Rick Durso tells us what his retirement hustle is like as a caddy for the Symetra Golf Tour, helping golfers make it to the Ladies Professional Golf Association (LPGA). Plus, Joe and Big Al answer your money questions about Roth conversions, solo 401(k) plans for the self-employed, and they get taken to task for something they said in last week’s episode on Medicare.
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- (00:37) Rick Durso’s Retirement Hustle: Caddy for the Symetra Golf Tour
- (13:12) Can I Do a Roth Conversion Next Year and Apply It to This Year? (video)
- (20:28) If You’re Contributing to an HSA, Delay Taking Medicare
- (24:14) I Maxed My 401(k) Contributions Thanks to YMYW TV
- (26:02) Backdoor Roth IRA Conversions & Solo 401(k)
Sure, you’ve spent plenty of time thinking about your money in retirement, but have you stopped and really considered how you’re going to spend all that free time you’ll have in retirement? Today on Your Money, Your Wealth®, we’ve got some inspiration for you. Rick Durso shares what his retirement hustle is like as a caddy for the Symetra Golf Tour, helping golfers make it to the big time of the LPGA. Plus, Joe and Big Al answer your money questions about Roth conversions, solo 401(k) plans for the self-employed, and they get taken to task for something they said in last week’s episode on Medicare. I’m producer Andi Last, and here with our guest, Rick Durso, are Joe Anderson, CFP® and Big Al Clopine, CPA.
00:37 – Rick Durso’s Retirement Hustle: Caddy for the Symetra Golf Tour
Joe: Alan, it’s that time of the show.
Al: It’s time for an exciting guest.
Joe: Yeah we’re doing someone a little bit different the past couple of weeks, where we get individuals that approached or are in retirement, and then they get into, like, something completely different than what they did as a career.
Al: Yeah. Change of pace, and so it’s kind of fun to talk to folks and how they’ve kind of created purpose in their life after their working life.
Joe: Yeah. We had Gid Pool on that’s now a stand-up comedian. We have Rick Durso on the line and he’s got a similar background as our buddy Gid Pool.
Al: Reading his bio, he sounds like me! Accounting, finance, taxes. (laughs)
Joe: Super – well hopefully he’s not super boring?
Al: (laughs) Are you implying I’m pretty boring?
Rick: (laughs) I’ve been accused of that, yeah.
Joe: So Rick now is spending a couple of days out of his retirement caddying for a golf tour. It’s a tour a little bit of step behind of the LPGA.
Al: Yeah kind of the minor league I guess.
Joe: Yeah it’s like the web.com tour I would imagine for the men’s.
Al: Right. But this is women’s. The Symetra Tour.
Joe: Yes, it’s the Symetra Tour. Rick, welcome to the show.
Rick: Thank you very much, I’m glad to be here.
Joe: Hey what. Tell me, or tell us, I guess, a little bit more about your story.
Al: And mainly tell me because I am finances, taxes, and accounting. So where do I go from here? (laughs)
Rick: (laughs) I was in accounting since I’ve been probably 16 years old and about 6, 7 years ago, a friend of mine in Florida – I have a home in Florida – a friend of mine suggested to me that I go with him as he was caddying for a girl from Australia in the Symetra Tour. It’s in Winterhaven, Florida. And I had never gotten involved with caddying or anything like, although we do play golf. So I followed him around that first year, I think it was 2013, 2012, and I found that to be very interesting. So I said to myself, “Well, the next year I’m going to do this with him.” So he had his girl from Australia and I got a young girl from Thailand, and it was really great. As a matter of fact, I never saw her the rest of the tour – there’s like 23 tournament’s on tour – never saw again, but I do know that that year she qualified to go to the LPGA because she was in the top ten of money winners at the end of the year. So it was pretty interesting, the first girl ever caddied for wound up going to the LPGA. In terms of where I was, at the time I was still working part-time, and this became something I really wanted to do, actually. In 2015, my wife passed, and the hospice nurse has said to me, “Look, you know just find something to do, because you guys have done a lot together and now you’ve got to do something. You yourself you’ve got to find something you want to do.” So I decided I was going to push this caddying thing and see how far I could go with it. And that’s what happened. I started in 2015, I did about four tournaments that year, going around to different parts of the country and counting in these tournaments. And I’ve stayed doing that for the last few years. Now I have, I would call her a regular girl, who last year approached me and said, “Look you’ve been doing a couple of tournaments with me, we get along very well, why don’t you just stay with me for as many tournaments as you want to do?” So I’m now going to do, in 2019, I’m going to do probably seven this year, and go around the country doing it. But essentially, that’s how I got started doing this wonderful plan which really takes about, oh, maybe four or five days a tournament. And I do about, like I said, seven or eight tournaments a year. And it fills a lot of time for me and it’s really just a great thing. I like doing it because, you know, these young ladies are trying to get to the next level – LPGA level. And if I can help them get there, that’s what I’m targeting to do is to try to help them by caddying and you don’t – you know, in my situation, you don’t have to be a professional caddy and know everything about every course you play. You take care of them. You make sure they focus when they maybe hit a bad shot, or you talk about families and you just relax as you’re walking between the different holes or the 260 yards between their fairway shots. But it’s just a wonderful, wonderful thing that I very much enjoy doing.
