay Down the Mortgage or Buy Long-Term Care Insurance? (Christine, San Diego)
  • (09:47) Sole Proprietor Tax Filing When Hiring Minor Children (Steve, Vista, CA)
  • (10:47) How to Best Use a 529 Plan for Education? (Jake, Ka Paz, Bolivia)
  • (16:08) Financial Independence/Retire Early (FIRE) and the Roth Conversion Ladder (Marcos)
  • (22:37) Coronavirus Related Distribution Strategy: Paying It Back and Paying Taxes (Steve, Davis, CA)
  • (30:01) When Do We Have to File Form 8606? (Paul, Floyds Knobs, Indiana)

Free resources:

LISTEN | YMYW Podcast #302: Should You Pay Off the Mortgage? First Consider Your Tax Strategy


5 Year Rules for Roth IRA Withdrawals

Listen to today’s podcast episode on YouTube:



Today on the smorgasbord that is Your Money, Your Wealth® podcast #322, Joe and Big Al field questions from across the personal finance spectrum: Should Sharon in Waukesha take the ex-spousal Social Security benefits? Should Christine in San Diego pay her mortgage or buy long term care insurance? What does Steve, a sole proprietor in Vista, need to know about the tax rules around putting his minor child to work for him? How should Jake in Bolivia use the excess 529 plan education savings he has racked up for his kids? Steve in Davis needs suggestions for the Coronavirus Related Distribution he took last year, and Paul in Floyds Knobs Indiana wants to know when to file form 8606?Also, an email from Marcos about a Roth conversion ladder gets Joe a bit worked up. Imagine that. I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

Should I Take Ex-Spousal Social Security Benefits?

Joe: We got Sharon writes in from Waukesha.

Al: Boy, I would have trouble with that one.

Joe: I don’t think that’s Waukesha. That’s Waukesha. That’s Wisconsin.

And: That’s Wisconsin. Yep.

Joe: Yeah, Waukesha.

Al: Waukesha.

Andi: Ok.

Al: I’ll go with that.

Joe: See? Give me some Wisconsin and I can nail it.

Al: I have no estimate on that one.

Joe: I think Bend is in Washington. It’s Oregon.

Al: It’s close.

Joe: Yeah. “Hi Joe and Al. l I drive a 2006 Honda Odyssey, approaching 300,000 very soon.”

Al: Oh my goodness. Good job Sharon.

Joe: “Although the pace to that number has slowed with Covid. I’m divorced. Was married to my ex for over 10 years. My question is on the ex-spousal Social Security benefit. My ex made about 50% more than I did over our past careers. I plan to take my Social Security at age 70. I’m 58. Would I qualify or is there any benefit in taking the ex-spousal Social Security? My ex is already drawing his Social Security. Your thoughts are appreciated. I haven’t found a lot of info on this topic and how to best approach the timing of the benefits considered my own Social Security plans. It looks like there was a change around the benefits a few years ago based on your age.” Yes, you are correct, Sharon from Waukesha. Well, let’s see, when does she want to take the spousal?

Al:  I’m going to assume she wants to take it at 62 because she’s only 58 now. I think that’s why she’s asking.

Joe: Well, she can take the spousal benefits at 62 because she was married to the ex-spouse for over 10 years.

Al: She can, is correct.

Joe: He’s claiming the benefit so she could claim the spousal benefit. But what they’re going to look at is her own benefit as well.

Al: Yeah, because it’s deemed on her. And then if there’s any little extra, then she gets that. But-

Joe: It’s going to be a 30% reduction from her full Social Security benefits. So she wants to claim at 70. So she wants to maximize the overall benefits. So in the olden days, she could claim the spousal benefit-

Al: – but she’d have to wait until full retirement age.

Joe: Correct. She would have to wait till full retirement  and they have a restricted application to file for the spousal.

Al: Which if she’s 58 now, that’s going to be 67. That’s her full retirement age.

Joe: Correct. So I would take a look at what the spousal benefit is at age 67 versus her own benefit. That’s what’s going to determine what’s going to make the most sense for her. Because it sounds like her ex-spouse made more money. But I’m not sure how much more because how the calculation is to determine the overall benefit as it’s weighed more on lower income than your higher income because Social Security taxes are only up to a certain point.

