Show Notes

• 00:00 – The 9th Annual YMYW Podcast Survey is now open!
• 00:44 – Intro: This Week on the YMYW Podcast
• 01:39 – Working Until 70 With $6.5M Saved. Do I Need Roth Conversions? (Michael, Pittsburgh, PA)
• 09:25 – How Aggressively Should We Drain Our $2.6M IRA Before RMDs Hit? (K & J, the Cascades)
• 16:46 – Can I Retire Single at 63 With $1.5M? (Tracy, 63, CA)
• 20:15 – I’m 54, Single, With $4.4M. How Do I Retire at 56 Without Getting Crushed on Taxes? (Sean, Orlando, FL)
• 29:22 – How Much Roth is Too Much? We’re 48, Heading for $1M in Roth. Did We Overshoot the Goal? (Dallas & Leeloo, 48, Brooklyn, NY)
• 36:15 – You Said CRTs Must Leave 10% to Charity. Let Me Correct the Record. (DG)
• 38:21 – DAF vs. CRUT: Which Charitable Tool is Better for $1M Company Stock That’s Up 237%? (Fish Sean, 54, Winter Springs, FL)
• 44:22 – Outro: Next Week on the YMYW Podcast

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Transcription

(NOTE: Transcriptions are an approximation and may not be entirely correct)

The 9th Annual YMYW Podcast Survey is now open!

Andi: It’s that time again! The 9th annual YMYW Podcast Survey is officially open, and it’s the one time all year you get to tell us what to keep, what to cut, and what would make Your Money, Your Wealth your favorite retirement podcast. I’ve always said it: this is your podcast, we just make it for you. The survey is how you steer it. Answer all 16 questions, leave your email, and you’re in the running for a $100 Amazon e-gift card. Find the survey link in today’s episode description and use the password ymyw, all lower case, to access it. You’ve got until 5pm Pacific on August 31st, and I’ll announce the winner here on YMYW on September 1st. US residents only for the giveaway, no purchase necessary. Now, do it now, before you get into the episode and forget.

Intro: This Week on the YMYW Podcast

Andi: Because today on Your Money, Your Wealth® episode 592, Michael in Pittsburgh, K and J up in the Cascades, and Tracy in California all need retirement spitballs and Roth conversion plans, but none of them gave Joe and Big Al one of the most important numbers in retirement planning: how much they actually want to spend. The fellas reverse-engineer their spitballs to back into what might be the same numbers missing from your own plan. Plus, Sean in Orlando wants to retire in two years at age 56 with four point four million dollars without handing half of it to the tax man, and Dallas and Leeloo in Brooklyn are wondering if there’s such a thing as too much Roth, considering they’re 48 and on track for a million in theirs. Plus we’ll talk about some charitable giving strategies: what exactly is the difference between a DAF and a CRUT? I’m Executive Producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP®, and Big Al Clopine, CPA.

Working Until 70 With $6.5M Saved. Do I Need Roth Conversions? (Michael, Pittsburgh, PA)

Joe: Michael in Pittsburgh, Pennsylvania. Pittsburgh, you been to Pittsburgh?

Al: I have. Three Rivers.

Joe: Three Rivers Stadium.

Al: Yep.

Joe: Is that still a stadium?

Al: I think so.

Joe: Okay.

Al: I wouldn’t swear to.

Joe: The Steelers, they don’t play there? Yeah. yeah, I’ve never been. So Michael is, he lives there. He’s 67, his wife’s 60. they have $5 million in a traditional IRA, 1 million in a Roth IRA, invested 60/40 stock bonds, and $500,000 in a brokerage account, mostly Tesla and Nvidia.

Al: Okay.

Joe: Why do you think he invests the 500,000 in his brokerage account in two stocks-

Al: Good question …

Joe: versus-

Andi: Did you say how or why?

Joe: Why. Why. It’s like people like-

Al: it’s better than in your IRA.

Joe: I suppose.

Al: Yeah.

Joe: Why wasn’t it, why isn’t it in the Roth?

Al: That’s a great question.

Joe: So he’s got 60/40 stock bonds.

Probably mutual funds, ETFs. Yeah, probably. And then he’s just going buck wild here in the brokerage account.

Al: you know why? Because it’s there. It’s- It’s handy …

Joe: yeah.

Al: He can, he had that- He’s

Joe: like, “I can play with that.”

Al: Yeah,

Joe: Yeah. “The retirement accounts I don’t wanna touch.”

Al: Yeah,

Joe: All right. He’s currently making $250,000 a year. Congratulations, Michael. Great. let’s see. He plans to work until 70. Only debt is on the second home, 200,000. Primary home is paid off. Does it make sense to consider Roth conversions or just leave the investments alone? Oh, come on. Why would you ask that? You wanna just leave it alone, then don’t write in.

Al: we are kind of flat, aren’t we,

Joe: we are no longer contributing into our retirement funds. I plan to collect Social Security at 70. With my wife at 62, our combined Social Security will be $6,500 a month- “Our primary home is paid for.” Yeah, you mentioned that.

“The value is 300,000. Our second home is in Tennessee with a $200,000 mortgage at 6.85%. The home is worth 750. We have no other debts. Our net annual income is 250.” Why is he repeating himself?

Andi: That’s a good question.

Joe: Is that- Is this me? Am I, like, r- Am I-

Al: No, that’s how he wrote it.

Andi: No, that’s the first time he said it. Just in case you missed it.

Joe: Just in case.

Andi: He’s recapping it for you.

Joe: All right. “We don’t plan on adding to our retirement funds from…” Okay.

Al: From this point.

Joe: Okay, so everything he did, he said twice.

Andi: He said it twice. Yeah.

Al: So, so he’s clear.

Joe: Just to be clear. It’s a very short email, too.

Al: Yeah, it is.

Joe: You know? So, y- yeah, not a lot of- I mean, how about if he just said-

Andi: He gave us a lot of facts twice, and he didn’t tell us his spend.