Joe: So at this point, now you have been doing seven to eight tournaments with the single golfer. Is it still all strictly volunteer and you’re paying for your travel? Tell me a little bit about how you arranged this?
Rick: It is strictly volunteer. When this tour goes from city to city, they go and ask for volunteers for the tournament – cart drivers, scorers, whatever, but they also ask for caddies. And many, most of the caddies in these different venues are local people. And again, it’s all volunteer. So what I’m doing now is just, you know, I’m doing it all, if you will, for free. As a matter of the fact that I can do it – I’m OK financially to do it. And so it is more of a benefit to me in terms of the places that I see and the people that I meet, as opposed to worrying about how I’m going to pay for it. That’s not been a problem at this point.
Joe: Well it’s kind of like Matt Kuchar and El Tucan. Do you know that story, Rick?
Rick: I don’t, no.
Joe: So Matt Kuchar is down in Mexico this year and his normal caddy was not available to join the trip. So he gets a local caddy from Mexico. So I think, you know, pay him a couple thousand dollars or something like that. I think the arrangement was maybe five grand.
Al: Yeah I think it was maybe five too.
Joe: And so Kuchar wins the tournament, wins like $1.6 million. And usually as a caddy, as a professional caddy, you might get, you know, 10%, 20%?
Rick: 10%, yeah right.
Joe: Yeah. So El Tucan is his name, got five grand. And so he didn’t really say, you know it’s like, “What the hell? Come on Kooch, you just won $1.6, help a brother out!” So he kind of made a stink out of it and I think Kuchar finally paid him $50 grand, but yeah. So I guess you could work with Kooch and probably… (laughs)
Al: He might give you a couple thousand. (laughs)
Joe: He might give you a couple of bucks.
Rick: Maybe. And I think what you have to understand is, these girls are all trying to make it to the next level and their purses are nowhere near what the LPGA gets. I mean the largest purse on this tour this year is $300,000. I mean I don’t think there’s an LPGA tournament that’s less than a million. And they’re paying for everything themselves, whether it’s driving to these different tournaments or they fly. They don’t get housing when to go these different tournaments and they’ve got to pay for a hotel room and all their meals and things of that nature. So they don’t always have a lot of money. So to me it’s like, you don’t expect anything. Now I’m telling you there are some paid caddies on a Symetra Tour. On occasion the girls really need to have somebody on that particular course, they would get a paid, or they could get a paid caddy. But the best majority of the caddies that I’ve met on these different places, they’re strictly volunteer – I don’t expect to get any money.
Joe: But I would imagine now that you have purpose, you’re doing, you’re outdoor around the sport that you love. You know, I’m telling you Rick, I mean this sounds like something I might potentially you know do in the next… (laughs)
Al: (laughs) In the next? Hard to say what time! Could be a long time or it could be shorter.
Joe: (laughs) Yeah, could be, I don’t know, next week.
Rick: Well you know, you really have to like it – and I’ll be honest with you, I have friends of mine that I play golf with and tell me they would never do this. They could never do it. I mean, I’m lucky because I’m physically okay to do it. I can walk the course, 6,000, 6,500, 7,000 in 90 degrees carrying that bag, it doesn’t bother me. I can do it.