Al: So she says that he made 50% more. So let’s just say she made $100,000, 50% more would be $150,000. And the spousal benefit is based on half that- even the ex-spouse- so it would be $75,000. So just in terms of salary. So basically I think it would be less than her benefit. So I’m not sure there’s any way to game this, do you?

Joe: I don’t think so either without looking at the numbers. But I think you have a good illustration there, Al, that- what she’s wanting to do, Alan, is to claim the spousal benefit, let hers grow and then switch to her own benefit. Al: Which you used to be able to do that.

Joe: But you can’t.

Al: Yeah, not anymore. That’s probably-

Joe: That’s the answer.

Al: – 5, 6 years ago, they changed that. Something like that.

Joe: So, sorry Sharon.

Pay Down the Mortgage or Buy Long-Term Care Insurance?

Joe: Christine writes in from San Diego, Alan. “I’m 54, I have a mortgage of $150,000 at 3.125%. I have a plan to pay down the mortgage $20,000 per year for the next 6 years until it’s paid off. This still allows me to have about $10,000 a year. Current savings balance is $50,000 and pay about $18,000 annually to my 401(k). My question is whether or not I should use some of that $20,000 that she’s paying down the mortgage for some long term care insurance versus having no mortgage. I have no adverse health conditions at this time.” OK, 54, Christine, San Diego, she married? single? Doesn’t say.

Al: Doesn’t say. That would be good to know.

Andi: It says ‘me’ and ‘I’ a lot. So it doesn’t sound like there’s another person involved.

Al: OK, we’ll make that assumption.

Joe: OK. Christine, I like the long term care idea, most single individuals, we look at it to say let’s say if it’s just me and is there some- Big Al, if I get sick and I get old and decrepit, are you going to come over, take care of me? The answer is probably no.

Al: I’ll check on you each week.

Joe: So, you know, the long term care is kind of an emotional insurance that people kind of look at.

Al: It is. And it depends upon family history. And, if your family has, let’s say Parkinson’s or dementia or some of these things where you can live a long time, but you’re compromised one way or another. If your family dies of heart attacks at age 65, then probably you don’t have to worry. That’s morbid, but that’s true. So I’m going to say I think I would look at it. But I’d also here’s another alternative is if you do pay down the mortgage and you live in San Diego, you have a home. So it’s probably worth a certain amount. I mean, the average home price in San Diego is-

Joe: $500,000?

Al: – $630,000 just came out, I think. So you could I mean, worse comes to worse, you could- if you needed to move into long term care for the rest of your life, you could sell your home and you got that money. So that can be your long term care policy.

Joe: I don’t know if Christine has kids, is there a legacy, does she want to make sure that there’s something left over? You know, some people do. But you know how she wants to stay in the house, though? I don’t want to go to a facility. Maybe I don’t need to go to a facility. I just need some home care. I mean, some love and tenderness.

Al: And you could also- and it’s not an all or nothing. In other words, you could partially insure a potential need with the long term care policy and the rest would be through your home potentially. So, you could get a reverse mortgage later on.

Joe: Yeah, I think there’s planning around that, Christine, making sure that you sit down with a good qualified long term care professional to map it out.

Al: Are you going to get long term care insurance?

Joe: Am I?

Al: Yeah.

Joe: Well, I was until you just said if you have a family history of people dropping dead at 60.

Al: Not your mom.

Joe: Yeah, no, my mom’s killing the game. My dad died at 61. My uncle, his brother died at 65. So I know my grandma and grandpa, they lived until their 90s.

Al: Well there you go.

Joe: My mom’s 74? 73? She looks great.

Al: Yep.

Joe: But back to Christine and long term care, I think also single women are a lot better planners.

Al: That’s true.

Joe: You know what I mean? They button everything up. Men sometimes in our experience they’re like, oh I’ll be fine. I’ll be fine there, you know? My long-term care plan is by my brother.

Al: So what age should you think about long-term care?

Joe: I think 54 is a really good age to think about it.

