Show Notes

• 00:00 – Intro: This Week on the YMYW Podcast
• 00:55 – Pre-Tax vs. Late Roth Savings? Pension Lump Sum vs. Lifetime Income in Early Retirement? (Al & Peggy, Illinois)
• 14:14 – Should I Drop Long-Term Care Insurance Now at Age 70? (Eloise, Connecticut)
• 20:41 – College Costs vs Retirement Security for Parents (Tami & Eric, Baton Rouge, LA)
• 35:59 – Roth Conversions or Capital Gains Before Moving to a High Tax State? (Lana & Sterling, Nebraska)
• 48:14 – Next Week on the YMYW Podcast

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Transcription

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

Intro: This Week on the YMYW Podcast

Andi: Should Al and Peggy in Illinois keep hammering pre-tax retirement savings or should they pivot to post-tax Roth for better tax diversification? Which pension option is best for their early retirement plans? Long term care insurance premiums are going up endlessly for Eloise in Connecticut. Is she walking into an insurance industry trap? How do Eric and Tami in Baton Rouge help their kids with college without blowing up their own retirement, and when do student loans make sense? Finally, should Lana and Sterling harvest capital gains or prioritize Roth conversions before moving to a much higher-tax state? The basic question in all of these is the same: how do you protect your future from rising costs and unknowns that are out of your control? We’ll find out what it takes, today on Your Money, Your Wealth podcast number 567. I’m Executive Producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

Pre-Tax vs. Late Roth Savings? Pension Lump Sum vs. Lifetime Income in Early Retirement? (Al & Peggy, Illinois)

Joe: Al and Peggy. Oh, Bundy, I’m guessing?

Al: I think so.

Joe: Yep. Hey, John and Big Al

Al: John.

Andi: Is that a first Joe?

Joe: no.

Al: No. You’ve been called John. You’ve been called Jack.

Joe: Yeah. And Joel.

Al: Oh, Joel. That’s, remember that? I think that was your favorite.

Joe: Joel.

Al: Joel, the guy said, I list. I’ve listened to your show for years and Joel, you were the best.

Joe: Joel, hey John, big Al. This is Al and Peggy in Illinois. I’m 52 and she’s 51. We have two kids, Kelly and Bud. They’re 14 and 12 respectively. That caught your show by chance and willing to butter you guys up by saying I’ve listened to a lot of them. Yeah, a ton of ’em. You don’t even know my effing name.

Andi: Thank you for self-censoring.

Joe: Yeah, I enjoy a little captain in my Pepsi. Zero by day. A little Pepsi Zero in my Captain Morgan by night.

Al: Ooh.

Joe: Ooh, that’s, a little spicy.

Al: That’s legit.

Joe: Oh, all My, my wife Peggy enjoys coffee and tea I drive to and from working a 2021 Honda Accord, Peggy has a 2019 VW Atlas.

No pets currently, but. We have ashes of three different dogs of our past to be buried in my wife’s ashes when she graces me with her exit

Andi: spoken like Al Bundy.

Joe: Oh my God, that is wow. Morbid. So,

Al: but they’re just saving, saving the ashes for when she goes.

Joe: All right.

Al: That’s, she’s quite close to those dogs.

Joe: He is.

Al: Yeah

Joe: he is. That’s, I earn $150,000 a year. Peggy works for Amazon with a negative salary, meaning she shops all day and doesn’t work. Oh God. This guy’s a, I have a $470,000 401(k). She has an old IRA of 135,000. We have a Roth IRA account with a total of approximately $40,000. I currently contribute about $24,000 to the pre-tax 401(k) annually and add about $68,000 into the Roths only debt other than Peggy’s monthly negative income.

$58,000 mortgage at 3.3%. I don’t have a cash balance pension. I do have a cash, balance pension that is around $320,000 when I’m 59 or a monthly benefit of $2,000. I can also delay it and it will increase at a conservative rate each year. I also have a retiree medical savings account through work that will have $110,000 in it when I retire that I can use for reimbursable.

Health and expense insurance premiums, doctor visits, classes, et cetera. I plan on using these to fund health insurance premiums until Medicare kicks in. I wanna retire at 58 or 59. My youngest bud will be 18 at that point, and I have already had the talk with him. He understands that there will be trade school, military, or prison for him.

I wanna retire,

Al: so he’s got the payroll. Got it. Guess in other words.

Joe: Trade school, military, or prison

Al: with? Yep.

Andi: Pick one bud,

Al: I think in that order.

Joe: Okay.

Al: Yep.

Joe: All right. I plan to continue to work part-time at a shoe store making about $36,000 a year, mainly for sanity reasons until 65 and claim Social Security at 67 or 70.

Expenses in retirement will be low pepper. Peppering in golf and bowling. A few concerts in dining out frequently. Best guess, $96,000 a year. No traveling for us. My questions, should I switch my last six to seven years of retirement from 401(k) contributions to the after-tax 401(k) option to increase tax diversity or continue to fund my pre-tax 401(k) or does it even matter with these smaller amounts?

Any ideas on how to move Peggy to go back to work? Should I take the lump sum or roll it into an IRA or take the annualized amount? They do offer the a hundred seventy five fifty annuitized payout. So if I pass away first, God willing, she will still receive payments. I don’t know how all these other people that write in have millions of dollars, but I plan on saying, in the 12% tax bracket with small Roth conversions each year, have you ever guys heard of backdoor Roth conversions?

Nope. Never. I think it is something you should look into in, all seriousness, there are 500 there. There are 5 29 accounts for both kids, about a hundred thousand dollars each of them to pay for education and then roll the rest in the Roth after they graduate. Thanks, Alan. Peggy, follow up, missing information.