Al: Let’s talk about that just for a second, because some of those bags can be pretty heavy.
Andi: Especially Joe’s. (laughs)
Joe: I do have a large bag.
Al: Yeah right. (laughs)
Rick: But don’t be confused but what you see on television. Those bags on TV are gigantic. The bag that I carry, it’s nothing that big, they have a modified, much smaller bag that I’m carrying. But a lot of these girls push carts. They’re allowed to push carts on this course, so they can push their own. If they don’t get a caddy because there’s just not enough, they push their own bags and those bags might be a little bigger. But frankly, the bags that I’m carrying, I don’t know 20 pounds maybe 25 pounds.
Joe: So Rick, are you like reading greens, singing them songs, keeping them calm? Or are you telling them what shots to hit? Do a little butter cut around the tree, maybe a little tight draw, push draw, what are you doing here?
Rick: I will tell you, these girls are professionals and they play these courses year after year. And so I’ve talked about that with several of them. And in most cases, they know the greens, they know how they have to make it and where they have to putt. The only time they really ask a question like that is if they’re really not sure. If they’re not clear, if they don’t think they know, they’ll ask for your opinion. But for the most part, you’ve got to remember, they’re professionals. They know how to play the game, they know what clubs to use, they’re not gonna ask you for club selection or anything like that. That’s just not what they’re a part of. They just want you to clean the ball, keep their clubs clean, talk to them to keep them focused and things like that. But outside of anything else, that’s basically what you’re trying to do.
Joe: How often do you change out their balls?
Rick: She only changes hers like twice a round. That’s all she does for the most part.
Al: Do you have certain courses that you like over other ones?
Joe: Yeah, what’s the best course, Rick?
Rick: Oh, they play some nice courses. We were down in Opelika, Alabama, the Robert Trent Jones Trail, and I’m telling you, that course, those courses are beautiful. Great, very nice. Daytona Beach is nice too. Like I said, I go all around the country, so I see a lot of different courses and some of them are really great, but they’re the two that stand out for me.
Joe: You know what, for junior golfers in Alabama on the Robert Trent Jones Trail, they get to play that for free. That’s why there’s a lot of really good golfers coming out of Alabama.
Al: Sure: And you’re a wealth of information on golf.
Joe: Yeah. What else you guys wanna know? (laughs) Rick, we love your story and we really appreciate your time today. Well, who’s the best golfer you saw playing? So you’ve been doing this you know for a few years. So the first one you did she made it to the LPGA. Any other people that you’ve seen or what’s the best like golf swing that you’ve experienced or saw?
Rick: Oh that’s that’s a hard one to tell because all of these women can hit 250, 270 off the tee. I mean that’s not even – that’s not a problem. All of them can hit that far. And their swings, most of their swings are pretty consistent. Watching them play, frankly, their swing is very short and compact, not like the men’s tour where they’re jacking the ball and swinging really hard – their swing is very compact and smooth. I don’t know that I’ve seen, I mean, they’re all pretty consistent to me.
Joe: You know I was watching the Women’s U.S. Open and then they also had the Colonial. I was more in favor to watch the women’s because they’re not just bombing it off the tee and then wedge in. They’re actually having to shape shots, they have to position in different areas and if they miss it just a little bit, those balls were rolling like crazy off the greens. So yeah, it’s incredible. I mean I’m really excited for the LPGA and women’s golf. Augusta did their thing this year in bringing all those juniors in. I watched the NCAA’s with the women’s golfers there. I mean, there’s some incredible talent. So it’s cool to talk to you, Rick, that you’re out there with these young ladies trying to make the dream. So congratulations to you for doing your part, helping out, but also probably living a pretty cool life.
Rick: I really am. I’m really thankful for what I can do and you’re right I do very much enjoy it.
Joe: That’s Rick Durso, he’s the caddy. I love talking about this stuff, can we just do this all day?
Listen to this Retirement Hustle:
For help figuring out your perfect retirement hustle, check the podcast show notes at YourMoneyYourWealth.com and download our Retirement Lifestyles Guide for free. And if you’ve got an interesting retirement hustle you want to share with Joe and Big Al and the Your Money, Your Wealth® listeners, email me, producer Andi Last, at email@example.com.