Al: Perfect age, yeah.

Joe: Because the premiums are not going to be as expensive.

Al: So, am I too late?

Joe: No. I think, Al, because you’re a vegan and in really good health.

Click the link in the description of today’s episode in your podcast app to visit the podcast show notes at YourMoneyYourWealth.com for some additional free resources on both paying the mortgage and buying long-term care. Both are big decisions that can have a lot of impact on your retirement plans. I’ve linked to YMYW podcast episode #302, called “Should You Pay Off the Mortgage? First Consider Your Tax Strategy”, as well as Joe and Big Al’s video on whether to buy long-term care insurance or self insure. That said, there is no one size fits all answer to these questions – your overall financial situation and your goals for the future are different than everyone else’s – and who knows, there may be an effective and tax-efficient strategy that you haven’t even considered. Find out. Click the big green “Get an Assessment” button at YourMoneyYourWealth.com to sign up for a free financial assessment with a CERTIFIED FINANCIAL PLANNER professional on Joe and Big Al’s team at Pure Financial Advisors.

Sole Proprietor Tax Filing When Hiring Minor Children

Joe: OK, we got Steve from Vista, writes in. Vista, California, “As a sole proprietor, I understand that I can hire my minor children under age 18 and pay them a wage, but not pay Social Security, Medicare payroll taxes. Do I still need to file quarterly 941s and 8W2? Do California unemployment taxes need to be paid in the situation?” So he wants to pay his kids, get them on the payroll, Al. Mop the floors, do some bookkeeping-

Al: Yes, get them some money, get a tax deduction. Which that is a true statement. You can hire your minor children and you don’t have to pay Social Security or Medicare payroll taxes. I think that’s not widely known. And all the rest of the taxes, as far as I know, apply. And as far as filing payroll tax returns, I believe so. I’m not 100% sure that answer though. That’s a 90%- that’s an 85% answer.

Joe: OK, that’s good enough for me. Moving on.

How to Best Use a 529 Plan for Education?

Joe: Jake from La Paz, Bolivia.

Al: Oh, look at that.

Joe: What the heck is this? Hola Senora Andi and Senor es Alfredo Grande y Caddyshack José from La Paza, Bolivia.

Al: A little Espanol.

Andi: Not half bad, Joe. That’s pretty good. I’m impressed.

Al: Yeah.

Joe: Killed it.

Al: Well, he’s lived in San Diego for a while.

Joe: Love, love, love. Listening to YMYW as I walk Piper, our standard  poodle dog. I’m sure the locals must think this gringo is crazy. And if I’m not, the indenguous-

Al: – indigenous-

Joe: – indigenous people, then my dog thinks so, as I laugh constantly at your banter and financial education tidbits. First of all, this is not a Roth conversion question, but a 529 college savings question.”

Al: Oh, OK.

Joe: Why is he in Bolivia? What’s Jake doing in Bolivia?

Al: Why not?

Joe: I love it. I’ve never been to Bolivia.

Al: That’s where-

Joe: OK, we might need to edit this.

Al: Robert Redford and Paul Newman.

Joe: OK. All right. “My family is extremely blessed health wise and financially. Wife is still active duty Air Force.” Oh, there you go. “Overseas for over 22 plus years of service. I’m retired Air Force as well with 22 years of service and still fly for a top Fortune 15 company. We both will receive military pensions and I will receive a generous civilian pension when I retire from the civilian world in 12 plus years. We have cash, emergency bonds, health care via military benefits, substantial $4,000,000 in TSP, 401(k), Roth, retirement accounts and two fully paid rentals. Our 3 kids 14, 12 and 7, have $375,000 in a 529 program. And we can also pass two full GI bills on to two of our kids. While we’ll both have worked for the man, we are hesitant to give any more 35% tax bracket dollars to the IRS and the penalties of overfunding unused 529 plans. We appreciate you bunch of jokers spit balling some ideas and won’t take this as advice, but options on how to use these funds effectively given the future cost of 3 college educations. P.S. Thanks, Andi, for the great show and keeping the boys in line. Senor Al, for your tax knowledge and attempts to speak Espanol, I feel I’m failing miserably. And finally, Big Joe, you’re always invited to visit and play the highest golf course in the world at 10,965 feet with my fellow YMYW listeners and Amigos. Sorry, no Coors Lites. So I hope the local cerveza of Panacea-

Andi: – Pacena-

Joe: – Pacena. Pacena.