Peggy message from eight 30 Social Security 67 will be 68,070, 86,000. Home value 3 75. Am I on track to be able to retire as I hoped in my previous message? Thanks so much. All right.

Al: Okay. A lot of questions here.

Joe: Yeah. Okay.

Al: I, I did some math on the retirement question.

Joe: Oh.

Al: so he is 52. He wants to retire in about six years of 58.

Joe: And he’s got right now six 50.

Al: Yeah, he is got six 50. He’s, I just said if he’s adding another 30,000 a year, 6%, he ends up with about 1.1 million. Okay. Okay. And spending 96,000 a year, you take that 6%, 3% inflation rate. I get 115,000 spend.

So what I’m gonna do, I’m gonna take the 115, I’m gonna subtract out his shoe store income of 36.

Joe: Okay?

Al: I’m gonna subtract out a pension of 2000 a month, 24 grand. I get shortfall of 55,000. I take that into 1.1 million.

Joe: Pretty good.

Al: I end up with a distribution rate of five. It’s a little higher than you might like. However, that’s not including Social Security. You gotta

Joe: bridge the gap

Al: that will kick in.

It’s a matter of bridging the gap. If it were me, Joe, I would probably try to make more like 45,000 instead of 36,000, just because then it’d be a like a 4% distribution rate. You know, maybe 40 to 50, you know, maybe stretch just a little bit more, just in case something happens to investments and expenses or, whatever.

That, that’s what I would probably do. But I think he’s pretty close.

Joe: Yeah. No, I would agree. how much is he’s saving?

Al: I got

Joe: about 24,000 plus 8,000. Yeah. So 35,000.

Al: Yeah. Yeah. I just put 30 grand, but

Joe: Okay.

Al: Yeah.

Joe: So you’re saving, a good amount.

Al: Yep.

Joe: Yeah, it’s, it really depends on what happens over the next.

68 years.

Al: Yeah. That’s the hard part, which we don’t know.

Joe: That’s why this is an ongoing kind of thing. Yeah. If the market does 6%, I think you’re in good shape,

Al: then. We’re pretty good. I still might wanna make a little bit more income, but it’s really close.

Joe: Yeah. I would agree with that. But this is where it gets tricky because it’s tight.

Al: that’s why I’d wanna make a little bit more

Joe: just, but that, that counts on variables too. It’s like how many times do we hear, Hey, I’m gonna retire from my job and I’m gonna get a part-time job, or I’m gonna consult

Al: and it doesn’t work out.

Joe: It’s like

Al: more often than not,

Joe: more often than not, he’s, working a full-time job making $150,000.

Like Yeah, for sanity purposes, I’m gonna go work at a shoe store. I know he is saying that because Al Bundy worked at a shoe store. But you work part-time anywhere for $36,000 a year.

Al: Yeah. Yeah.

Joe: It’s like, oh my God, this is miserable. I’m not even having any fun. Unless you find something that you truly enjoy and don’t worry about what the money is, but you need to count on those dollars.

For your retirement to pay off? Yeah. I think there’s too many variables that are unknown, but I mean, keep saving what you’re saving and making sure that you have the right investment strategy.

and, as you get closer to your retirement, you’re gonna be able to kind of figure out if you’re there or not.

the Roth conversion question is that he makes one 50, he’s at. what are,

Al: he’s just in,

Joe: he’s in the 12,

Al: no, not really.

Joe: Okay. One 50 minus 30. He’s

Al: 31, 20

Joe: plus $24,000 into a pre-tax he’s under. So he’s in the 12%. yeah.

Al: Okay. Good point. I wasn’t thinking that,

Joe: so I would be switching some of that 401(k) into the Roth component.

to get you to the a hundred thousand dollars roughly of taxable income. ’cause that’s the top, that’s the top of the 12% tax bracket.

Al: Yeah, that’s a good point. Yep. That, would be the goal. And so, anything, you know, do, the. Pretax to get down to a hundred. Anything over that due Roth.

Yep. which is kind of hard to calculate. It’s, you’re not gonna get perfect, but do your best.

Joe: It could be $5,000 or something like that.

Al: Yeah, it could be.

Joe: I mean, over the next 5, 6, 7 years, the more dollars that you have in the Roth, the happier you’re gonna be. And if you can get it into the Roth IRA in a 12% rate.

I mean, that is gonna be dirt cheap, so You’re right. does conversions make a lot of sense for you? it depends on if he takes the, pension, Social Security. Yeah, he’s probably gonna stay in the 12. The RMDs are gonna be 40. I don’t know. He might get a little bit into 22

Al: maybe.

Joe: but if you could stay in that 12% tax bracket as you’re looking at your saving strategy today, I think you.

There’s some opportunity there.

Al: Yep.

Joe: what do you think? Does he take the lump sum or does he take the pension?

Al: it’s, Joe, it’s gonna be plan specific and we don’t know enough about the plan.

Joe: Well, 22, did you make $24,000 or 360,000 lump sum?

Al: so that’s a seven point half percent payout.

So that, that sounds pretty good. We don’t know if there’s a cost of living adjustment or not. And so to me, that would be really important to know that, if it’s 7.5% payout. Plus a cost of living adjustment. I would take the payout. I think that’s a good rate.

Joe: Yeah. They usually, it depends on life expectancy.

I mean, if he’s gonna live a long time.

Al: Yeah,

Joe: right. God willing, he said, or no, he wants to die before Peggy, and then Peggy’s gonna,

Al: she’ll get,

Joe: have all the ashes.

Al: 75 or, yeah,

Joe: with, she’s gonna hang out with the dog ashes.

Al: Do you think he wants to be with the dogs too?

Joe: I don’t think so. No. It doesn’t sound like it.

It doesn’t sound like it. do you have any dog ashes?

Al: No.