Joe: Yeah, he, didn’t tell us much, but he told us all the, the information he did tell us twice.

Al: Yeah. you bring up a good point, Andi, and I’ll say this to our audience. We need to know how much you’re spending to be able to have an appropriate spitball, so,

Andi: Or how much you wanna spend in retirement.

Al: Yeah.

Joe: He’s got $5 million in retirement funds. He’s 67 years old. He makes $250,000 a year. He’s gonna work until age 70. Should he do conversions? sure. How about that? Should we s- I’ll say it twice.

Al: Here, let me answer. yes. Three- But, let me throw some more at it.

Joe: 250. He’s not contributing in- Yeah … your retirement account, right?

Al: No, but if you just go, Joe, if you just go forward three years-

Joe: Yep …

Al: at a 6% rate of return, he ends up with 7.7 million total. Okay? And-

Joe: His, his RMDs are gonna be 250. That’s the 100 grand.

Al: Yeah. that’s total. The tax deferred will be six million, so RMDs are 240. Yeah. Taxable Social Security will be about 65 grand, and interest dividends, I just threw in 10 grand. 316,000- Yeah … income minus standard deduction, call it 285-

Joe: Okay

Al: which is in the 24% bracket. and the thing is, yeah, which he’s in that right now as well, and will always be in. But part of the reason, Joe, you consider RMDs in a case like this is, number one, the, amount you have to pull from your IRA increases every year. That’s number one. Number two is tax rates may go up in the future. Number three, if one of you survives the other one, all of a sudden the survivor will be in a single tax bracket, and you’ll be in a much higher bracket. So give that some thought as to why you might wanna do Roth conversions. and of course, the one that’s kinda screaming at me is gonna be $6 million, and that’s a lot of money in, in a tax-deferred.

Joe: Screaming at you. Screaming.

Al: Yeah. I, hear it.

Joe: yeah. I think if you’re going to be in the same tax bracket or higher, you convert. you just have a lot more flexibility within a Roth IRA. There is no RMDs in the Roth IRA, right? it goes to the heirs tax-free. Yeah.

Al: The wife,

Joe: goes to her tax-free if he were to predecease her. So I think it makes all the sense in the world. If you’re staying in the 24-

Al: Yep …

Joe: he’s in the 24, and if the RMD’s gonna put him in the 24, I would convert to the top of the 24.

Al: yeah.

Joe: And- And it, just takes the uncertainty of, higher taxes if the rates- If that happens … go up, it just takes that off the table.

Al: and one, one of the things that s- we look at is what’s the retirement income gonna be compared to current income? And it’s higher because of Social Security.

Joe: If he makes $250,000 a year, and he’s got $5 million in a retirement account-  and he’s got a million dollars in a Roth account-

Al: Yep …

Joe: and he’s got $500,000 in Tesla and Nvidia, I wonder what the basis is on that. 100 grand?

Al: I’m gonna say low. Yeah, that’d be a good guess.

Joe: But still, he’s saved $6 million. let’s see. What is his wife’s Soc- at $6,500 a month, their combined Social Security’s gonna be $6,500 a month. Yeah. So I’m imagining he’s maxed out, and she could be taking the spousal-

Al: Could be, yep …

Joe: because at 250 he’s definitely maxed out on the Social Security.

So- I, I wonder if he’d made a lot more money if he hadn’t, right? If this was like the household income, they don’t spend that much.

Al: Yeah.

Joe: They save a ton. And they’ve been prudent savers for a while, so, I’m guessing the RMD is just additional income on top of… and he’s probably doesn’t wanna touch the, the brokerage account. But what I would do, with the million dollars you have in the Roth-

Al: Yeah …

Joe: that’s where you invest your Tesla, and Nvidia, and SpaceX, and your s- semiconductors, and all of that. Take your risk there. Because you’re never gonna pay tax on it. And if you don’t wanna pull the money out of the, the brokerage account, you probably need to use a little bit of that to pay tax, or you might wanna use a little bit of those dollars to live off of while you’re doing Roth conversions- once you do retire, because you’ll still have five years that he’d be in a, you know, pretty low tax bracket because it’s just Social Security at that point. so I would consider changing the investment strategy with this. I’m fine holding whatever stocks that you want, but just hold them in the right bucket.

Al: Yep, makes sense.

Joe: Anything else you wanna add to this?

Al: Nope.

Andi: I have a question.

Joe: Should we save that? Should we answer that t- twi… go ahead. Yes, please.

Al: Yeah, what you asking?

Andi: Did the financial planning industry come up with the term predecease?

Predecease? Predecease. Pre-

Joe: I don’t know. Why?

Andi: Give me the- I mean, doesn’t it sound… As opposed to die before or pass before.

Al: it’s a more efficient way to say it.

Joe: I guess so. Predecease.

Al: We’re all about efficiency. We try not to say things twice.

Joe: Yes.

Al: Even though we do all the time …

How Aggressively Should We Drain Our $2.6M IRA Before RMDs Hit? (K & J, the Cascades)

Joe: let’s go to Hello K and J from the Cascades.

Al: Okay.

Joe: “Hello,” comma, “this is K and J-

from the Cascades.” Where’s the Cascades?

Al: Washington State.

Joe: What is the Cascades? It’s- Is that a mountain range, or is that like- Yeah, mountains. Okay.

Al: Yep.

Joe: ever been there? You’re just every-

Al: I have.

Joe: I know you have. You’re just everywhere.

Al: It’s… Yeah, you gotta go. It’s really pretty.

Joe: K will be 60, and J will be 70 next year, with $2.6 million in a traditional IRA, 700 grand in a Roth, and $200,000 in a brokerage account. This sounds a lot like Michael from Pittsburgh.

Al: It does, yep.

Joe: Plan is to live off of traditional from 60 to 75 to reduce it to maybe 500 to 750K before RMD. And then start taking Social Security with maybe $5000 a month, also $5000 a month pension starting at 60. How much should I pull out every year from the IRA? Should I maximize emptying the IRA or relax about it, relax about it sec to IRMAA or else?