Al: That’d probably work.

Joe: That will work just fine. Wonder if it’s lite. Pacena.

Al: Probably. So you’d probably hit the ball 400 yards.

Joe: “The ball travels pretty high. Thanks for all the help over the years. It’s true that some middle to lower income American kids will, with savings in mind, by listening to some smart people like yourselves, can have financial freedom, except for extremely blessed.” Jake. Pilot. Wife. Air Force pilot. Love it. So they got $375,000 in 529 plans and they got three kids, 14, 12 and 7. And then they got the GI Bill.

Al: Yeah, that’s plenty.

Joe: He’s got- he’s overfunded this thing.

Al: He’s already overfunded it, so don’t put any more in.

Joe: And next question and I’m really looking for some good advice. Yep. You overfunded it. Don’t put any more in.

Al: So here’s the thing, though, is that that money can be used for anyone’s education, including yours, your wife’s, your future grandchildren potentially, whatever. You can change beneficiaries, so you don’t have to get to have to take the penalty.

Joe: So but the kids are probably not going to use it all, so hopefully-

Al: It doesn’t seem like it.

Joe: Then the kids will have kids and that money will be worth a lot more and then it goes to their kids. But at that time, who knows?

Al: Yeah, it’ll eventually be millions, right?

Joe: Yeah, but there’s no kind of like exchange, you know, it’s like, OK, is there a way to exchange 529 plan money into another vehicle to avoid any type of taxes or penalties? The answer is no.

Al: That is correct.

Joe: It needs to be used for higher education. You could probably get creative on what higher education and where that money goes. I guess is the only- if he wants to go back to school and do that, I don’t know if he wants to. Al: Well, he’s already- he’s a pilot. Maybe he wants to learn to be something else.

Joe: OK.

Al: Yeah.

Joe: Yeah.

Financial Independence/Retire Early (FIRE) and the Roth Conversion Ladder

Joe: Marcos writes in Al and he goes, “Hi Andi, just heard Podcast 318. A listener brought up the Roth conversion ladder during this episode. For those unfamiliar with it, it is a Roth conversion strategy that many people who have achieved FIRE use to get access to the retirement funds early while minimizing the tax hit. For example, someone moves their 401(k) funds to traditional IRA then that they periodically convert those funds to their Roth IRA. They can’t touch those proceeds for 5 years. Every year, a certain amount gets converted, which will be earmarked to be withdrawn 5 years down the road. My understanding is that it is a great tax strategy because it minimizes taxes, especially once someone has retired and has little or no income. Hope this helps.”

Al: Ok.

Joe: No, that doesn’t help, Marcos, that was awful.

Al: Why do you say?

Joe: Because it’s- we understand. I’m just kidding, Marcos. I appreciate you listening and trying to give a little helping hand here to the two of us.

Al: Yes, it does. It does work. So when you do a Roth conversion and you’re younger than 59 and a half, you have access to those conversion dollars 5 years later.

Joe: So there’s two 5-year clocks. That is what you’re saying.

Al: That’s right. And so that does work. But part of the premise, though, is false. Here’s why, I think. Because if you’re going to be pulling out Roth dollars when you retire and have little or no income, why in the world would you do that?

Joe: Do a conversion.

Al: That’s when you would do your conversions because you’ve got little or no income. Why are you doing the big conversions now and paying higher tax when you’re going to have no income later so you can pull out of the Roth? Joe: You know, I don’t think it’s for FIRE. Because it’s like, OK, well, he’s saying it’s a FIRE strategy, financial independence retire early-

Andi: I take that to mean it’s popular with them.

Al: Yeah, yeah.

