Joe Anderson
ABOUT Joseph

As CEO and President, Joe Anderson has created a unique, ambitious business model utilizing advanced service, training, sales, and marketing strategies to grow Pure Financial Advisors into the trustworthy, client-focused company it is today. Pure Financial, a Registered Investment Advisor (RIA), was ranked 15 out of 100 top ETF Power Users by RIA channel (2023), was [...]

Alan Clopine

Alan Clopine is the Executive Chairman of Pure Financial Advisors, LLC (Pure). He has been an executive leader of the Company for over a decade, including CFO, CEO, and Chairman. Alan joined the firm in 2008, about one year after it was established. In his tenure at Pure, the firm has grown from approximately $50 [...]

Andi Last

Andi Last brings over 30 years of broadcasting, media, and marketing experience to Pure Financial Advisors. She is the producer of the Your Money, Your Wealth® podcast, radio show, and TV show and manages the firm's YouTube channels. Prior to joining Pure, Andi was Media Operations Manager for a San Diego-based financial services firm with [...]

Published On
June 4, 2024

Should Mike in Virginia keep using his IRA money to pay the tax on his Roth conversions? How do you do a Roth conversion when you don’t have the money to pay the tax? That’s PeterLemonJello’s question, but is it the question he should be asking? Spitballing Roth IRA conversion strategies to reduce your taxable required minimum distributions (RMD) in retirement, today on Your Money, Your Wealth® podcast 484. Plus, Susan and Mike in Ohio are retired, in the 24% tax bracket, and considering converting $50k or $75k to Roth – should they do it? How is D-Rock and Matilda’s strategy for selling rental properties and doing Roth conversions as they bridge the gap to early retirement? And finally, how do required minimum distributions work on inherited Roth accounts? 

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Show Notes

    • (00:54) How to Pay the Tax on a Roth Conversion: Are You Asking the Right Question? (Peter LemonJello, FL)
    • (05:45) Should I Keep Doing Roth Conversions and Paying Tax from the IRA? (Mike, VA)
    • (14:24) Retired, in the 24% Tax Bracket. Should We Convert $50-$75K to Roth in 2024? (Susan, OH)
    • (18:28) Roth Conversions and Selling Rental Property to Bridge to Early Retirement (D-Rock & Matilda, New York)
    • (28:11) Required Minimum Distributions for Inherited Roth IRAs Explained (Elisa, Fremont)
    • (34:12) The Derails

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Andi: Should Mike in Virginia keep using his IRA money to pay the tax on his Roth conversions? How do you do a Roth conversion when you don’t have the money to pay the tax? That’s PeterLemonJello’s question, but is it the question he should be asking? Joe and Big Al are spitballing Roth IRA conversion strategies to reduce your taxable required minimum distributions in retirement – that’s today on Your Money, Your Wealth® podcast number 484. Plus, Susan and Mike in Ohio are retired, in the 24% tax bracket, and considering converting $50 or $75k to Roth – should they do it? How is D-Rock and Matilda’s strategy for selling rental properties and doing Roth conversions as they bridge the gap to early retirement? And finally, how do required minimum distributions work on inherited Roth accounts? I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

How to Pay the Tax on a Roth Conversion: Are You Asking the Right Question? (Peter LemonJello, FL)

Joe:  All right, we got Peter from LemonJello, Florida. There’s such a place called LemonJello, Florida?

Andi: No, his name is Peter LemonJello from Florida.

Joe: Peter LemonJello. From Florida.

Al: That’s what I would have got too. LemonJello, Florida.  Joe: Okay. “Hi, Andi. You guys love the show. No pets. Listen to the show while driving my Defender. So, but I can, we can spitball a Roth conversion strategy, but there’s not enough money to pay the taxes. Would love to do some conversions, but worry about defeating the purpose, because I would have to withdraw extra funds to afford the taxes.  I have another question about removing Roth contributions prior to age 59 and a half. I’ve made many Roth contributions over the years to my Roth 401(k). That plan will be terminated this year, and that account will be rolled into a Roth IRA. Since I did not make the contributions directly to the Roth IRA, does this impact the ability to remove contributions early 7 years from now? Thanks again, Peter.”  Peter LemonJello with the- with the Defender.

Al: From Florida.

Joe: He’s asking the wrong questions here. Asking the wrong, I don’t think he’s got enough money to retire.  And he’s looking for some ways to figure some stuff out.

Al: Well, yeah, you could be right, because when you start asking about taking money out of your Roth before age 59 and a half to avoid penalty, then it’s like, okay, you’re, you’re kind of shoestringing this together. Now, maybe he’s got big, fixed income, big, big pensions that come later. And maybe it’s just a little bit of stump period. I mean, we, we don’t have enough facts on this. I will say this to the first question, which is we don’t generally recommend that you use IRA or 401(k) funds to pay the tax on your Roth conversion. That’s- you’re paying tax on tax on tax, right?