In the coming weeks, Liz Ann Sonders from Schwab returns to YMYW to share her market insights at the halfway point in 2019. Oliver Renick, host of TD Ameritrade Network’s Morning Trade Live and Market on Close will talk about the effect of the media on the markets, and economist Dr. Chris Thornberg returns to YMYW at long last with his Southern California real estate forecast. Share the podcast and subscribe for free at YourMoneyYourWealth.com. If you’ve got money questions, scroll down YourMoneyYourWealth.com and click “Ask Joe and Al On Air” and the fellas will answer them right here on YMYW.
13:12 – Can I Do a Roth Conversion Next Year and Apply It to This Year?
Joe: All right. Car-(clears throat) from Tacoma Washington.
Al: Great. Have you been to Tacoma?
Andi: That was Carol.
Joe: What did I say?
Joe: (Laughs) Carol. I’m sorry, Carol from Tacoma Washington. No, I’ve never been to Tacoma, Washington.
Al: It’s nice. It’s I used to drive through there, I used to have a client in Olympia, Washington. I’d fly to SeaTac airport and drive down to Olympia.
Joe: I’ve had Olympia beer. Is that from Olympia?
Andi: (laughs) I don’t think that counts.
Al: I don’t think so. But it’s close.
Andi: Olympia’s come to you.
Joe: Have you ever had Olympia beer?
Joe: It’s very tasty.
Andi: And I’ve never been to Washington either.
Al: Oh really, okay.
Joe: “Can I do a Roth conversion in 2020 and apply it to 2019? I want to make sure I don’t jump up into the next tax bracket.” Carol, wonderful question, we get this often, and unfortunately, the answer is no.
Al: Yeah it’s a great question, and then, of course, there’s a lot of confusion because you can do a Roth contribution, which is right now $6,000 per person per year if you have earned income, and $7,000 if you’re 50 and older. That can be done all the way until April 15th of the following year. But a Roth conversion is where you take money out of your IRA, you convert it to a Roth IRA, and you have to pay taxes on the conversion, but that has to be done in the tax year that you want it to apply to. So December 31st is your cutoff date.
Joe: And unfortunately the new tax law that was passed, what, a couple Decembers ago made a re-characterization prohibited. So whatever you convert, it stays. Prior to that law- because Carol, what she’s curious about or what her concerns are, it sounds like, is like, “well, I want to wait till next year till I do my taxes so I don’t convert to much of my IRA into a Roth IRA because you have to pay taxes on whatever that you convert.” And so she’s worried about jumping up into the higher tax bracket. So it’s like, “how much do I convert? I don’t know my income’s all over the place, let me do my taxes so I know if I want to go to the top of the 12% bracket, 22 or whatever, I know exactly what to convert. But I don’t know that answer until I file my tax return in April. What the hell are we doing here?”
Al: This makes it tougher. So I have two comments, Carol. One is since you cannot do a re-characterization anymore, in December you have to come up with your best estimate and convert that amount to fill up your tax bracket. The second comment is if you overshoot a little bit – like let’s say you’re $1,000 over. It’s only that extra $1,000 that’s taxed at the higher rate, not your entire income. And a lot of people get that mixed up. It’s only the extra, that’s over in that next bracket, that gets taxed at that higher rate. So it’s not everything.
Joe: Carol, a couple of other cool techniques that you could potentially do, depending on how kind of savvy you want to be here. And we don’t know anything about Carol. We just know that she’s from a very nice place called Tacoma, Washington. And it’s very close to Olympia where they have really good beer.
Andi: (laughs) We think.
Al:(laughs) It’s not really known for that, but it is the capital of Washington.
Joe: And so she could do one of – let’s say it’s $12,000 is the number to keep her in that bracket if she looked at last year’s tax return. So she’s going to do a guesstimate. She’s going to look at last year’s tax return to kind of see, “Am I close?” So she could do let’s say $1,000s a month into the Roth IRA, convert $1,000 a month. Over 12 months that would be $12,000. As you get closer to, let’s say, November, December, October, then you can kind of gauge – you can look at your W-2 to see how much money that you’ve earned, or if you have receipts or your 1099’s or whatever, you can at least kind of try to do a tax pro-forma before the end of the year to get a little bit closer, and you’re “dollar cost averaging” it’s called, into the Roth. You can do the barbell approach: let’s say $12,000 is the number, maybe you do five or $6,000 right now, and then you wait until December, and then you kind of get a better guesstimate of what that’s going to be. So different things that you can do just because of the re-characterizations are no longer. The sooner you get the money in the Roth the better, because of the compounding it’s going to grow tax-free for you.