Joe: What’s what? Like what was you,

you

had more than,

Al: we’ve had two dogs. the first one, Daisy, we gave wait to a friend, so we never got the ashes. Now we got our second one, buddy. He’s, only three, so,

okay.

Al: Ask me in about 10 years.

Joe: Alright, got it.

Al: Or eight years or whatever.

Andi: do you have dog ashes hanging around Joe?

Joe: No, dog. Ashes?

Andi: Okay.

Joe: No dog. Ashes? Yeah. We got Bogey.

Al: Yeah. How old is Bogey?

Joe: I don’t know. No idea. Two.

Andi: What is Bogey?

Joe: Bogey is a dog.

Andi: What kind? Do you have a cava poo? Do you have a bichon frise? What is your dog?

Joe: I don’t know.

Al: How would he?

Joe: I have no idea.

Al: I have a cava poo.

Joe: It’s a smaller dog. It’s somewhat cute. Cute.

Al: Yeah, I’ve seen it. It’s, small.

Joe: Yeah. It good? Good question. They’re all really good questions, Andi. Really good questions.

Andi: They’re the questions you expect to have answers from your audience.

Joe: I don’t know what type of dog it is.

Al: You may, may, you may not be the kind of person that saves the dog after.

Joe: I know. I know. yeah. It’s a nice dog. It just kind of,

Al: yeah.

Joe: It barks a little bit too much for me.

Al: Yeah. I hear you.

Joe: You know, garbage man.

Al: Yeah. We get some of that too.

Joe: Yeah. It’s like

Andi: that’s how they protect you.

Joe: Yes. I was, I feel very protected.

Al: I was doing our meeting today, dog sitting right there. I had to put on mute a couple times.

Joe: so anything else this guy wants to know besides my name isn’t John?

Al: No, I think that was it.

Joe: All right. Very good.

Should I Drop Long-Term Care Insurance Now at Age 70? (Eloise, Connecticut)

Joe: Joe, big Al been listening to and enjoying your podcast for four years now.

Al: Wow.

Joe: There you go. He’s still listening after four years.

Al: That’s amazing.

Joe: Usually what? I don’t know what the cutoff is about.

About a year and a half bullet,

Al: as you know. I was just in Hawaii.

Joe: Yes.

Al: And I was at Costco.

Joe: Yes.

Al: And a guy came up to me. Are you Big Al?

Joe: No sir.

Al: And he lives in Hawaii. And he’s, he’s been watching our podcast on YouTube since 20 17

Joe: 20 s. Wow. We’ve been on, we’ve been on YouTube for 20, since 2017,

Al: I guess.

Joe: Oh man.

Al: I mean, plus or minus a year. But that was impressive. He’s a young guy.

Joe: You were at, where were you at Home Depot?

Al: Costco. Costco. Costco.

Joe: Oh. What were you buying at Costco?

Al: I don’t know,

Joe: stuff.

Al: Wine, you know, the,

Joe: yes.

Al: The necessities. Yeah.

Joe: All right. Joe and Big Al I’ve been listening to and enjoying your podcast for four years and, so I only have a short time left before I hit the five year wall and have to go. All right. Stay with us. Yeah, stay with us.

Al: try to hit the five year mark.

Joe: So here it goes. I have a very specific spitball question for you. My favorite. Is my morning. Mocha pot. Mocha pot.

Al: Mocha pot.

Joe: What the hell is mocha pot?

Andi: Mocha pot is a stove top espresso maker.

Joe: Okay. Okay.

Al: that’s Hawaiian. That’s pidgin English. You’d fit right in.

Joe: which I cannot live without. Okay. I drive a 2020 Hyundai, Kona, EV AKA, my little rocket ship. All right. I live in, Connecticut, in like most people in Connecticut. I’m originally from New York. I’m 70, divorced and retired since 2017. I have income of $57,000 a year in Social Security, which I just started. Alright, cool.

Al: Yeah.

Joe: And $20,000 a year in pensions and annuities. Okay. my total annual spending runs between 70 and $80,000 a year. I have $1.2 million in an IRA $600,000 in my Roth. I own my home, which is worth 700,000. My question is regarding long-term care insurance. I’ve had a policy for 13 years. The premiums are increasingly, endlessly. That’s, that was a tough couple words for me.

Al: That is tough. Increasing, it’s increasing endlessly, even I can’t say it.

Joe: Increasing endlessly. they started at $2,700 and now $5,800 a year. They will be increasing another 15% for each of the next three years. When I got the policy, I didn’t have enough saved that I was comfortable with self-insurance.

I think. I, I think that has fortunately changed, but I’m not sure. My question for the two of you is, it good for me to drop the policy? I’ll get my paid premiums as a frozen benefit amount if I drop it and self-insure, I can target $500,000 from an IRA account if I do, but I also have, my house, which I could sell if needed to move into assisted care in the future.

Thank you.

Al: Damn

Joe: Eloise at the Plaza.

Al: Plaza. Okay.

Joe: Eloise. Eloise? No. My thought is do not give up the long-term care insurance. I would continue to have that and pay for it for the next 15 years,

Al: even, though it’s going up.

Joe: Even though it’s going up.

Al: Yeah,

Joe: you’re gonna get it back in spades. 80% of us are gonna need some sort of long-term care type stay.

even if it’s for a small, you know, injury Of any kind. it is so expensive. It will, but she doesn’t say, Eloise doesn’t say, If there is errors, if there’s, you know, if, you wanna spend your estate to zero, yeah, you could probably self-insure, but. to preserve your estate. I think it’s still gonna be pennies on the dollar for how many premiums that you paid versus the, benefit that, that Eloise will receive.