Joe: It’s a never-ending cycle because you gotta pay the tax to pay the tax to pay the tax.

Al: Right, right.  Now, we, we do depart from that general rule when someone has gigantic IRAs, 401(k)s, where the required minimum distributions are going to put them in such a high bracket and they have no other assets available to pay the tax. That could be, and I will say the word could, that could be a situation where it might make some sense. But for general purposes, I wouldn’t do it.

Joe: Right. If, if, if the RMDs are so big that it’s going to push them into a lot higher tax bracket that they’re in now, then, yeah, it might make sense to pull to the top of whatever bracket. But you take part of that distribution, you convert and take part of it as a distribution to pay the taxes, but you’re not getting the full effect because you’ve got to pull the money out to pay the tax, and then that money that’s left over after you pay the tax, guess what, is paying tax on the conversion.

Al: Yeah, and you pull out, you pull out enough to pay the tax, you do the tax return next year, whoop, I need another $20,000. You pull that out next year, oh, I gotta pay tax on the $20,000 that you pull out. Yeah, it’s just, it can be kind of a never-ending cycle. Joe, the second question appears to be about I wanna retire before 59 and a half. How can I possibly pull money outta this without penalties that- so the, the answer is, you can pull out your Roth contributions, whether it’s 401(k) or IRA. It doesn’t really matter. If it’s 401(k), it just transfers to the IRA.  But I- it’s not a great strategy.

Joe: It’s terrible.

Al: Because-

Joe: You want the compounding effective tax-free.

Al: You got the money in the Roth.  And you’re, you’re not even 59 and a half, and, and you’re probably going to live into your 80s or longer. It’s like, do you really want to pull this out right now? You’re not even 60. I wouldn’t.

Joe: Yeah.  I don’t know. The tracing and tracking rules are very difficult for anyone to follow, let alone the IRS. As long as you had the Roth IRA for over 5 years and you can basically have some sort of trail of how many contributions that went into the overall accounts, I think you’re going to be okay.  I don’t like the strategy. We need so much more information. How much money do you have?  Is this a big chunk of money then we might change our tune here? But it sounds like you’re kind of piecemealing or, or just trying to, Frankenstein your retirement strategy here.

Al: As my dad would say, smoke and mirrors.

Joe: Oh, wow. Peter lemon, lemon, low jello.

Al: Well, he, he, my dad would say that to me when I bought real estate and I didn’t have a lot of money.

Joe: Called you big, big, big hat, no cat?

Andi: Smoke and mirrors?

Al: Yeah, yeah. He would just say, you’re buying this with smoke and mirrors.

Al: I said, yeah, but it’s working. Until it didn’t.

Joe: Yeah. Crumbled like a house of cards.

Al: Yeah, right.

Joe: All right. Good luck, Peter.

Should I Keep Doing Roth Conversions and Paying Tax from the IRA? (Mike, VA)

Joe: We got Mike from Virginia. “Follow up to last week’s spitball.”

Andi:  And this was in March, so last couple months ago’s spitball.

Joe: Got it.

Al: Okay.

Joe: “Dear Andi, Joe, Al, thank you for reading my question last week. I love the show and even more when my question is on it.  First, the crappy limerick.  There once was a man from Nantucket, who used a strategy called bucket.  He split up his money, then with his honey, and went to Belize and said to heck with it.”

Andi: Ha, ha, ha.

Joe: All right. “My question was on whether to keep doing Roth conversions and pay the tax out of the IRA rather than my brokerage account in order to save taxes for my widow.” Yeah, all right.  Okay, let’s see.  “I’ve been converting to the IRMAA bracket or 24% tax bracket, whichever is lower, presently the IRMAA. That share converted $264,000 to stay under the IRMAA bracket when counting Social Security dividends in capital gains. We are 70. Social Security, $70,000 will decrease to $50,000 at death of one of us. $650,000 in brokerage, $2,500,000 in IRAs, and $1,500,000 in Roths.”  Wow, good for you.

Al: Excellent.

Joe: Killing. “Spending $132,000 annually before taxes because of the conversion, taxes were about $84,000. We may spend more on travel in the next few years. Just spent $20,000 on the house, updating with $7000 underway and another $100,000 to $160,000 over the next year. Kitchen, bathrooms-“yep, know that drill.  “I told you my house is killing me and why I’m worried about taking tax money out of my brokerage for where $250,000 is in stocks and mutual funds. RMDs in two years will be about $100,000, rising to $150,000, $160,000 when I’m 85. Tax bracket on spending in early RMDs is 22%, filing jointly 24% or more, depending on Congress. At age 85, for my widow at 85, 32% or more. What do you think? Thank you, Mike.” All right, so what Mike’s doing, he’s forecasting out over the next 15 years. And he’s given his retirement accounts and he’s got a giant amount in retirement accounts. So first of all, congratulations, Mike. Done a heck of a job saving and he’s started to convert over the years to the IRMAA limit.  So IRMAA income requirement-

Andi: Income related monthly adjustment amount.