Joe: Well, it’s stupid- I mean, it’s not efficient. Because the whole purpose of Roth money is to compound for a very long time tax-free. It’s not to convert the money out and then spend it in 5 years. That’s not the right- because here’s what’s going to happen to all these FIREs, they’re going to get caught on fire and then they’re going to have to go back to work when they’re like 58 years old because they’re broke. Because they did stupid strategies like this. So am I going to get some nasty emails for that, Andi?

Al: I think so.

Andi: You like getting nasty emails anyway, so what are you worried about?

Joe: You gonna shield that from me? The point of a Roth IRA is compound tax-free growth for a long time. And so if you’re converting now- so if I’m in my 30s, do I have a lot of money in a retirement account? Probably not.

Al: Yeah, not really.

Joe:  So they’re converting that money into a Roth. They’re using the 5 years and they’re taking the principle out, but they still can’t get the earnings out.

Al: Well, and I would say this too that most people that I’ve talked to that are doing the FIRE movement, they are saving so much money, they can only fund the Roth or the 401(k), then they have all this other money.

Joe: It’s all non-qualified brokerage accounts that he’s trying to create income from.

Al: Let’s say you’re high income because a lot of FIRE people make a good income so they don’t have to work. And I get that, that makes sense. But you don’t necessarily want to be doing Roth conversions when you’re in high income so that you can pull out of the Roth when you are not making any income. You’re kind of doing that backwards.

Joe: If I’m really looking at the FIRE movement and I want to utilize- you absolutely want to utilize Roth because that’s going to be your saving grace at 68 years old, because then you have the small amount of money when you’re in your 20s and 30s compounding tax-free for another 25 years. And then you pull that money out tax-free, you’re going to- You have to plan this out for very long- because you can only live in your mom’s basement for so long.

Al: So I’ll say it another way. If you’re in the FIRE movement and you’re saving money outside of retirement, you’re better off using that money to live off of after you retire and maybe supplement that with a side hustle.

Joe: Dude, I don’t know if the FIRE movement is kind of dying out a little bit or am I just not up to snuff as I was maybe in years past?

Al: It seems like I’ve heard less about it too, but-

Joe: Because here’s what’s going on. So you get this couple. They start blogging, they’re doing all this stuff and they’re telling how they’re saving all this money. And then they retire. They reach their financial pinnacle and guess- and they’re in their 30s, let’s say. Or maybe early 40s.

Al: And they get to spend all the time with the kids.

Joe: And they spend all this time and they hate it.

Al: Then they realize oh, this isn’t what I thought.

Joe: This sucks. I wanna go back to work.

Al: I need some balance here.

Joe: Something. It’s like, honey, I love you, but, oh, my God, I’m 40. And I just realized that I got another, like, almost 40, 50 years of this all together all the time with you. I’m out of here.

Al: Go back to work.

Joe: The goal is incredible. The amount of discipline it takes really to become financially independent at that young age is absolutely incredible. And I commend you, all of you, that want to do it.

Al: Well, I will say this. So I’ve read and watched a little bit of FIRE movement, some of the stories and if you do it right; so in other words, you leave your high stress, high paid job so that now you can volunteer and do what you’re passionate about. And so if that’s you, that’s great. But if your plan is to just make as much money so you don’t have to work, I hope you have another plan on what to do if your time.

Joe: Right, because their whole goal is to get themselves the financial independence and then they hit that goal. They achieve it. And then guess what? There’s nothing else.

Al/Joe: Now what?

All I will say on that topic is I await your emails. Click Ask Joe & Al in the podcast show notes at YourMoneyYourWealth.com to send in your comments, nasty or otherwise, or your money questions. And to learn more about those 5-year clocks for taking withdrawals from your Roth account, click the link in the description of today’s episode in your podcast app to go to the show notes, read the episode transcript, and download our free guide to the 5 Year Rules for Roth Withdrawals.

Coronavirus Related Distribution Strategy: Paying It Back and Paying Taxes

Joe: We got Steve from Davis, California, writes in. “Hey, YMYW team. Joe garage fridge full of Coors Anderson.” That’s right, brother. “Big ask my wife Al.” That’s funny, Steve is killing it.

Al: He is.

