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Joe Anderson
ABOUT Joseph

As CEO and President, Joe Anderson has created a unique, ambitious business model utilizing advanced service, training, sales, and marketing strategies to grow Pure Financial Advisors into the trustworthy, client-focused company it is today. Pure Financial, a Registered Investment Advisor (RIA), was ranked 153 out of 715 RIA’s nationwide by total assets under management by [...]

Alan Clopine
ABOUT Alan

Alan Clopine is the CFO & Chairman of the Board of Pure Financial Advisors. He has been an executive leader of the Company for over a decade. As CFO he is responsible for the financial operations of the company as well as investor relations. Alan joined the firm in 2008, about one year after it [...]

Published On
December 28, 2021

Joe and Big Al spitball, what else, Roth conversions: a conversion and pension lump sum strategy, converting vs. harvesting 0% long-term capital gains, and how to avoid double-taxation on a Roth conversion. Plus, how to allocate assets when preparing to use the Rule of 55? Do retirees regret not spending more in retirement? Will paying a thrift savings plan loan with real estate income avoid income tax? And will assets be better protected against litigation when transferred from a 401(k) to a TSP or an IRA?

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Show Notes

  • (01:02) How Does My Roth Conversion and Lump Sum Pension Strategy Look? (Mike, PA)
  • (12:46) Rule of 55: How to Allocate Assets in Our Retirement Investment Portfolio? (Lisa, Brookfield, WI)
  • (16:21) Harvest Zero Percent Long-Term Capital Gains or Do Roth IRA Conversions? (Jim, Santa Cruz)
  • (21:08) Withdrawal Strategies: Do Retirees Regret Not Spending More in Retirement? (Jim, Portland, ME)
  • (27:28) Can I Avoid Double Taxation On My Roth Conversion? (Jeff, Lincoln, NE)
  • (31:13) Will Paying Off a TSP Loan with Real Estate Income Avoid Income Tax? (Sam, Orange County, CA)
  • (35:00) Transfer 401(k) to TSP or IRA for Asset Protection in California? (Greg, No. Cal)

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Transcription

Welcome to Your Money, Your Wealth® podcast #358, the final YMYW episode of 2021. Today Joe and Big Al spitball on, what else, Roth conversions: we’ve got a conversion and pension lump sum strategy, converting vs. harvesting zero percent long term capital gains, and how to avoid double taxation on a Roth conversion. Plus, how should you allocate assets in preparation for using the Rule of 55? Do retirees regret not spending more in retirement? Will paying off a thrift savings plan loan with real estate income avoid income tax? And will assets be better protected against litigation if they’re transferred from a 401(k) to a TSP or an IRA? Get your money questions in now via email or voice message for YMYW in 2022: visit YourMoneyYourWealth.com and click as Joe and Al On Air. I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

How Does My Roth Conversion and Lump Sum Pension Strategy Look? (Mike, PA)

“My tax advisor turned me on to your pod cast last week and have been binging since. Picked up a number of things I didn’t considered in my high level planning and have worked on getting a layer deeper … especially around Roth IRA conversions. Important stuff first; I enjoy a Moscow Mule or Jack and Coke occasionally, but Red Wine is my go-to drink. I drive a 2013 Jeep Wrangler or a 2018 Grand Cherokee … depends on what my wife is driving. I’ve listened to the pod cast while exercising, working around the house and even in the shower. First Question: Does my Roth conversion strategy look reasonable? (Plan to convert all current IRA’s (500K) over next 8 years) What spitball changes would you make? Details: Retired in 2021, same month I turned 59 – Wife is retired also, and is 56. Didn’t make sense to do Roth contributions while I was working as we were at the top tax bracket for the past 10 years. Backdoor was not an option as we both had pre tax IRAs in place. Live in Pennsylvania.

Financials: No debt. Planned annual spending of $110,000. Taking no pension at this time. Pension currently has a lump sum value of 425K. I can take this at any time. Interest is paid at the 30 year T-Bill rate but has a floor of 4%. At age 70 I will have to take the lump sum or an annuity option (leaning toward Lump Sum rollover to IRA). Plan to treat this as a bond growing 4% annually until age 70.
Deferred income: 450K (Distributed evenly over next 4 years – Earning at Prime Rate)
Brokerage Account: 1.4 Million
Pre Tax IRAs: 500K Total (250K me – 250K wife)
Roth IRA: 60K (from Job change over 20 years ago)
401K: 750K (Plan to leave in 401k for added ERISA protection, will draw from this starting in 2030)
HSA: 43k – I have retiree medical and can / will continue to contribute to my HSA until 65. Then we will open an HSA for my wife to contribute to as she can stay on my employer health plan for three additional years. A plus for the Roth conversions for these years.
Other savings 50K
Vacation Home Value 400K
Total: Pretax 401k / IRA / Deferred Income/ Pension: 2.1 Million, Brokerage, Roth and other after tax savings 1.5Million, HSA 43k