Al: Yeah one other thing Joe, is if Carol is self-employed, then perhaps she could open up a SEP IRA, simplified employer pension plan, and fund that enough to get her down to that right tax bracket that she wants to be in.
Joe: Yeah. If you’re self-employed you could do –
Al: Because you can do that after the fact. You can do that all the way to the extended due date of your tax return, which would be October 15th, in most cases.
Joe: So a lot of different planning ideas for you Carol, hopefully, this helps, but yeah, if you want to do a Roth conversion – again, that’s taking money from an IRA, 401(k), or any type of defined contribution plan – you’re converting those dollars from a tax-deferred that will be taxable coming out at retirement, you’re going to pay the tax upfront on whatever portion that you convert. It sits in a Roth IRA, all of that compounding growth will be now tax-free. So for a lot of you there’s a huge opportunity. We talked about the SECURE Act, the stretch IRA is no longer, potentially, if this thing goes through.
Al: Which it looks like it will.
Joe: So you have to start planning depending on what size of IRAs that you have, is to look at, “does it make sense to pay a little bit of tax now?” The answer might be yes.
18:38 – Thanks for the Medicare Podcast
Joe: We’ve got Tina, she writes in from Philadelphia and she goes, “Hi Al and Joe, just finished listening to Danielle Roberts explain Medicare.” God, we had a lot of people responding to this Medicare episode.
Al: Yeah, it was a good one I guess.
Joe: Yeah, I was dreading that episode, to be honest with you, Tina. Talking about Medicare and I was like, “oh God, this is going to be awful.” But you know what, I believe Danielle Roberts did one heck of a job.
Al: I agree with you.
Joe: “She clearly explained it in layman’s terms that were easy to understand.” She writes on, “you’ll find this funny, I actually work for a large Medicare Advantage plan and I even felt she made me understand it better.” Huh, well what a great compliment that is, Tina. “Anyway thank you for having her on and providing such needed information and resources.” So that’s very cool. I mean, you could live in this profession and there are so many different areas that you gotta understand to get things tight as you approach retirement, in retirement, with health care, with taxes, with investments and everything else. I mean Tina, she’s an expert and she’s like, “man, that’s a pretty good way to explain it.” Let alone the layman out there just trying to figure this stuff out. That’s why we do such good deeds, Al.
Al: We’re trying. We’re trying to help. We’re trying to make it – let’s see, what are we? Are we wicked? Wicked funny?
Joe: We are wicked badass funny. (laughs)
Al: (laughs) We try to be wicked funny so you’ll actually listen.
Joe: I think it’s “a wicked sense of humor” or something.
Al: Wicked sense of humor. Oh, you’re right. Wicked sense of humor. Anyway, and then we try to throw in some meat in there too.
Joe: Yeah. It’s good meat. (laughs) It’s really good meat.
20:28 – If You’re Contributing to an HSA, Delay Taking Medicare
Joe: All right. We got Owen from San Diego. Owen writes in, “Hey Joe and Big Al, love, love your podcast with the entertaining banter.” Hey, thank you Owen. He even turned his “CPA brother on to the show and he even looks forward to listening to you guys.” All right, CPA brother. “The combination of very useful information with your wicked sense of humor makes for a very, very enjoyable listen. Just wanted to mention that in your recent podcast on Medicare, I think Joe said that in general, everyone, even if employed, should sign up for Medicare Part A because there is no cost. I think in other discussions you have had on Medicare, it was made clear that once on Medicare, one can no longer contribute to an HSA. So if someone is still working and wants to continue to contribute to an HSA, that person probably should delay Medicare. This delay, as long as the health plan is a qualified plan, will not result in any penalty once the person signs up after losing that health coverage. And also should note that COBRA is not a qualifying health plan. A friend of mine learned that the hard way is now paying a permanent penalty for that mistake. Thank you for the great information and entertainment.”