Al: Yeah. Okay. I think I, I agree. I, it pains me to say that because I’m not a huge fan of long-term care insurance and I don’t have it myself. and I do think that, particularly when you’re single and you have a home, I think that’s a great fallback. I think that would probably work for you for as, as long as you would need it.

So, I’m, I might not be quite as strong with you. I would say it’s a little bit more of a personal choice, but I’m leaning towards keeping it, ’cause you’ve already made these premium payments and it’s probably gonna help, your estate. Again, I, you know, we don’t know if you have kids or not. If you don’t have kids, it might be, it might sway me the other way where maybe you, get rid of it, you enjoy the dollars you spend your estate down.

But if you do have kids, I think I’d rather have you preserve that estate for them.

Joe: Single without question. You already have it. You already bought it, you’re already insured.

Al: Right.

Joe: it

was

Al: hard to get right at eight 70.

Joe: Yeah. Yeah. Forget about it.

Al: Yeah.

Joe: Yeah, age 70. You, have the insurance in place. It’s gonna continue to endlessly go up, increasingly ever. so yeah, I think you did a really wise choice by getting the insurance, you know, if she tried to buy that today. At 70 to get underwritten, try 10,000.

Al: It’d be a lot wouldn’t it?

Joe: Or, yeah. Yeah. It’d be double of what, the premiums is.

Al: probably. So.

Joe: So I think you just put things into perspective. even though Yeah. You get a frozen benefit amount. If you drop it, they want you to drop it.

Al: Yeah.

Joe: That’s what they want you to do. Because they know it’s gonna pay out and the insurance company’s gonna lose. this is the time you can get back at the mean, bad insurance companies.

Al: you heard it from Joe.

Joe: Yeah, John.

Al: John.

Joe: Call me. Call me John. When I spikes off like that,

Al: I still like Joel better.

Joe: Yeah, just call me Billy.

Andi: Okay, if you’re watching us right now on YouTube or Spotify, did you notice the document Big Al referenced when he was running those numbers for Al and Peggy? If you’re listening in a podcast app, trust me, Joe and Big Al use this document ALL the time. It’s the newly available 2026 Key Financial Data Guide. And along with their email list and their HP12C calculators, that single two-sided sheet is one of the core tools that Joe and Big Al use each week to spitball for you in real time. If you’re new to YMYW, our annual Key Financial Data Guide is one of the free financial resources you’ll want to download ASAP. It shows you at a glance the 2026 tax brackets and capital gains tax rates, retirement plan contribution limits, how Social Security is taxed, Medicare premium thresholds, and all the credits, deductions, exemptions, distributions, and exclusions that affect your financial decisions. One listener told us that this guide alone is worth the price of admission to Your Money, Your Wealth, so – it’s priceless! Click or tap the links in the episode description to download your own copy of the 2026 Key Financial Data Guide.

College Costs vs Retirement Security for Parents (Tami & Eric, Baton Rouge, LA)

Joe: We got Tami and Eric in Baton Rouge. Dear Joe. Big Alan, Andi, thank you for taking our question. Oh, very polite.

Al: Yeah. come out very professional here. You know, Southern hospitality.

Joe: Yes. my husband found your podcast in mid 2020.

I think he listens to every episode since then. Usually listens while jogging around the neighborhood, unless we have a long car trip coming up. Yeah. So she’s riding on behalf of her husband

Al: I think. I think so, yeah.

Joe: Very nice sweet lady here. Yep. all right, so let’s see where did I, in which case we’ll have save a few episodes and we’ll listen to them together on those long car trips.

Al: They look together.

Joe: Okay.

Al: It’s so romantic.

Joe: We just love your show.

Al: Is that what you and Rose do on a

Joe: Yeah.

Al: Long car trip?

Joe: No.

Al: Our shift?

Joe: No. Okay. it’s very entertaining and your discussion and spitballs have been very huge help to us over the last five years. This is our first time writing in. My husband and I are 50 years old and his favorite drink is a cold Virgil’s cream soda.

Andi: Yes.

Joe: There’s no booze in that.

Andi: no, it’s literally just cream soda.

Joe: When’s the last time you had a cream soda?

Al: I was,

Joe: seven years old,

Al: probably, I’m gonna say under 10.

Joe: did you go to the soda shop down the street, your pork Chevy?

Al: I sort of remember someone handing me a can, a cream soda. I was probably 10.

I opened it up, took a sip. I said, no, thank you.

Andi: Wow. And the last  time I had one was in May right before I left the country. I can’t get it here, but yeah, it’s totally one of my favorites.

Al: I would say I, I didn’t really care for it. You ever had it?

Joe: long.

Andi: If it doesn’t have booze in it, try. Joe hasn’t tried it

Joe: long, long, time ago.

Just, yeah. anyway. Okay. But I thought your favorite drink was root beer, Andi.

Andi: It is. It is. But Virgil’s cream soda is a very close second.

Joe: Got it.

Al: Okay.

Joe: I think Andi is also a big fan. Oh, look at that. Yeah. And my drink of choice is coffee.

Al: Okay.

Joe: All right. We have an American cattle dog, type mutt, from a shelter and a black cat.

We are not huge fans of either one, honestly, but our kids love them,

Al: so they keep them.

Joe: I drive a 2024, Volkswagen Tahoes

Andi: Taos.

Joe: And my husband drives a 2023 Subaru Outback. Okay. Okay. My husband has a relatively stable job that he loves working for the federal government, and I work at a local university.

My husband’s annual income is about $200,000 a year. Mine’s 50. My husband would love to work another eight to 10 years and then maybe work part-time for another 10 years in a more flexible position that will cover our monthly expenses until hanging it up for good in his mid to late sixties. I’ll work as long as necessary to help us meet our goals, but I’d love to retire in my early sixties.