Joe: “Andi super spy Last. This is Steve, 41 yo. I recently moved to Davis, California, driving over from Michigan at the end of last year with two kids, wife in my brown with white top 2013 Ford Flex. I’ve been spreading the word about the Roth gospel to most of the people I know are into Robinhood apps. I’m hitting that middle age money crisis and need to know how I should proceed with my current financial situation. I took a CRD, a coronavirus related distribution, of $100,000 out of my 403(b) last year while living in Michigan. And I’m trying to decide if it’s best to pay it back and how to do so in the most tax efficient manner. Income: wife and my gross salaries, $200,000 while in Michigan will be on this year’s taxes. In California, our income will be around $300,000 as my wife has a new position and I will start a new career here in the next few months. This still doesn’t make up for the increase in housing costs. I’m currently working for a Michigan hospital, just remotely at this time. We should both end up with positions at the UC system- ”

Al/Andi: – pensions-

Joe: oh pensions. I’m sorry. “- in the UC system as we’re planning on staying here for the rest of our careers.” OK, what do you think, docs?

Al: Yep. Should be pretty good.

Joe: Saving in banks is $30,000 to $40,000, should be- get a $10,000 boost when I cash out paid time off after ending current job; brokerage account, $73,000 with $24,000 of that as long term capital gains; kids’ 529 is $70,000; my TIA 403(b) and 457 is $225,000 pre-tax, $100,000 Roth.” Let’s see. “Roth IRAs, me, $160,000; wife, $123,000.” OK, so $225,000 pre-tax; $100,000 Roth. Then he’s got Roth IRAs as well. $160,000 for him and $123,000  for his wife. “Thinking we will not be able to contribute any more without doing the backdoor conversion. Good thing there’s a podcast that will tell me how to do this.

Al: That is a good thing. Because we’re not repeating it.

Joe: “Wife has an old pension, probably some small amount. She has no idea what’s in it. I have a small pension from a prior hospital, current cash value is $30,000. Likely only going to get $16,000 if I cash out now due to the taxes and penalties. At retirement age, 2045, it’ll be worth $70,000 to cash out or I have lots of options. A single life annuity at most would be about $300, $350 a month for the rest of my life. FYI I’m pretty healthy right now. Fingers crossed for the next 50 years. Questions: TIA, who maintains our current 403(b), 457, says I need to claim the $100,000 distribution on this year’s taxes as income, but I don’t have to pay any taxes on it now. I just need to pay the taxes or pay it back within 3 years. I thought I would have to pay 1/3 of taxes on the CRD this year. And when/if I pay back the CRD, I would have to refile to get the money back as a refund. Which is right?”

Al: Well, you do have to put the $100,000 on your return, but you only have to pay 1/3 of the tax, if there’s a special- actually, you don’t even have to elect. That’s how it is handled. So what happens on your return is the gross amount will be $100,000 and the tax will amount will be $333,000 unless you-

Joe: – $33,000-

Al: $33,000? What’d I say?

Joe: $333,000.

Al: So you’re helping me today.

Andi: $1,000,000 CRD.

Joe: You’re going to pull $100,000 and you’re gonna pay $333-

Al: So let me start over. So, so it’s- you don’t even have to elect, you’ll pay tax on $33,000. The $100,000 will be in the gross amount. The taxable part will be $33,000. If you decide to pay tax on the whole thing, you have to make that election and the whole $100,000 will be taxable.

Joe: Or if he pays it back then he doesn’t pay any tax.

Al: Yes, but he has to pay the tax now- well, if he pays it back before he files his return, let’s put that caveat in there, then he- then you don’t have to pay any tax on it.

Joe: But “TIA, who maintains his 403(b), 457, says I needed to claim the $100,000 distribution on this year’s taxes-” That’s- which we just confirmed.

Al: You do, as a gross amount.

Joe: “- but do not have to pay any taxes on it now. Just need to pay taxes or pay it back within 3 years.” That is not true.

Al: That’s false. You have to pay taxes now and if you pay it back within 3 years, you have to file two different amended returns to get that money back. “Should I repay the CRD or just keep the money? Since tax rates are at historic lows, does it make financial sense to pay this back and then take it out in retirement with the expected higher tax rates? What is the most effective way of paying the CRD back?” What do you think? He’s 40 years old. Looks like they make a lot of money. Tax rates are low. You just take it out, keep it out, pay the tax on it over 3 years and call it good?