Roth Conversion Plan: 50K per year for next four years while receiving deferred compensation – will be in the 22% tax bracket (maybe 25% by then). Approximately 90K per year for years 5 through 8 of plan (2026-2029) – will manage this to the 12% tax bracket with withdraws from our brokerage account; can manage this without significant capital gains issues. Big reduction in tax bill for conversion.

First Question: (know you sometimes forget) Does my Roth conversion strategy look reasonable? (Plan to convert all current IRA’s 500K over next 8 years) What spitball changes would you make?

Second Question: Should I look at rolling over my pension lump sum to an IRA at 68 and extend my plan by two years to include converting a portion of my lump sum to a Roth IRA before starting social security at age 70? Let’s have a conversation!

Side Note: This account will likely go to our two Children at some point. We already have much of our big spending out of the way … we hope. Bought an RV for travel, kids are through college debt free. We have also helped them get to the point where they will own their homes mortgage free. Time for us to hit the road… Thanks, Mike”

With pandemics and market volatility and whatever the future holds for inflation and Social Security and taxes, it’s hard to know when you’re ready to retire and if you’ve got the appropriate plan. Go to the podcast show notes at YourMoneyYourWealth.com and download our Retirement Readiness Guide for free. You’ll learn how to control your taxes in retirement, make the most of your investing strategy, and create income to last a lifetime. and learn 7 plays to help you get retirement ready, despite all the uncertainties. To download the Retirement Readiness Guide and to access all our other free financial resources like educational videos, webinars, blog posts, and downloadable guides, and to watch Joe and Big Al answer your podcast questions on our YouTube channel, just click the link in the description of today’s episode in your podcast app.

Rule of 55: How to Allocate Assets in Our Retirement Investment Portfolio? (Lisa, Brookfield, WI)

“Thanks for your podcast, I learn so much and get more laughs than I do on most sitcoms. I drive in my Lexus with my yellow lab to the dog park and listen to YMYW podcast while we walk. My husband and I are both 50 and hope to leave Corporate America at 55 and use the rule of 55 to lower our pretax balances. As I try to dial in to my overall allocation strategy, I have some questions on how best to do this with the following asset sources:

  • 1.5M Savings plans (401k and 403b) and invested HSAs including $105K stable value “safe money” – should I put stable value in bond allocation or keep the 3-5 year of safe money out of the overall allocation strategy?
  • 1.0M DB pension plan – I will take lump sum so assume I just leave that out of the allocation until I invest it on my own?
  • 0.6M company long term incentives (options/RSUs/PSUs) – about half is vested vs unvested, should you include any, both, or none of this in your stock allocation?
  • 0.3M cash – saving for vacation home once the market cools down a bit in FL (hopefully soon!) – I assume keep this out of overall allocation since its earmarked for future real estate?
  • 0.1M taxable brokerage account
  • 3.5M Total

Thanks for spitball. Lisa, Brookfield, WI (Waukesha County :)”

Harvest Zero Percent Long-Term Capital Gains or Do Roth IRA Conversions? (Jim, Santa Cruz)

“Hello Pure Financial team – Jim from Santa Cruz “calling” … when I’m not listening to YMYW or drinking Sierra Nevada Pale Ale, I’ve been helping my friends Jack and Diane with their retirement planning. Back in September, Al and Joe helped Diane confirm the tax implications from the sale of her home. Diane now has a strategy dilemma for the sale proceeds …when she retires at age 65, Diane expects to have ~$300k in Brokerage Accounts, with a cost basis of $150k. She will also have ~$900k in qualified accounts and $200k in Roth accounts; she will start taking Social Security at age 70. With RMD’s starting @ age 72, Diane has a 7-year window to maximize 0% long-term capital gains from her Brokerage Accounts and/or Roth Conversions.

The dilemma: what should Diane do first – harvest 0% LTCG, or Roth conversions? Or should she do a-little-of-each every year? Or is this a six-of-one/half-dozen of the other situation, with neither choice having an advantage over the other?