Andi: Does that make sense to you?

Joe: No.

Al: I think there’s a word missing maybe.

Joe: Should I maximize emptying the IRA? Okay.

Al: Or relax about it.

Joe: I get that. Or relax about it- yeah

as effect about, in Irma or else.

Al: I don’t know what sec is.

Joe: I don’t know.

Al: it’s supposed to be-

Andi: Is that short for secondary?

Al: I think it’s supposed to be another word maybe.

Joe: All right. So Kay also work a little for one to two years. Kay does not drink alcohol but loves her latte, and Jay likes German beer and a good wine.

Al: Okay.

Joe: All right. German beer.

Al: Yeah. I like German beer.

Joe: Okay. I, can-

Al: it’s kinda, like a lager.

Joe: Is that like a Hefeweizen? Th-

Al: that’s one of them, yep. But I, like their lagers.

Joe: Name one.

Al: Hofbräuhaus. Okay.

Joe: That’s impressive.

Al: That’s where I drink it.

Andi: Yeah, they’re on- Yes, Pilsner, Helles, Hefeweizen, Dunkels, Kolsch, Rauchbier which is apparently smoked beer

Joe: I remember Grolsch

Al: Yeah, when you, if you ever go to Munich, go to Hofbräuhaus. That’s, kind of the thing you do there, or one of the things.

Joe: Got it. I- I’ll make sure I do that when I go to Munich.

Al: you were thinking about it, right?

Joe: Yeah.

Andi: And actually, Grolsch is from the Netherlands, by the way.

Joe: Oh. Yeah. I remember the cool bottle, right?

Andi: And actually, the little thingies that you get on the Grolsch bottles-

Joe: Yeah

Andi: … you can use that on your guitar to help you keep your guitar strap on your guitar.

Joe: Okay.

Al: Oh, didn’t know that.

Joe: I just remember the cool bottles. The beer didn’t taste that good. We drive two Audis, a Ford, and a Mercedes-based motor home.”

Al: Ooh.

Joe: Oh, fancy Nancy. “Thank you for the spitball.

Have been listening for about one and a half years while walking the dog.” All right. Yeah. Cool. K and J from Cascades.

Al: Okay.

Joe: all right, so they, want a distribution strategy here, Big Al.

Al: They do.

Joe: And do we know how much they are spending?

Al: No, we don’t. That would be helpful.

Joe: That would be helpful for a spending plan.

Al: And since we don’t have it, I, looked at this a slightly different way.

Joe: Okay.

Al: So I said,

Joe: Or just- I- … bring the account to a certain bracket?

Al: Yeah, I just said, what if they were 75 today? I- ’cause we don’t know enough to do forward projections. So the RMD would be 104,000. The Social Security taxable part would be about 50, pension 60, standard deduction 30.

So taxable income would be 185, which would be in the 22% bracket. Which by the way, for a married couple, goes up to about 211,000. So if it were me, I would pull money out of the, tax defer to pay living expenses, and then I would do Roth conversion for the rest of it to get to the top of the 22, ’cause that’s the bracket they’re going to be in.

Joe: Okay.

Al: Yeah. that’s what I think I would do.

Joe: All right. So let me say it another way.

Al: Okay.

Joe: Because- They have $2,600,000 in a traditional IRA, and the plan is to live off the traditional from 60 to 75, so 15 years.

All right? And then they wanna reduce that to maybe 500 or 750K before RMD.

Andi: So that’s like $2,000,000 to move in that time?

Joe: Or, yeah, h- or, are they saying they wanna reduce it by 500 to 700,000?

Al: I, I don’t know. I, sort of ignored that part, ’cause I don’t think that’s should be the goal. If, they’re trying to get it down to 500 or 750, I don’t think that’s the goal. I think they would end up in the 24% bracket- But what-

which they don’t need to be if they do that, if they convert that much.

Joe: they’re not converting. They’re just living off of it.

Al: I know, but there’s… true. We don’t know what the spend is- Yeah … so it’s really hard to answer.

Joe: yeah, I don’t know. You got 2.6 in the next 15 years, you wanna w- dwindle that thing down to 500 grand, $2,000,000?

Al: Yeah, and then-

Joe: And then what? …

Al: then, you’re poor.

Joe: Yeah. what are you doing, you know? And so that’s- So no, I agree with you, Al. I like that strategy. they don’t have a- that’s the bulk. The- they’ll have plenty of fixed income. They have $60,000 in pension, they got $60,000, so $120,000 there.

So just max out the 22% tax bracket potentially?

Al: Yeah. Yeah, so let, to put this a- as an example, let’s say, Joe, they spend 100. easier math, they spend 130, okay? Because a $30,000 standard deduction, so that would mean their taxable income is 100. Top of the… So that’s what they pull out for their own expenses.

Probably a little bit more to pay taxes on that. But then as far as the Roth conversion, they need to pull out enough, to get to 200, call it 210,000. So in that example, around $110,000, could be Roth conversion. Again, it wouldn’t be that exact amount because they would probably have to use those funds to pay the taxes.

Joe: Yep.

Al: Then anyway, but that’s the basic mathematics here. Pull out what you need first for your own living expenses and taxes, and then, convert the rest, saving some money for taxes, but basically ending up at the top of the 22% bracket. I think that’s what would probably make sense.

Joe: So K, 60.

There- there’s 120 coming in 10 years.

Al: Yeah.

Joe: So they need a bridge over the next 10 years to get to that 120. So-

Al: Yep …

Joe: yep, you pull out of your retirement account to live off of, and if there’s still room in that overall tax bracket, take more distributions out and then convert it into a Roth.

Yep.

Al: That’s what I think. That’s what I would do. And the pension starts at 60, so that’s already 60 grand. So-

Joe: Yeah, but her 60. She… No, oh.

Al: Yes. She’s-

Joe: 60.

Al: Yeah, she’s 60. Yeah.

Joe: Okay. Yeah. Two wonderful written emails back to back there.