Al: Yeah. The reason we didn’t say that is because it would have taken half the show.
Andi: Look how long it took! (laughs)
Al: Owen, you’re absolutely right there.
Joe: But isn’t – and I don’t know, because we just wing this – I believe that HSA qualifications or no longer qualification, isn’t that you sign up for Medicare. I believe it’s age 65.
Al: You would be wrong because I looked it up.
Jo: Oh you did. Oh, you already pre…
Andi: He did some prep.
Al: I did some pre-work. Because actually, I would have said the same thing. But it turns out, it’s if you sign up for Part A or B or C or D, then you cannot do an HSA plan. So if you actually want to, if you have a qualifying plan, so you have to have that in the first place. And if you’re 65 years of age, then you wouldn’t sign up for Part A, because then you could continue to fund it.
Joe: So we’ve probably blown a lot of people up. They had their HSA and they were like, oh, they listen to the podcast, they go up to the, because I said.
Al: Well you said it.
Joe: I know. I just give really bad advice. (laughs)
Al: I just nodded because I heard that from Joe Anderson.
Joe: (laughs) Right, so all these people are in line to the Medicare office signing up, and then they’re trying to contribute to their HS,A and guess what, they’re like, no, you stupid person.
Al: And you just blew them up. Of course, the source was the internet. (laughs) But I got about five different sources and they all said the same thing.
Joe: Yeah. You know, I didn’t look it up. I know like if you’re on Medicare I know for sure that you can’t contribute to an HSA, but I thought it was age 65.
Al: Well so did I because of what I heard from Your Money, Your Wealth®. (laughs) Anyway so, Owen, you’re right. Thanks for that clarification.
Joe: Yeah I appreciate that. And thanks for sending the love to your CPA brother.
Al: Yeah. That’s really nice.
Joe: Yeah. And then the CPA brother is gonna be like, “these guys are a bunch of idiots.”
Al: Yeah he probably already thought that.
Joe: He probably called his brother Owen and he goes, “hey these guys are jackasses, they don’t even know the HSA rules.” (laughs)
Al: He listens just to say, “they don’t know what they’re talking about.” (laughs)
Joe: They’re just waiting for us to blow up.
Andi: So if you don’t like the show, tell people.
Joe: Yeah, whatever.
Al: Yeah it doesn’t matter.
24:14 – I Maxed My 401(k) Contributions Thanks to YMYW TV
Joe: We got Ollie from San Diego. This was via a Facebook private message. “I just want to say thank you to you guys for the show you do on Sunday mornings on TV. It seems like I learn something new almost every week and it definitely has me taking my 401(k) contributions more seriously. Last year was the first year I hit the limit on my contributions and I plan on doing so every year between now and retirement 15 years from now.” Do we…. no question?
Andi: There’s no question he’s just telling you how much he likes your TV show, Joe.
Al: So you’re supposed to say thank you, Ollie.
Joe: Ollie, thank you very much… This is just like a shameless plug! I’m just like reading a review. You know, like when people give us reviews on…
Al: But if you didn’t know it was that.
Joe: Yeah. I didn’t even know, there’s zero prep to this show. (laughs)
Al: (laughs) Except for Andi.
Joe: (laughs) So Ollie, appreciate it, way to go, bud.
Al: Yeah, that’s very nice, very nice.
Joe: Yeah. You know, if we can encourage you to save a little bit more money, max that thing out, in 15-20 years he’s gonna be golden.
You can be like Ollie and FOLLOW US: Facebook | Twitter | YouTube | LinkedIn. And realize, when you share YMYW, it helps us spread the financial wisdom and motivation to even more people who need it – so hit that share button that’s on every podcast page at YourMoneyYourWealth.com and share an episode via email, or on Facebook or Twitter, or wherever you get social. If you want, you can also tag us and post your money questions or comments, or you can scroll down YourMoneyYourWealth.com and click “Ask Joe and Al On Air” and they’ll answer you here on YMYW. Here’s our final question of the day, before we get to the total nonsense.
26:02 – Backdoor Roth IRA Conversions & Solo 401(k)
Joe: Now we have Rich from H-town, Houston Texas. Ex-girlfriend lived in Houston Texas.