Our current savings, we have about $1.8 million for retirement, $1.6 million in our traditional 401(k) in a TSP of 200,000 in Roth, 401(k)s, and the Roth portion of my husband’s TSP. Okay. We know we need to get those Roth balances up and do some conversions eventually. We also have about $7,000 in a small brokerage account.

$300,000 of equity in our house. if we stick to our plan, and assuming we don’t start to collect our fixed income until age 62, my husband will have a federal pension of about $55,000 a year in our mid sixties. His Social Security will add another $45,000 a year in mind would add about 12,000.

Al: Wow,

Joe: our expenses, we think we’ll spend about $120,000 a year, not including the college expenses, but we’d like to spend a little bit more in retirement if we can.

Our kids are the source of both of our questions. We have a college sophomore and a 10th grader. Like most parents, we save for college, but we aren’t able to save enough. We have about $90,000 left in our college savings accounts, but we have six or seven more years of college expenses ahead of us. First, what are your thoughts on student loans in the circumstances under which they make sense?

My son doesn’t have any student debt yet. but for a variety of reason, he just transferred to a school that is significantly more expensive than a school. He spent the first three semesters he could borrow about $7,000 a semester at about 6% interest rate. We think it makes sense for him to take out some modest student loans, which one will give him some ownership of the investment, and two, allows us to keep contributing at least 5% on my husband’s salary to the retirement, which will get us the full 5% match for his employer as it stands between spending down our existing college savings and using all my take home pay.

We’re already covering almost all of our son’s college expenses. We can always help ’em repay the loans down the road if we want. I know a lot of financial advisors would recommend against taking loans unless absolutely necessary, but this approach seems right to us. What do you think? Okay, second question.

When we started saving for college years ago. We set up two separate accounts, one for each kid. We could reduce the strain on our household budget over the next few years if we just start using our younger college savings account for our son who’s already in college. We feel a little uneasy about that.

By the time our younger child gets to college, she may pick a school that costs a lot less than the school. Our older child just transferred to. Or she may earn more financial aid than he did, and if not, we can probably find ways to increase our income or work a little longer than we plan so we can provide her the same support for the both of them.

Should we continue to save the money in the younger child’s account, even though we could really use it now from a financial perspective, should we treat the two accounts as interchangeable? Thank you very sincerely for taking our question. For the great information and the valuable service you provide to your audience, Eric and Tami in Baton Rouge, Louisiana.

All right, interesting question. We got student loans, so the son said. I’m out.

Al: Yeah. I don’t like this college.

Joe: I wanna go to something a little bit more ritzy.

Al: Yeah. It has a football team.

Joe: okay. So it’s significantly more expensive. They got $90,000.

Al: Yep.

Joe: Left in the college savings. They got two accounts.

Is that 90,000 for the, sophomore in college or is that the total amount that they have for both kids? I didn’t.

Al: I’m thinking it reads like that’s the total for both

Joe: Yeah. Left in our college savings accounts.

Al: Yeah.

Joe: I say the kid takes a loan.

Al: Okay.

Joe: I took loans.

Al: Yeah.

Joe: I Any ownership?

Al: Yeah. Yeah. I a hundred percent agree. I, remember when my kids went to college?

Joe: Yeah, I remember that. You were spicy as all hell.

Al: I. I didn’t have a big wallet back then. I took loans on their behalf too.

Joe: Yeah. expensive schools.

Al: younger son.

Joe: Yeah.

Al: My older son went to San Diego State. It wasn’t too bad.

Lived at home mostly. younger son went to Boulder.

Joe: Yeah.

Al: oldest son. it was during the worst of the great recession. And in case you don’t know, I had a lot of real estate and it was a little spicy over time for me so that I could cash flow ’cause it wasn’t too expensive. But, My younger son went to Boulder, was quite a bit more expensive.

We did get some loans there and, we decided to, to pay him off, but ourselves. But, I, think there’s some, the validity in having your son or daughter, Pam, just to give them ownership and what they’re actually borrowing the money for.

Joe: Yeah. I, don’t know if my folks paid for my schooling, I probably wouldn’t have done nearly as well as I did.

Al: Because you, had ownership.

Joe: Yeah,

Al: I like that.

Joe: Yeah.

Al: Yeah. I,

Joe: I, it’s like, you gotta pay this back. I’m taking money out. and it’s like, okay, you gotta

Al: Yeah.

Joe: Buckle down. if it was given to you treat it differently. Yeah. I mean, for, me anyway.

Al: Yeah. I, a hundred percent agree. I think that’s very valid.

Joe: and you know, you just kinda watch it. $7,000 a semester. You know, it’s not,

Al: yeah. 14,000 a year. It’s not that bad that the Yeah, my, yeah. My only caveat is be careful not to borrow too much. Like, like you hear stories about people who go to med school.

Joe: Yeah. There’s like $400,000. Yeah. The dentist,

Al: right.

You know, two of them, husband and wife, they get married and they got 800,000 thousand dollars, a million dollars. There’s some debt that’s, a bit extreme.

Joe: yep, yep.

Al: I, would be careful in that case. But No, this is fine.

Joe: You can always, You can always take a loan out for college, but you can’t take a loan out for your retirement.

Al: That’s good point.

Joe: Yeah. So you definitely wanna make sure that you’re still on track for your retirement. you’re going to retire in your mid sixties, so you still have time. Your husband loves your, his job, you love your job. You guys make great income combined $250,000. You’re off to a really good start with, or not to a good start, but you have a really good nest egg.

Al: Yeah.

Joe: currently, I mean, what

Al: Yeah, about. About 1.8 million.

Joe: Yeah. $1.8 million in their, they’re gonna have $112,000 fixed income.

Al: Yeah.

Joe: They wanna spend 120,000.