Al: Oh, and look at the next one. We don’t know what they’re spending either.

Can I Retire Single at 63 With $1.5M? (Tracy, 63, CA)

Andi:

Joe: All right. We got Tracy. “I, I live in California. My mortgage is $2,200 a month. I’m 63. I have $1.5 million in my 401(k). I put $35,750 in my 401(k). I have a CD with a 401(k). Okay.

Andi: With 40k.

Joe: Oh, with 40k. “Plus, one year emergency funds in a money market savings account. My annual salary’s $175,000. Social Security is gonna be around 3,700 bucks.

Is this enough to retire? When can I retire?” “Or when should I retire?” “How much can I take out of my 401(k)? I don’t effing know.”

Al: That was added for emphasis.

Joe: “My 401(k)is currently earning 17.6% interest this year. I plan on scheduling a meeting.” All right. Let’s see here. “I live in California. Mortgage is $2,200 a month. 63 years old. I have one and a half million dollars in the 401(k).” Okay.

Al: since we don’t know what they spend, I came up with an estimate

Joe: My annual salary’s 175, so let’s go 175 minus 35.

Al: Yep, I did that.

Joe: That’s what you’re saving. Put minus tax.

Al: Yeah, and tax is probably between Social Security and regular taxes- 20? … call it 40.

Joe: Okay, 40. Social Security

Al: 13.

Joe: All right.

Al: So 100.

Joe: 100 grand.

Al: 100, 100 if-

Joe: I love it …

Al: if they’re spending 100, I’m- we’re- we’ll go with that.

Joe: Okay.

Al: So if you just look, so we advance that three years, or two years I, should say, so that would be like spending 106 at that point.

Okay. if we advance their portfolio two years- Two- … at a 6% rate of return, adding 35,000, they end up at 1.9.

Joe: Sure.

Al: So, you know, you spend 106.

Joe: They need 61.9. But, you know, but- Three and a half …

We’re

good.

Al: Yeah, it’s about a three- 3.6% distribution rate if he take- if they take Social Security. So, yeah, I think it works.

Joe: Yeah. Look at how we just backed that in without even knowing half the information we need.

Al: True. But I will say it helps for us to know what you spend for us to really answer this better.

Joe: Yeah. going to the d- God, it hurts really bad. can you cure me? What hurts? Oh, I forgot to tell you.

Al: Yeah, forgot to tell you.

Yeah, you get this, “When can I retire?” if you’re spending 40,000 a year, should- you should already have retired a long time ago.

Joe: Yeah, if you’re spending 400,000, it’s not gonna work.

Al: You gotta work till 80.

Andi: I’ll let you in on a little secret: figuring out whether you can afford to retire yet does not require a spitball from Joe and Big Al. To see how your retirement plan scores, use our free, self-guided Financial Blueprint tool. You plug in your assets and projected spending, and it’ll calculate your probability of retirement success, along with some actionable steps to help you get there. If you don’t know how much you want to spend in retirement, it even shows you how to reverse engineer that number, like the fellas just did for Tracy and for K&J. This week on YMYW TV Joe and Big Al get even more into that formula, and they assess some others we hear about all the time. Like how your spending shifts through the slow-go, go-go, and no-go years (Joe’s favorite), the smartest age to claim Social Security, and whether those rules of thumb we hear about, like “a hundred minus your age,” actually hold any water. Jump into the episode description for the links to YMYW TV and the Quick Retirement Calculation Guide.

I’m 54, Single, With $4.4M. How Do I Retire at 56 Without Getting Crushed on Taxes? (Sean, Orlando, FL)

Joe: Okay, we got, “Hi, Joe and Big Al, and the very beautiful Andi from Australia.”

Andi: thank you.

Joe: This is Sean from Orlando. “I tell you what I have, and then I have a couple questions.”

Andi: Perfect.

Joe: “Currently have a million dollars in deferred compensation which will pay a- out at termination or retirement over 10 years. $1.3 million in a 401(k), $600,000 in a traditional IRA, 430 in a Roth, and $1.5 million in a brokerage account.”

Man, look at the big wallet.

Al: that adds up to 4.4

Joe: million. That’s very good. What’s his name? We got a name?

Al: Sean.

Andi: Sean, from Orlando.

Joe: Sean. Sean from Orlando. that’s a lot of money. What does he got, $5 million? Close to that, four and a half?

Al: Yeah, four and a half. Yep.

Joe: Okay. “$430,000 in a brokerage account in highly appreciated company stock,” all right, “and $150,000 in cash.

I wanna retire in two years at 56, and I’m looking to pay insurance. I have no idea what it’s gonna cost me and what I should budget.” “And then leaving an inheritance for my children when I die, hopefully at 95.” And I assume my spend is probably $130,000 a year. I retire in two years, in 2028, and how would I draw from this to save on tax?

Currently single, and the tax man loves me. I’m drinking a Ranch Water. All right. With a little Topo Chico and tequila. You ever like… I like Ranch Waters.

Al: never heard of it.

Joe: You never heard of Ranch Water? No.

Andi: Tequila, lime juice, and To- Topo Chico. Sparkling mineral water.

Al: Okay. Yeah.

Joe: I just get it by the can.

Al: Heh, it’s already

Joe: pre-made. It’s pre-made.

Al: Okay.

Joe: Yeah.

Al: All right. Gonna have to try it.

Joe: I don’t know what, Yeah. On the golf course.

Al: It’s… Works, works pretty well?

Joe: Yeah, it’s…

Al: There you go. Okay. Ranch Water.

Joe: there’s a couple- Okay … different brands there.

Al: Does look fun.

Joe: Yeah.

Al: Okay.

Joe: Yeah, those are… It’s not bad.

Al: I would probably like that.

Joe: Yeah, you probably would. It’s hard seltzer.

Al: Yeah I never kinda got into hard seltzer, but I’ll, try that one

Joe: Just gotta get on the bandwagon.

Al: It’s just like you and IPAs.