Diane is planning to stay-out of the 3rd tax bracket in retirement, and minimize the tax hit if she or Jack dies before turning 80. Her living expenses will not be affected by this decision. Thanks, as always, for the Great Show. – Jim from Santa Cruz”

Withdrawal Strategies: Do Retirees Regret Not Spending More in Retirement? (Jim, Portland, ME)

“Hi fellas, my name is Jim and I’m a new listener from the great state of Maine. Love the show and the sense of humor you all bring! I was looking to get your opinion on SWR in retirement (ie 4% rule). I can’t help wondering if most people end up leaving a lot of money on the table when basing their retirement withdrawals on the fear of running out of money. Especially now with many talking about 3% as the new 4% in the current low interest rate environment.

Do you see older clients you work with having regrets about not spending more money over their retirement (especially earlier in their retirement)? How do you look at withdrawal strategies differently for clients not wanting to leave significant inheritance and instead wanting to spend most of their money? Looking forward to hearing you both opine on this topic!”

Make a plan to deal with the things you might regret in retirement: schedule an assessment with an experienced financial professional on Joe and Big Al’s team at Pure Financial Advisors now. They’ll take a close look at not only your current financial situation, but also your ability to tolerate risk, your specific retirement needs and goals, your tax liability, and many other factors. They’ll help you develop a comprehensive financial plan to reduce your taxes and make the most of your retirement, and best of all, it’s free. Click the link in the description of today’s episode in your podcast app to go to the show notes and click Get an Assessment to schedule a no cost, no obligation financial assessment at a time and date that’s convenient for you. The only thing you’ll regret is that you didn’t do it sooner.

Can I Avoid Double Taxation On My Roth Conversion? (Jeff, Lincoln, NE)

“I have an old 401k that I rolled into a traditional IRA 10 years ago. 9 years ago I had put 6000 dollars into a tradition IRA and paid tax on it in anticipation of doing a backdoor Roth. Luckily I researched and found out that this would be subject to pro rata and didn’t do the backdoor Roth. My question is can I now do Roth conversions and with the money that is currently in the tradition IRA and just pay the full tax consequence of what is converted? The 6000k that I have paid taxes on is really large insignificant to the entire tradition IRA 800,000. In essence I would be paying double taxes on the 6000k pro rata amount. I really like the idea of doing some Roth conversions. Thanks. Love the show. – Jeff”

Will Paying Off a TSP Loan with Real Estate Income Avoid Income Tax? (Sam, Orange County, CA)

“I am a 64 years old postal employee and I have a tsp loan around $40K, and I am planning to retire in few months, and if the loan is not paid it will a regarded as a distribution. I also work as a realtor and have income from it. So if I payoff my TSP loan with the income from Real estate business would that help me avoid paying tax on the real estate income since it going into a TSP?”

Transfer 401(k) to TSP or IRA for Asset Protection in California? (Greg, No. Cal)

“Hey Joe, Big Al, and the glue holding it all together – Andi, I’m a long-time listener and enjoy your humor (and occasional wisdom) on your podcast while walking my 2 dogs that won’t let me sit down when I arrive home from work. This is now my “go to” relaxation activity instead of having a cold Fat Tire amber ale. Who would have thought??
I have a question involving 401k transfers that you may have come across with other California clients, although it does involve some legal issues. I figured this is a nice switch up from the Roth questions and all of their various forms. I am in a highly litigious profession and recently moved to California and have a 401k that my old company is forcing me to transfer from their plan. My options are to roll it into my TSP account at my new job or move it to a traditional IRA. Its value is about 1.8 million so not insignificant in terms of my total retirement savings. I know that 401ks and TSPs are protected from seizure from lawsuits but California law does not protect IRAs. I am planning on retiring in 2 years (age 60) and then starting Roth conversions. My liability risk will be much less by then as statute of limitations will be exceeded for most of my risk from my old job. Sooooo, here’s the questions:

Would you throw out some ideas for fun on whether to transfer the 401k to the TSP at this time for better asset protection or is the legal risk of going to an IRA now not really that significant? I would have access to more investment choices with an IRA than TSP. Also, the TSP is a bigger pain to move assets out of it for Roth conversions. Would a middle ground be to use the TSP for 2 years than move everything into the IRA at that time for easier management? I know you’re not lawyers but I figured you deal with ERISA situations with your clients. Thanks for all of your spit balling. Keep up the good work! — Greg”

_______

That’s it for 2021! Happy New Year, YMYW family! Thank you for your questions, comments, and laughs throughout the year, and thanks as well for telling other people about the podcast. Keep doing what you’re doing, and we’ll do the same. We’ll kick off 2022 next week with a compilation episode answering your best spouse, ex-spouse and survivor Social Security benefits questions, but we’ve got sitcoms and Ginger or Mary Anne at the end of this episode in the final Derails of 2021, so stick around. 

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