Al: Yeah. So that, that

Joe: looks pretty good. You’re sitting pretty good right now. That 2 million, let’s say, let’s just round to $2 million. Make the, that simple. They’re 50 years old.

Al: Yeah.

Joe: I mean, they got $2 million at 50.

Al: Yeah.

Joe: So in 10 years from now when they turn 60, that could easily be close to 4 million bucks.

Al: It could be four is Right.

Joe: and then they wanna work until mid sixties, so that could be around $5 million sitting in retirement accounts.

Al: Good.

Joe: By the time they’re 65, 68 years old.

Al: Right.

Joe: four times five is 200,000. So $200,000 is what they could live off of. Plus another 120, that’s 320,000. You take the present value of 320,000 given a discount rate. I mean, they’re sitting really good at the, don’t save another diamond of the retirement account.

Al: So in other words, they could spend more than 120,000 a year.

Joe: Yeah. Yeah. In retirement. Or if they wanna spend $120,000 a year in today’s, prefer more.

Al: Prefer more, yeah.

Joe: now,

Al: and that’s of course, the 120,000 is including full Social Security. That won’t happen until age 67. But still No, I agree.

I think they’re in great.

Joe: Yeah. Hopefully that helps you, Tami and Erin.

Al: No, we got a second question.

Joe: The second question is, should they,

Al: should they continue to save money in our younger child’s account, even though we could really use it now from a financial perspective, should we treat the two accounts as interchangeable?

Joe: Don’t. I would not stop saving into that account. you don’t know. She’s assuming that the daughter’s going to go to a cheaper school.

Al: Yeah.

Joe: she might end up

Al: Yeah.

Joe: Becoming a doctor that’s gonna have eight years of school. Yeah. And you need twice as much as you thought.

Al: Yeah, true. So I would say this, I would say, I would also continue saving in the daughter’s account, but I might reduce it.

In favor of putting a little bit more for the sons. And then if by the time your daughter gets to college age and it’s a more expensive college, yeah, just work two or three more extra years. That, that, yeah, that would solve that

Joe: for sure. so I, yeah. there, there’s, she just needs to map this out a little bit more.

I think she’s doing a really good job of the planning that they’re doing. They’re saving, they’re saving great. They’re, they, understand their cash flow. but yeah, I get where she’s coming from, but you can’t assume that. It’s gonna be cheaper because as soon as you do that, it’s probably gonna be more expensive.

Al: True.

Joe: You gotta plan a little bit more conservatively there.

Al: Yeah. Yep.

Joe: but yeah, they wanna tone down a little bit of the savings, but I would hate for them to miss the match. So if they’re saving up to the match, continue to do that. continue to save and to. But you can change the beneficiary, so it doesn’t really matter.

Al: Yeah.

Joe: You’re gonna pay for her college regardless. Can you use them interchangeably? The answer is yes, because she’s a, so he’s a sophomore and, how old is she? She’s a 10th grader.

Al: 10th grader. Yep.

Joe: so she’s got three more years.

Al: Yeah. Close.

Joe: Yeah. And so he’s got a couple more years. Yep. yeah, if you wanna use them, because if there’s money left over in his, you just change the beneficiary to her at that point. It sound and if he takes out loans, yeah, you can definitely do that. You’re gonna come out of pocket regardless for hers.

Al: Right.

Joe: because I think you want to be fair to say, Hey, we’re, this is the amount of money that we saved for Billy and this is how much we’ll save for Sarah. I just made up those two names. great name. I wonder if I was pretty close.

Al: Yeah, you’re probably right on.

Joe: Yeah. but yeah. Yeah. I’m gonna have this problem. And like,

Al: what year?

Joe: I feel like 16 years from now, and I’m like the same age as Tami and Eric. I’ll be running these numbers when I’m dating.

Al: You’ll have to touch base with them then.

Joe: Yeah.

Al: See

Joe: what they did to see what happened. Yeah. all right, good luck. Good question. Good job.

Andi: If retirement vs college savings is freaking you out, or if you’re stressing about every tax move you make, like Lana and Sterling coming up, you’re not the only one feeling retirement panic. In fact, over 60% of working Americans fear retirement more than death! This week on YMYW TV, Joe and Big Al outline seven practical strategies for your income, spending, savings, and healthcare, to put you on the path to an anxiety-free retirement. Click or tap the links in the episode description to watch Retirement Panic Button: 7 Ways to Avoid Hitting It, and to calculate your free, self-guided Financial Blueprint. Enter what you have now and where you want to be in the future into the tool. It’ll output how much you need, and steps to take, to reach your retirement goals. But don’t stop there. Next, schedule a financial assessment with one of the experienced professionals on Joe and Big Al’s team at Pure Financial Advisors. They’ll review your Blueprint results with you and help you tailor a plan to reach your unique retirement needs. Watch YMYW TV, calculate your Financial Blueprint, and meet with our team: click or tap the links in the episode description to begin taking charge of your financial future. It’s all free, courtesy of Your Money, Your Wealth and Pure Financial Advisors.

Roth Conversions or Capital Gains Before Moving to a High-Tax State? (Lana & Sterling, Nebraska)

Joe: We got, Lana and Sterling from New England.

Al: Yeah.

Andi: That’s actually a reference to the TV show, the animated series Archer. Did you ever watch that?

Joe: Oh, that’s the, yeah, I think I’ve seen a commercial on it. The guy was a private eye or James Bond or something.

Andi: I’ll take your word for it. This is what they look like.

Joe: Yeah, it’s kind of like raunchy.

Andi: Oh, okay.

Al: Oh really?

Joe: Yeah. You’ve never seen it, Andi?

Andi: No, I haven’t.

Joe: there you go. It’s something for you to do tonight.

Andi: Apparently so.