Al: Yeah I remember that. I wasn’t gonna bring it up in case it was sensitive.
Joe: Well she now lives in Dallas Texas. She moved from H-town. Rich. “Hey Joe and Al, first off .thank you for the educational entertainment you provide through your podcast and TV show.” Boom! Thanks, Rich. “My wife and I are in our mid to late thirties and have two children who go to daycare. We live in Texas. I have some questions relating to minimizing our taxes now.” OK. So he’s kinda taking advantage of us here, Al. (laughs)
Al: Yeah he’s got a couple of questions and one has two parts. (laughs) That’s OK. It’s not like the one that has 100 parts.
Joe: Yeah I’d finally emailed that guy back like, “Bubba. Dude, this thing took me like, an hour just to read through.” Okay. Rich’s first question is, “Backdoor Roth IRA conversions. My wife and I have been doing this for the last two years. Earlier this year we both changed our well-paying jobs with 401(k)s with good benefits. I still have a 401(k) and some benefits with my new employer, but my wife does not because she started her own startup. It’s quite likely that she will not be making any money this year. Do you see any issue with doing this Backdoor Roth conversion for her in 2019? We have a fully funded emergency fund and have been maxing out our 401(k)s for the last few years. So that’s his first question. So Rich, let’s kind of back the truck up here a little bit when it comes to a Backdoor Roth IRA conversion. Conversions, there is no income limitation. So if you have money in a retirement account you can convert those into a Roth. It doesn’t matter how much money you make. A contribution has income limitations, so that’s based on adjusted gross income. And roughly – he’s married – if you make more than $200,000 you are no longer eligible to make a direct Roth IRA contribution. The contribution limits are $6,000, if you’re over 50, it’s seven. So what Rich and his wife have been doing is that they’ve been making IRA contributions. Because he’s under 70, that was the only stipulation there, but because he made so much money there was no deduction. It was an after-tax contribution. And then they converted that after-tax contribution in the IRA to a Roth IRA. Because it’s after tax, there was no taxation on the conversion. That’s the Backdoor Roth. Did I explain that OK?
Al: Yeah no that’s fine. There’s no tax deduction so you convert without taxes as long as you don’t have an existing IRA. Because if you do, then there are aggregation rules and pro-rata rules and it makes it much more complicated.
Joe: So it sounds like he’s been kind of following the rules, he’s in his mid-30s, kind of hitting his 401(k), jammin’ that. So now it sounds to me that his wife is doing a startup. Not going to make any money this year. But they already did the Backdoor Roth IRA? Is that what I’m reading?
Al: Well I think it’s more, should we keep doing it going forward. That’s how I read it. So in other words, I’ll kind of start with that.
Joe: Well it’s like, “do you see any issue with doing this Backdoor Roth conversion for her in 2019?” Do I see any issue.
Al: Yeah. There’s no issue, the thing I would say, Rich, is you may not even need to do a backdoor Roth.
Joe: Yeah you might be able to do a normal Roth contribution.
Al: Yeah. Because if your wife’s not making any money this year because she’s got a startup and as long as you’re making less than $193,000 – that’s actually the start of the phase-out – then you can just do a regular Roth contribution so you don’t have to go to the effort of doing the IRA and then converting it. But let’s say you’re making more than a couple hundred thousand, then yeah. Go ahead and do it. You can do it for her as well.
Joe: Yeah. If she doesn’t have income maybe he’s thinking, it doesn’t matter because there’s the spousal contribution. Let’s say if she has zero income, she can still make an IRA contribution or a Roth contribution. It’s based on your income, Rich.
Al: Yeah. Because between the two of you, you have earned income. So that’s no problem.
Joe: So if you’ve already done it, you’re like, “Oh honey, now you’re doing your own deal and on paper, you might not show any income because everything’s kind of going into the business. Not a problem, Rich, you have the income. So you’re good to go. “Number two.” This is a little two-part question, we’ll send you an invoice on this one, Rich. “Solo 401(k). I also recently started doing some consulting work on the side. Am I allowed to put whatever money I earn from this side gig into a solo 401(k)? If yes how much can I put in there if I’m also maxing out my regular employer’s sponsored 401(k) plan? They don’t provide a match. What are the steps I need to take to make sure all the paperwork is in order?” Alan, what say you?