Joe: Ugh. No. Let’s see. What does he drive? He drives a Toyota Tundra that I’m gonna drive until the wheels fall off. Thanks, guys. Let’s see here.

So can he- Okay … retire in a couple of years? He’s got a 54 and 4.4 million.

Al: Yeah, this is very good.

Joe: He’s got

$1

million deferred comp. What does he make for income? He wants to spend $130,000 a year.

Al: Yeah. I mean, if he, I mean, if he retires at 56, Joe, I mean, spending 130, not even doing inflation, ’cause this is an easy m- math one.

Joe: Sure.

Al: So spending 130, deferred comp of 100, shortfall 30,000, that’s a .7% distribution rate. Yeah. So that’s great. But of course, deferred comp the last 10 years then lasts forever. But when that goes away, then Social Security will replace some of that, probably half of it or, so. So yeah, he looks great.

but his real question is, “How would I draw to save from taxes?”

Joe: the deferred comp is gonna pay him ordinary income.

Al: Correct.

Joe: It’s gonna pay over 10 years. There’s gonna be a little bit of growth, but we’ll just do a flat line of 100,000.

he’s gonna be in the 22% tax bracket.

Al: He’ll actually be, probably maybe in 24, ’cause he’s single.

Joe: Let’s see. If he’s got $100,000- Oh, actually- … of taxable income minus the standard deduction- so call that 80,000, I’m guessing. 80,000 s- wasn’t that, top of 22 would

Al: be- Top of the 20- … 200,000. Top of the 22. No, this is, he’s single. So-

Joe: Oh, top- …

Al: that’s 105,000.

Joe: Okay. So he’d still be in, So he’d have a little bit of room in the 22.

Al: y- yeah. I think that’s what I would do. I mean, pull out what you need. he only needs a little bit. Pull out what you need from tax-deferred, just like the last case. Yeah. And then convert the rest to the, probably the top of the 24 for single taxpayer would be, 200, 202,000. Yeah, that, I think that would be the way to go

Joe: Yeah, 56, then he’s got a ton of time.

If he wants to give an inheritance to the kids, I’d much rather give a tax-free account- Yeah … than a deferred account.

Al: Sure. Yeah.

Joe: the taxes are gonna bite a little bit because he’s single and he can’t convert as much, but he can convert 100,000 bucks a year roughly.

Al: Yeah, I think that’s right.

Joe: so you’re gonna get some money out of there, and he’s young.

he’s gonna live till 95, maybe 96.

Al: Now, do you wanna live to 95?

Joe: I don’t know. Ask me when I’m 85.

Al: I’ll ask you when you’re 90. Yeah. See if you’ve had enough.

Joe: Yeah. Yeah.

Al: Of course I’ll be long gone.

Joe: No, you’ll live to 120- … just like you and Rick Edelman.

Al: Yeah, we’ll be around together.

Joe: Yeah. what’s, Diamantes said his name?

Al: What?

Joe: what’s the, what’s… I think that’s his last name. Diamante?

Al: Oh, the, author?

Joe: The guy that runs, God, why am I drawing a blank? But it’s, you know, the world is the best it’s ever been today, and it’s only gonna get better because of technology, and we’re gonna- Yeah

live to 150 and all of that. Yeah. He’s a smart guy.

Al: yeah.

Joe: It’s pretty interesting.

Al: I, yeah, I’ve, I did know he was-

Joe: Because, I mean- … but name. Yeah … it wasn’t that long ago that we were dying from yellow fever and- True. That’s right … you know, consumption.

Al: Yeah, true. Consumption. Haven’t heard that in a while.

Joe: Yeah. Tuberculosis.

Al: Yeah.

Joe: Did I ever tell you that I got a positive tuberculosis test?

Al: Really?

Joe: Yeah.

Al: When was that? Ho- hopefully not yesterday.

Joe: no, I was t- When, so when we’re, I was teaching in all the schools.

Al: Oh, okay.

Joe: And so I guess they give these TB tests. And then they, stab your arm.

And then you gotta go back there in like a day or a couple days later. I forget what the actual timeframe is. And then if it, like, puffs up, it’s a- Yeah … it’s a positive test.

Al: Yeah.

Joe: And so I had no idea.

I walk in there, and then they-

Al: No symptoms or anything …

Joe: I talk to, yeah, I talk to the nurse, and she s- sees it and almost freaks out on me.

She’s like, “Oh, my God.” never seen- “And you’ve gotta get off the school grounds.”

Al: Never seen that.

Joe: I was like, “I’ve never seen that before in my 50…” And I was like- Yeah … “What are you talking…” She’s like, “Yeah, you gotta get a chest X-ray and this and that, whatever.” Oh, boy. And I was like, I, I tested positive?”

And she’s like, I don’t know. I just know that you need to go to your doctor.” So I was like, “God, do I got the consumption?” Oh.

Andi: So what happened? So you went and-

Joe: f- false positive.

Al: Okay.

Andi: Wow.

Joe: I guess sometimes you just-

Andi: I wonder how common that is. Geez.

Joe: my, and my dad had it, too. So, Wow … when I talked to him- Oh

I, I go, “Mom, I think I got consumption.” No. I think I’m gonna start coughing up blood. That’s great. I’m gonna, you know, yellow fever’s coming next.

and, she’s like, “What are you talking about?” And I was like, “Yeah, I tested, like, I did this TB test, and she’s-” like, “Oh, your father had the same thing, and he, he didn’t die of, you know, he’s not dying of consumption.”

Al: Okay.

Joe: Maybe alcohol consumption. But, but yeah. Yeah. Went to the doctor and I got a check, chest X-ray and everything else, and they’re like, “You’re-” And you’re fine … “perfect, perfectly healthy.”

Al: Okay.

Joe: And then so they had to sign a little release, and I went back and-

Al: Yeah …

Joe: she’s like, “Oh, great. That’s wonderful.”

Al: Were you, worried, had trouble sleeping?

Joe: No.

Al: That, that night before?

Joe: No, not really.