Joe: Hello, Andi. Joe, big Al, my husband and I absolutely love your show.

Al: Wow, perfect.

Joe: Your spit balls and insights have dramatically improved our finances and we’re incredibly grateful. We each drive older. High mileage Toyotas, my husband isn’t a big drinker, but enjoys coffee with Bailey’s. I love martinis and Cabernet. Together, my husband and I are both 57. We’ll retire in the next three years. We have two adult children who have launched and don’t need our support. We currently pay state taxes at 5%. In three years, we’ll retire to a state with taxes at 9.9 plus two and a half percent additional taxes for the area we want to live. Ooh.

Al: Okay.

Joe: All right. My main question is whether it makes sense to sell our highly appreciated asset in the brokerage account now while we’re still in the lower tax state, or have our children inherit them with the StepUp basis years from now, if selling those assets now in the lower tax state more valuable than the Roth conversions, I would like to make before we move to the higher tax state.

Andi: Just before you go any further, this is two pages long.

Joe: Okey doke. Alright, take a deep breath. Okay. I should add that my current estate does not tax capital gains while my retirement state taxes. Capital gains as earned income. Okay. I should add that my, where the hell do they live? New England, Nebraska? No. Or Nebraska.

Al: Nebraska. Yeah, but they’re moving somewhere where it’s 9.9 plus 2.5%.

Joe: It is two point a 5% local 9.9 state

Al: maybe. It sounds like an East coast state.

Joe: Maybe I should add that the current state that they live in all Does not tax capital gains. All right. So there’s no state tax on cap gains.

Al: Okay.

Joe: While my retirement state tax capital gains has earned income, that doesn’t make any sense. My retirement state taxes.

Al: Yeah. like California does have

Andi: The state that he’s going to retire to.

Al: Yeah. California does not have,

Joe: oh, while my retirement state,

Al: yeah.

Joe: Taxes.

Andi: Taxes, capital gains. Yes.

Joe: Earn income.

Al: Yeah. in other words, same. It’s still capital gains, but same tax.

Joe: we would have to pay NIT tax on anything we sold within our brokerage account. We have, money market funds in our brokerage account to cover the taxes. Because of the difference in the state tax rates and the fact we both have pensions, I want to do as many Roth conversions as I can over the next three years.

We are close to the top of the 24% tax bracket. We wanna avoid converting the 32% tax bracket. The income from my side job is variable, but I’m guessing that over the next three years we’ll be about 60, $60,000 a year, shy of the 32% bracket. I’m not sure whether to use the space for Roth conversions or federal capital gains tax.

Here is the details. At retirement, we will conservatively have a $3 million net worth. After the sale of our home, our plan is to rent an apartment for the rest of our lives. I’ve never heard that. That’s a first.

Al: Yeah, that’s, less common.

Joe: I like it. All right. They got tax deferred retirement accounts of six point or $670,000. Roth accounts 1.4. Brokerage accounts 500 grand. HSA 75 pension, starting in three years, $65,000 with a call of a hundred percent survivor benefits, Social Security husband 62 24, me at 70 53,000. Salary today is 30 $350,000 together until age 60. $120,000 a year from age 60 to 70. Defy contributions until 60 is $150,000. Annual to Roth 403(b) 2 457 solo, 401(k) and Backdoor Roth IRAs. Planned retirement spending with taxes is $180,000 plus vacations of $40,000 a year for the first 10 years. In all accounts, we are invested aggressively for our ages with an 80 20 portfolio. We’re conscious of asset location and have most of our bonds in similar investments in our tax deferred accounts. We have slightly weighted small cap US value and emerging mar markets and our Roth accounts. But most of our Roth money is in the total us, in total international ETFs. Within the brokerage account, we have $174,000 in mutual funds with $85,000 in unrealized long-term capital gains. We have $66,000 in stocks and $46,000 in unrealized long-term capital gains there. The mutual funds are low cost Vanguard funds and the stocks are blue chips. We should, we would like our brokerage account to be simpler with most BTI in a small amount of cash. There’s another $150,000 in inherit mutual fund. We will hold. Because the capital gains are enormous, we will leave that to our kids for the benefit of their step uping basis. We would appreciate a general spitball on our retirement. We are not looking for advice, but would love to hear the 2 cents about any possible tweaks or changes. We are fairly confident we have enough money, but we wanna make sure we’d be okay if my side job doesn’t make as much money. New state. Most importantly, I would like to know whether I should prioritize Roth conversions or selling brokerage assets. Now that we have a more streamlined brokerage account to use early in retirement, we’re not sure if it’s a disadvantage to have mutual funds and stocks in our brokerage account that we don’t want to sell because of the higher state taxes in retirement. Would it be wise to leave the brokerage account alone? Let the kids inherit the majority of it. Again, thank you so much for sharing your wisdom. Alright. Let’s see here.

Al: they’re gonna have, let’s, she thinks at least 3 million, I think. Maybe even a little more, but we’ll go with 3 million, when they retire. And they’re, they wanna spend 220,000, but they’ve got a lot of fixed income. Although some is Social Security, which won’t kick in yet. The pension is. Let’s see, right off the bat, what is the pension?

Joe: Pension starts in three years at $65,000 a year.

Al: 6 65 grand, right?

Okay, so that’s about one, one 60,

Joe: they got $120,000 a year coming in from age 60 to 70. So the $65,000 is the pension and, her sign hustle.

Al: Yeah. Yeah. Okay.

Joe: Is the one 20.

Al: Yeah. So that’s fine. and then when the Social Security kicks in, they got 142,000, and two, spending two 20 for 10 year, then go down to 180. So I think the numbers probably work.

Joe: They have $428,000 in a brokerage account.

What the, capital gains is what do you think? 200 grand?