Al: In terms of 401(k)s, you can only do that once, and so you can have five different 401(k)s with five different employers, but you’re limited to $19,000 aggregate in all of them. And if you, for some reason, fully max out one and then put more money in another 401(k) then it’s a prohibited transaction, it’s going to be refunded back to you. And if you took a tax deduction, probably refunded back to you in the next year, you’ll have to pay tax on that. So the answer is you can’t do any. However, there’s another plan. You can do a SEP IRA, simplified employer pension plan, which is up to, if it’s a side gig and you’re a self-employed sole proprietorship, it’s 20% of your profits. 20% of your bottom line income. You make $100,000, 20% of that is $20,000 you could put into it SEP IRA. And there’s no aggregation with any 401(k)s, so you can just go ahead and do that.
Joe: So fully fund your 401(k) plan at your employer, set up a SEP IRA for the side hustle and jam away at that. “Finally, my wife is co-founder of her company with one other person.” I like how he says “co-founder.” Like she’s Bill Gates or something. It’s not like, “my wife is a partner with another friend.” Co-founder. This is a big ass company or something. (laughs) “I believe she can have a solo 401(k) as long as they don’t hire anyone else. Correct?”If they make some money this year, what is the maximum amount she can put into the solo 401(k)? How does this change once she hires someone full time? Thanks.”
Al: Now the answer is incorrect.
Joe: Incorrect. Yes. Unless the co-founder is a family member. Spouse.
Al: Has to be spouse. Yes. So the co-founder, Rich, has to be you.
Joe: Yeah. Are you the co-founder?
Al: If you’re the co-founder…
Joe: Well he probably is because he’s making it sound sexy. “What’s your wife do? Well, she’s a co-founder of a new startup.” (laughs)
Al: “With another person.” (laughs)
Joe: (laughs) That’s awesome. I guarantee you Rich is going to have some cocktails and then he’s going to be talking with the boys and they’ll be like, “Hey Rich, what’s your wife doing now?” “Well you know, she’s a co-founder.” (laughs)
Al: So Rich, if you’re the co-founder, then it’s correct. If you’re not the co-founder, incorrect. Because it has to be husband and wife to qualify as a solo 401(k). So let’s just say you’re the co-founder. Let’s start with that.
Joe: Then you can do the solo 401(k).
Al: But depending upon what kind of entity it is, let’s say it’s a sole proprietorship. You have to have profits to be able to contribute to the solo 401(k). And if there’s no profits, there’s no contribution.
Joe: So whatever profits you can do. But let’s say the co-founder is not. It’s Belinda.
Al: Best friend Belinda.
Joe: Yes, her best friend Belinda Gates. (laughs) You’re going to have to set up a safe harbor 401(k).
Al: You mean Linda Gates.
Joe: Isn’t it Belinda?
Joe: It could be Linda. I don’t know. (laughs) I have no idea. It’s Bill. So maybe it’s Belinda.
Joe/Al! Melinda! Oh, we both got it wrong.
Joe: Your wife would have to set up a safe harbor 401(k) plan, which is a little bit more expensive than the solo 401(k). The solo 401(k) is really dirt cheap, safe harbor 401(k) plan, you could set up, you could just get a third party administrator to set up 401(k) plan as they start bringing in employees. It’s a little bit more expensive to administrate.
Al: It’s more than little, it can cost a couple thousand bucks to set up and it can cost nearly that to administer each year. I would say if that were the case, go to a simple IRA because those don’t really cost anything and you cannot contribute as much, but almost as much.
Joe: That’s it for us today, thanks for listening. For Big Al Clopine, I’m Joe Anderson. The show is called Your Money, Your Wealth®, we’ll see you next time.
Special thanks to today’s guest, Rick Durso. Read the transcript of Rick’s interview and learn more about the Symetra Golf Tour in the podcast show notes at YourMoneyYourWealth.com. If there is something you want to know or hear on YMYW, drop us an email or let us know on our Facebook, Twitter or LinkedIn pages – tag us, we’ll follow you, and the fellas will answer you on the podcast. All our social links, and links to subscribe the podcast on your favorite podcast app await you in the podcast show notes at YourMoneyYourWealth.com.
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