Al: You didn’t.

Joe: From, like, the drive- Y- … from the school back to the office, I was like-

Al: Huh … ”

Joe: what the hell is tuberculosis?”

Andi: So wait a minute, you thought you had tuberculosis and you went back to the office? Oh, God.

Joe: Yeah.

So-

Andi: Reason number 4,782-

Joe: I hope you didn’t- …

Andi: that I’m glad I’m in Australia.

Al: It’s a, it’s a-

Joe: Is there, how, is it pretty,

Al: It’s contagious,

Joe: yeah … very contagious out there? Yeah.

Al: I mean, it’s wiped out whole, like- Whole country … whole societies.

Joe: Oh.

Al: But look, how much you’ve learned since then.

Look at this. You would, probably know not to do that now.

Joe: I knew I didn’t have it. It wasn’t coughing up blood.

Al: Not yet.

Joe: Not yet. Not- But yeah, that was like, I don’t know- Anyway. … like 15 years ago.

Al: Yeah.

Joe: So.

Al: Oh, when we probably did a podcast together and had TB.

Joe: Yeah, we probably did. Yeah.

Yeah, we probably went to the bar afterwards. Probably. But I didn’t have it. Yeah, okay. false positive. Guys were bullet. Yeah. You ver- have you ever had a TB test?

Al: Yeah.

Joe: So but yeah, they put something in your arm or something.

Al: I f-

Joe: You feel it, right?

Al: I might forget, but I’ve had it.

Joe: You had it too, huh?

Al: no. I’ve had the-

Joe: You just, you had the consumption?

Al: I’ve had the, I’ve had the test. I don’t think I had it, ’cause no one said anything.

Joe: Got it. All right. did we answer this guy’s question?

Al: I think so.

How Much Roth is Too Much? We’re 48, Heading for $1M in Roth. Did We Overshoot the Goal? (Dallas & Leeloo, 48, Brooklyn, NY)

Joe: All right. let’s go… Here we go. Andi, “How much Roth is too much?”

Al: Good question. Oh, great. We can sit back and Andi’s gonna answer this one.

Joe: Okay.

Al: Okay.

Joe: There’s never too much Roth.

Andi: That’s exactly what I was about to say. There’s no such thing as too much Roth.

Joe: let’s go with Dallas and Leeloo from Brooklyn.

Andi: You know it, right? Come on, you know it.

Joe: Dally? I know the- No,

Andi: Dallas … Dallas is- Dallas and Leeloo

Joe: … from The Outsiders.

Andi: Multipass. Do you know

Multipass? M- no. Multipass?

Milla Jovovich played an alien with orange hair, and Bruce, Willis- Oh, and Bruce Willis … was the-

Joe: Yeah …

Andi: was the, yeah, Fifth Element.

Joe: Yeah.

Andi: Great movie.

Joe: I’ve not. Fifth Element. Oh.

Andi: Can’t believe you haven’t seen that.

Al: You’re still tra- you’re still trapped in Idaho.

Joe: I’ve seen The Fifth Element, but I don’t remember- Oh, okay

I haven’t seen The Fifth Element in a long

Andi: time. The first lear- Yeah … word that she ever learned was multipass. Okay. She shows up at the, the, transit center with her multipass.

Joe: Oh, all I had to do was read a little bit more there, Big Al.

Al: There, and you would’ve had it. Yeah.

Joe: Then I would’ve, then I would’ve killed it.

Al: Then anyways- Yeah … sounds smart.

Joe: That’s from The Fifth Element- Yeah … a movie from the 19- 100s. 1900s. It’s not from the 1900s.

Al: it is, it’s just the f- the late 1900s.

Joe: Got it. I suppose. “For years, we never made much, and with three kids, we paid very little federal income tax.”

Al: Okay.

Joe: “So Roth was the obvious answer.”

5% to 20%, depending on the season of life. Private school, house remodels. 48 now. Would love to be done with full-time work in about 10 years. The youngest will be into college or boot camp if his attitude doesn’t improve. Yeah, kick his ass. Another decade- … and 8% growth will have us a million dollars in a Roth.

$800,000 in a traditional and maybe some brokerage account of about $200,000 would be a really nice goal. Did we overshoot the Roth goal? Should we shift even more to traditional contributions? Our spending today is about $70,000. It’d be nice to be at least there in the go-go years The go-go years. He- Joe’s favorite

he’d written such a nice email until the go-go years.

Al: He hasn’t been listening long. he doesn’t know you hate that term.

Joe: she has the Arcadia. “I drive any cheap, old four-wheel drive. She drinks Naturdays.” Naturdays.

Andi: Do you know

Joe: Naturdays?

That’s… No, it sounds fun, though.

Al: then it says, “Or vodka and cocktails.”

Joe: Just anything vodka?

Al: Maybe.

Joe: Vodka and Sprite, soda-

Al: What’s

Joe: a Naturday?

Andi: Naturday. Naturday is a line of fruit-flavored light lagers produced by Anheuser-Busch. Blah.

Al: Oh, yeah. We missed that one. Ugh. Fruit flavored beer. No, that wouldn’t be… I- Not sure if I’d really get down with a Naturday. Even I wouldn’t like that.

Joe: Little wild berry Naturday for you?

Al: Oh. I want a pomegranate Naturday.

Joe: Yeah. Peach. They’ve got lemonade.

Andi: Yeah. They’ve got, what is that? That’s, Anyway

Joe: … pineapple lemonade. That’s bo- oh my God, that’s Natty Light. Strawberry. Oh, Natural Light. Oh, okay.

Andi: Naturdays.

Joe: So what, is that beer or is that a, seltzer?

Andi: It says strawberry lemonade in some kind of beer.

What the hell?

Joe: I bet that tastes like a seltzer.

Andi: Bet it tastes gross. Yeah, it says it’s a lager. Interesting. 4.2- Yeah … percent

ABV. Okay.

Okay. So they got strawberry lemonade, pineapple lemonade.

Al: Yeesh.