Al: Yeah. If that. I would,

Joe: you can slowly, I think they’re overthinking the state tax and the non-state tax.

Al: they are. I, so f first of all, I would say I, I wouldn’t do Roth conversions in the 32% bracket. When you’re gonna be in the 24% when you retire, you

Joe: only have a hundred, $1.4 million in already,

Al: I mean, yeah, I, the state tax, that’s a, that what, that’s a difference of. Let’s call it five to 12 to 13, right? Maybe.

Joe: Some percent, maybe seven, eight, 8%.

Al: Yeah, we’ll say 8%. we’ll be generous that way, but yet the current tax rate, they’re at 32%, but it’s gonna be 24. That’s also 8%. So I, don’t see why you’d wanna do that early.

I probably would start doing capital gains if your current state it’s tax free. I mean, why not? And then regardless of income level, it’s still gonna be taxed at probably 20%. Yeah. Plus the net investment income tax. So 24. But you know, that’s a good deal.

Joe: I, at age 57, am I worried about the kids inheriting mean, like step up in bases.

Al: I, I think you’re gonna need them. I think that’s a question when you’re in your eighties and then if you still have them.

Joe: Yeah.

Al: I think right now the, way these numbers,

Joe: they’re gonna need every dollar that they have to get the income that they need. With the least amount of tax.

Al: I think so.

I think you’re gonna, I think they’re gonna need it all, or, a lot of it. So I, wouldn’t even be thinking about step up for the kids at this point.

Joe: Oh, I don’t wanna s oh, they’re, what’s. They’re way too concerned about taxes that are, that they shouldn’t be concerned about, you know?

Al: Yeah.

Joe: Because they are very well diversified from a tax perspective.

Al: They really are. Yeah.

Joe: We don’t see a lot of money of 1.5 in a Roth.

You know? Most people have very little money in a Roth, and so they’re trying to get as much money out of their retirement accounts to get it into a Roth because they have millions in a, in, a standard retirement account.

Yep. Still a good chunk of money there, 672,000, but you could still utilize, you know, low brackets to get that money out. You know, 12 and 22% is still relatively cheap.

Al: Right. I would not worry about the capital gains tax.

Joe: Yeah, you could tax gain harvest if you worry about the state tax there.

You could sell the investment and buy it right back, pay the tax and buy it back, and then you, that’s a way to, you know, to step up your basis there.

Al: I’m okay with that because, there’s no state tax to pay on that. and then plus the federal tax capital gains re regardless of your income level, they’re taxed to capital gain rates.

Joe: Right.

Al: Which the worst case is 24%.

Joe: I, and, then you’re kind of worrying about things, Hey, we wanna clean this up and just go mostly BTI. It’s like, okay. I mean, don’t pay tax just to get into, one index or ETF,

Al: right?

Joe: it sounds like you’re in low cost. Vanguard funds, I think you’re doing asset location.

You have the right asset classes. In the right accounts. they’re tweaking too much.

Al: I, I would agree with that. I think that, you know, when you think about setting up a perfect, retirement for tax purposes, you know, then you wanna have as much money in a Roth as you can.

Joe: Check, check.

Al: You wanna have money in taxable because the capital gains tax is lower. Check. So you’re already in a great spot. I think if, you want to tweak this anymore, you could tax gain harvest. I don’t think I, I do Roth conversions right now. ’cause you’re in too high of a bracket.

Joe: Yep.

Al: Relative to your retirement bracket, regardless of the state.

Joe: Look, if they have $65,000 in pensions

Al: Yeah.

Joe: They’re gonna have healthy Social Security. Their fixed income is gonna be strong.

Al: Yeah.

Joe: I mean, yeah, you’re gonna have to pay a little bit of tax, but it’s, I think they’re going to pay a lot less tax than most.

Al: Yeah.

Joe: With the same liquid assets because of how much money they already have in the Roth.

IRA

Al: A hundred percent agree. Yep.

Joe: So they’ve done a great job. They’re diversified. Don’t overthink it. Don’t over tweak it. Don’t get cute, you know? It’s if the funds were way outta whack, if they were doing something, but it’s like, you can only fine tune this so much. It’s, so yeah.

Joe: Anyway,

Al: they’re, in a good spot.

Joe: That’s my 2 cents.

Al: Okay.

Outro: Next Week on the YMYW Podcast

Andi: Next week on YMYW, Joe and Big Al spitball on how a pair of 28 year old financial nerds in Omaha can set themselves up for a great retirement in 35 years. We’ll also talk after-tax 401(k) catch ups vs brokerage investing for John Q Taxpayer, Roth conversions after a forced retirement for Janine, the affordability of 50 year mortgages for Semper Fidelis, whether Pete should pay off his 401(k) loan or his mortgage, and the nuances of managing taxes on inheritances for Jonas Grumby and for Dolly. Make sure you’re following us in your favorite podcast app so you don’t miss a thing. Watch us make YMYW every week on Spotify or subscribe to our YouTube channel where you can also join me in the conversation in the comments. Every time you like, share, or comment it tells the almighty algorithms that this show is worth your time so they’ll show it to more people. And we appreciate it when you do.

So to recap today’s episode, protecting your future from the unknowns isn’t about predicting that future, it’s about building a plan with enough flexibility to handle whatever that future throws at you. Let Joe and Big Al’s team of experienced professionals at Pure Financial Advisors help you build that kind of flexible plan for yourself. Schedule a Financial Assessment at the link in the episode description. Book your meeting at one of our offices in and around Seattle, Chicago, Nashville, Denver, Salt Lake City, Phoenix, Sacramento, or Southern California, or online via Zoom. It’s a free, no-strings-attached look at your entire financial picture. Just click or tap the links in the episode description, or call 888-994-6257 to get started.

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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