Al: Yeah, that’s what I would do. Especially maybe the first 1/3 is Michigan, which is a cheaper tax rate than California. And maybe- I don’t even know if this is a good idea, but I’d even look at paying all the tax in year one just because Michigan tax is cheaper than California, depending upon his tax bracket.

Joe: So cash out brokerage account and use the savings to pay back the 403(b).” I don’t know. You could do that, but I think Al and I both think that just once it’s out, keep it out, just pay the tax.

Al: I think it was it was a nice gift. It was designed for people that needed extra cash flow. But there’s nothing wrong with doing what Steve did. So take advantage of it.

Joe: “Second option, he’s thinking about his payback over 3 years from income. Think I would lose on this option as taxes in California are higher than Michigan.”

Al: Yeah, that’s what we just said. That is probably true, but you get time value money.

Joe: “Number three, cash out my pension now and use part of the CRD as repayment.” No, keep the pension. Just keep the money out. Pay the tax over 3 years.

Al: Cash _____ over 3. That’s exactly what I would do. Because you give yourself more flexibility on taxes.

Joe: Change your withholdings a little bit so you don’t have a huge tax bite. It’s out of sight. Out of mind. You have $100,000 out, it’s liquid. It’s invested for you. Let’s see. “Alternatively, could ___ the pension as part of my fixed income planning and increase my stockholding accordingly.” Yes, I would do that. I like that.

Al: Especially at age 40.

Joe: “What have I missed?” I think you’re right on Steve. Just because some of the guys you’re hanging out with now in California are all talking about Robinhood. I think you’re doing the right thing, brother. You’re listening to the right show and you’re doing the right things.

Al: So I’m with you.

When Do We Have to File Form 8606?

Joe: We got “Hi Joe, Al and Andi. I am Paul from Floyd Knob’s, India.

Andi: Floyd’s Knobs, Indiana.

Al: India would be good.

Joe:  Floyds- I was just so caught up on Floyds Knobs. Like where the hell is Floyds Knobs?

Al: It’s hard to imagine that it’s in Indiana, but I’m sure it’d be really hard to imagine it’s in India.

Joe: I guarantee you there’s a Floyds Knobs in India. I’m going go there. I’ll take a picture. Send you a postcard. “I drive a hybrid Lexus and I have no pets. I found your show on YouTube last year and I’ve been listening ever since. Great show. Very informative. I especially like the segments when you answer listeners’ questions.”

Al: Ok, that’s all of it.

Andi: He’s been watching apparently for a while and was listening when we were doing a lot of interviews.

Joe: ”I have a question on file form 8606. I have 3 scenarios from conversions that we made last year after listening to your podcast. My daughter was contributing to a 457 plan. After listening to your podcast in 2020, she started contributing to the Roth 457. Since she is a student and her income is under the standard deduction amount, she also converted her 457 balance to the Roth 457. Does she have to file form 8606?”

Al: That answer to that one is yes. Any time you do a Roth conversion, you have to file a form 8606.

Joe: “I am 55 now and have been retired for over a year. In 2020, I converted part of my 401(k) to a Roth IRA and I know I have to pay the taxes on that, but do I need to file an 8606?”

Al: Yes, same answer. If you do a Roth conversion you have to do the  8606.

Joe: “My wife is 48, still employed. In 2020, she converted her traditional IRA all pre-tax to a Roth IRA and will be paying the taxes on that. Does she need to file form 8606?”

Al: Same answer, yes. In fact all 3. So it’s an individual- so the two of you Paul, on your return have to file 8606s for each you and your daughter on her return.

Joe: The two of you? The two youts?

Al: The two of y’alls?

Joe: The two of yous?

Al: Two yous.

Joe: Just because he’s from India. All right. The show is called Your Money, Your Wealth®, thanks for listening, we’ll see you again next week.


Joe’s stats, spray tanning, vegan veterinarians, and theater and cooking classes in the Derails, so stick around.

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