Andi: Yeah.

Joe: I think for Dallas and Leeloo, I’ll f- I’ll, take one for the team.

Al: Okay.

Joe: I’ll try, I’ll tr- You, you- I’ll try a Naturday and report back.

Al: You tell me how it is.

Joe: “I’m pretty equal opportunity, I’m pretty equal opportunity but prefer whiskey or scotch. Not too many big words, but I’ve never met another Naturday drinker.”

Al: Neither have we.

Joe: Neither have we, brother. “Figured Joe would get a kick out of it.” I did. Love it. man, I’m gonna, I’m gonna have to buy a Naturday now.

I’m definitely gonna make it happen.

Al: You know…

Joe: no.

Al: you’ll buy a six-pack and drink one, and then give the rest away.

Joe: yeah, what’s, isn’t there,

Al: I don’t even know where you’d get it.

Joe: I have no idea either. I, don’t think they sell Natural Light in- … San Diego.

Al: I don’t think so.

Joe: You have to go to Minnesota to have a Natural Light.

Al: Yeah.

Joe: Yeah, or Busch Light.

Natty Light, Busch Light. There’s a ton of that in

Al: Minnesota. Like there, yeah.

Joe: all right.

Al: Okay. Did they overshoot, Rascal?

Joe: No, I don’t think so. I- y- you never o- overshoot a Roth. I think you’re gonna be very happy. He’s 48 years old. Yeah. All of that money’s gonna compound 100% tax-free.

When you take the dollars out, you’re gonna be in a 0% tax bracket probably. You can live… Or, very low bracket. you’re gonna be very happy, the strategy that you’re implementing and that you continue to implement, and your wife can have several more Natties- … n- Natty Days.

Al: Have you ever met anyone that was bummed they had too much Roth?

Joe: Never. I’ve never heard that in my life. “Damn it. I got a million dollars in a Roth.” “I should’ve saved more in a pre-tax.” nope. I don’t think I ever have. Have you?

Al: I have not either.

Joe: Yep.

Al: Yep.

Joe: Yep. We’ve been doing this a couple years.

And, it’s never happened, so, no, I would not be, upset about that at all.

Al: Yeah.

Joe: Okay, cool. Yeah.

Andi: How much belongs in Roth versus traditional, when and how much to convert, how much you have in brokerage, how it all plays out against your tax bracket twenty years down the road… yeah, retirement planning is complicated. A second set of eyes on your plan can make a real difference in how your retirement pans out. The experienced professionals on Joe and Big Al’s team at Pure Financial Advisors will sit down with you, look at your entire financial life, and map out how to optimize your savings, your taxes, and your income for the retirement that you actually want. Like a spitball, a financial assessment is free. But it’s way more comprehensive, and your one on one meeting only includes discussion of cars, drinks, and pets if you want it to. If you don’t know whether you have enough saved, if you’re saving in the right buckets, or whether your Roth balance is right, don’t guess. Book an in-person meeting at one of the Pure offices all around the country or go virtual and meet via Zoom from anywhere. Click the free assessment link in the episode description to get started. And tell ‘em you heard about it on the podcast.

You Said CRTs Must Leave 10% to Charity. Let Me Correct the Record. (DG)

Joe: We got DG. “Hi, love the show, and thanks for making it.”

Al: Okay.

Joe: “On the May 26th episode, you said that CRTs must leave 10% remainder to charity.

This is false.”

Al: I agree with you, it is false.

Joe: “And unfortunately, very few people understand the rule because they mix up part of the 5% rule for CRATs.”

Al: CRATs.

Joe: CRATs. Crap. “The 10% rule is for charitable deductions made at the onset, outset of the trust or whenever additional contributions are made. When a CRT is terminated, the entire remainder goes to charity.

Please correct- … when referring to CRTs in future episodes.”

Andi: I- So what’s the difference between a CRUT and a CRAT?

Joe: it’s charitable remainder annuity trust and a charitable remainder unitrust.

Al: Unitrust, yeah, also known as CRUT.

Joe: So the 10% is what creates the income, the distribution back to the beneficiary.

Al: It- y- it creates the current tax deduction as well as what the distribution’s going to be based upon the rates at that time.

Joe: If you die the next day, 100% of that trust goes to charity.

Al: Yeah, we d-

Joe: So that’s way more than 10%. And m- and I don’t know if there’s ever a case where less, like, 10% or less would go to a charity.

It’s always probably more.

Al: not necessarily. if you live pa- If you

Joe: die exactly at life expectancy maybe?

Al: if you, live past life expectancy, then charity will get less than 10%.

Joe: that’s based on the assumptions you put in the calculator again. Correct.

Al: Yeah, that’s right.

Joe: Yeah. That’s right.

Al: it, I guess the point is-

Joe: If it performs more… Y-

Al: you and I know this rule. We’ve been explaining it for 25 years. So may- maybe we said it quickly and it was misinterpreted. But yes, I agree, that’s a correct statement.

Joe: DG seemed a little spicy there. A

Al: little bit,

Joe: yeah. It’s like, Jesus, wait, will you please get your act together for future episodes?

Yeah. we are working on that, DG.

DAF vs. CRUT: Which Charitable Tool is Better for $1M Company Stock That’s Up 237%? (Fish Sean, Winter Springs, FL)

“Hi, it’s, Fish Sean from Winter Springs, Florida. Long time listener, first time emailer, unless voicemails count, in which case I’m basically a regular. I left two previously.”

Andi: One of which we actually covered in, earlier in this episode.

Joe: All right.

Al: Okay. All right, cool.

Joe: We stopped playing the voicemails because they were too long, right?

Andi: Yeah. Yeah. Yeah, because you got bored.

Joe: Yeah, and I wasn’t listening.

Al: It’s more fun to listen to you read

Joe: anyway. I guarantee that’s… I still can’t believe we have listeners on this show. I drive a 2013 Toyota Tundra.” Yeah, I’m a Ranch Water, my Ranch Water man.

Al: There we go again.

Joe: All right. “I’ve got a question about highly appreciated stock.

DAF versus CRUT. Donor advised fund versus a charitable remainder unitrust. I got about a million dollars- Yeah … in company stock that’s up 237%, and I’m already moving some of it into a donor advised fund for the tax break. From a tax perspective, I’m single, head of house for two more years, and I’m in the 35% tax bracket, and I’m 55 years old and will likely retire in three years.”

All right? “If that matters at all, can you break down the real difference between a charitable remainder trust and a donor-advised fund with a charitable remainder trust? Can I give to charity along the way, or does the charity have to wait until the end? Can the asset be diversified and keep growing based on market returns?

And bottom line, what’s better for the Fishsaun Personal Enterprise versus the charity?”

Andi: Fish Sean

Joe: What’s better for the Fish sa- saun The Fish Sean Personal Enterprise

Andi: He’s calling, himself The Fish Sean.

Joe: He’s The Fish Sean Personal Enterprise?

Al: He- he’s The Fish Sean, but he’s wanting to know what’s better for him.

Joe: Got it. Hi- his personal enterprise or the charity? What’s better, for him or the charity?

Al: that’s another way to say it.

Joe: Got it. what’s better for you is the charitable remainder trust. 100, 100%. What’s better for the charity is the donor advised fund.

Al: Donor advised fund.

Joe: Yeah. Is 100% of the donor advised fund is gonna go to the charity.

depending on how you set up the CRUT is gonna, dependent upon how much you get versus the, the charity, you’re gonna get a bigger tax deduction with the donor advised fund potentially.

b- it, all, if it’s the same dollar figures.

Al: Yeah, e- exactly right. So a donor advised fund, a- as you know, Joe, is, it’s, it’s just, it’s a way to give to charity.

Y- instead of giving directly to charity, you put some money, or better yet, you put appreciated stock into this donor advised fund and there it sits. And when the donor advised fund sells that stock, maybe rebalances, there’s no taxation, right? And so there’s no tax sa- but the money is, it’s not yours anymore, Right. It goes-

Joe: If it’s a direct gift …

Al: it goes to charity. You get to say who gets the money, yeah, for sure, but it’s not your money anymore. So if you’re talking about what’s better for your personal enterprise, it’s not that one. No. But that’s, that, you get a better tax deduction, so that’s good. Charitable remainder unit trust.

So these can be a little complicated. but essentially what it is you have an appreciated asset like stock. You put the stock in the charitable remainder unit trust, right? And then you get a 10% discount. I mean, it, it depends how you set it up, but typically-

Joe: Yep …

Al: you get a 10%, Deduction

charitable deduction, right? A million dollars in, or whatever the number is, $100,000 tax deduction, and then you get a payout for the rest of your life based upon the remainder 90%, right? So if you li- if you lived a life expectancy and the assumptions were perfectly calculated, which never happens, then at the end of your life you would end up with 90% of that asset back and charity would get 10%.

But if you die prematurely, charity gets more. If you live longer, charity may get less. but that’s, it’s als- it’s also known as a split interest gift.

Joe: Yeah, look at you.

Al: I got this down. because you’re giv- you’re, you have a gift- Gift … but you’re splitting it with-

Joe: Between you and the charity

Al: the charity.

Joe: Yeah.

Al: And in the case of a charitable remainder unit trust, you set up the beneficiary at the time you set up the trust. You can change it later. Donor advised fund, it doesn’t matter. You decide whenever you want to.

Joe: Yeah. Yeah, the re- reason why people set up a donor-advised fund is they want a, a larger tax deduction that year.

So instead of giving $10,000 a year, I’m gonna bunch five years of- charitable giving into one to get- $50,000 charitable deduction because I sold my business or I have a big- Yeah … stock sale. Yeah. But that $50,000 that I put in the donor-advised fund is the charity’s.

Al: It’s gone.

Joe: It’s gone. It, well- It’s out of your estate

Al: it’s out of your estate. Yeah.

Joe: Yeah, yeah. The charitable remainder trust is that you’re gonna get a less deduction, but the money is still-

Al: You get an income stream, but-

Joe: Yeah, you get an income stream from that for a long time, so.

Al: and usually the charitable remainder trust, if you’re married, you set it up for the second to pass, right?

So it, either you or your spouse end up with, you know, with that payment stream. So but yeah, I, guess that, that’s a really good way to explain a donor-advised fund, Joe, which, is this, the fact that, if you’re gonna give 10,000 away anyway per year, right? You can get that deduction every year and maybe get no benefit ’cause y- you don’t have enough to itemize.

Yeah, But say you have a year where there’s higher income, right? Higher income, and so you want a deduction, so you take five years, you do 50,000 in that year. Not only do you get a deduction, ’cause you’re greater than the standard deduction, but then you also do it in a year where you want to.

You’re in a higher tax bracket.

Joe: So very smart. And then you still give your 10,000 a year- but it comes from the donor-advised fund.

Al: That’s exactly right. Yeah, exactly right. Yeah, and the… and then also you don’t have to pay tax on that appreciated stock, so-

Joe: Correct, yep …

Al: it’s a good deal.

Outro: Next Week on the YMYW Podcast

Andi: Follow or subscribe to Your Money, Your Wealth wherever you’re listening or watching so that next week’s episode finds you automatically, when Joe and Big Al will spitball for 52 year old Paul and 45 year old Angela in Florida: when is the earliest they can walk away from work at the same time? Can Mike’s mom roll the IRA she inherited at age 84 from his dad into her own IRA? Should Edward in Illinois switch from bonds that are losing value to treasuries? Should 55 year old Blanche Devereaux in California go all-Roth for her last five working years? And can Mr and Mrs Smith on the Carolina coast afford to retire at age 59? We’ll see you next week on episode 593.

Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this podcast and does not represent that the securities or services discussed are suitable for any investor. As rules and regulations change, podcast content may become outdated. Investors are advised not to rely on any information contained in the podcast in the process of making a full and informed investment decision.
_______

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