Joe: – Income related monthly adjusted amount. Income  relate-

Andi: – monthly adjustment amount.

Joe: Got it. That’s Medicare premium.

Al: Yes. What that is, a certain income level, modified adjusted gross income level, that you make in two years from now will determine how much you have to pay in Medicare premiums.

Joe: So, he’s probably going to the top tier at $240,000.

Al: Well, no, that, I mean that, so this is, this is the current year-

Joe: I don’t know, for, I’m making stuff up, Al.

Al: Yeah. So that for 2022, modified adjusted gross income for the 2024 year. Okay. So two, and this is Mary, $206,000 or less is the lowest bracket, $258,000 is the next bracket, $322,000- the highest bracket actually starts at $750,000.

Joe: The bracket you’re in?

Al: Anyway, I’m not on Medicare, so I’ll let you know when I get there.

Joe: Got it.

Al: Anyway. Yeah. So, well, let’s just do that question first, right off the bat, which is a lot of people, they, they’ll do a conversion to stay out of the higher IRMAA bracket because they want to pay less in Medicare.  And I get it. But you know, when you look at the differences here from one bracket to the next, it’s like $100. So $100 times 12, $1200,  right? If you converted $200,000, right? That’s like .5% tax. It’s like, who cares? So just consider it that way, right? Look at that extra you got to pay. And if, does it still make sense tax bracket wise?

Joe: He’s got $2,500,000 in retirement accounts. And so you forecast that out, he’s spending some money, he’s updating the house, the house is killing him because of the bedroom, the bathroom, the kitchen, you know, got to do all of this stuff. And then he forecasts out to age 85, what is the account going to look like? Let’s say he passes away, the wife is still living, now she files as a single filer. What is that going to look like in regards to tax? Because maybe we want to preserve a lot of this to the next generation.

Al: Yeah, yeah. So, so I wouldn’t, so going, going back to this original question, does he pay the tax out of the IRA rather than brokerage? I would say no. But I would think about it this way, which is if you need $150,000, just take it out of your IRA and you don’t do a Roth conversion that year, right? And so the other years you do a Roth conversion and you pay the tax out of your brokerage, right? That’s what I would do.

Joe: Well, I would disagree with that because he needs to continue to convert each year.

Al: I don’t think so. I mean-

Joe: $2,500,000 in retirement accounts? He dies? What’s the- what bracket’s that gonna be?

Al: Let me say that differently. He doesn’t have to do it every year. If he’s going to take $150,000 out for a kitchen project, do you want to convert that year?

Joe: Oh, I’m- I see what you’re saying. You’re taking $150,000 as a distribution out of the retirement account.

Al: Yeah, so let’s say you convert $150,000 or $200,000, whatever the number is. So the year that you pull a bunch of money out for the kitchen remodel, you don’t do the conversion that year. You just pull it out of the IRA. But same, same.

Joe; No, I understand. I understand.

Al: The other years, absolutely. You go ahead and do the conversions. What level?

Joe: But my point is that I think in this case it might be okay to pay the taxes out of the retirement account if he stays in that 24%  tax bracket.  The top of the 24% tax bracket is what?

Al: or married couple?

Joe: It’s, it’s three something?

Al: Yeah, $380,000, call it $400,000.

Joe: $400,000 in the 22% or 24%?

Al: 24%.

Joe: 24% tax bracket. It’s a giant bracket. So you look at, alright, well maybe he converts $150,000 and he owes $80,000 in tax. Well, he’s going to pay more tax to get the money out to pay the tax? I would have to run the math. I think it might make sense if he stays in the 24% because the 24% is going to the 28% or he could go to the 25%. I think the arbitrage is still there from a tax bracket perspective.

Al: Yeah, so I’m going to agree with you on that part because I, especially for the next two years, because we know we’ve got the 22% and 24% for 2024 and 2025. We don’t know about 2026. In fact, it’s scheduled to go away. And these, these brackets that Mike’s going to be in are going to be- going to be 25%, 28%, or even subject to alternative minimum tax, which could be like a 35% effective rate. And so I would be maxing out for the next two years to 24% bracket. And if you need to get $150,000 for the kitchen remodel, and you would have normally done a $300,000 Roth conversion-

Joe: Do $150,000, $150,000.

Al: Right. Just making up numbers, but yeah, some, some for the kitchen and the rest for the Roth.

Joe: All right. Yeah. And then the widow tax on top of that, that blows them up.

Al: I know. And then I wouldn’t for the next two years, I wouldn’t worry about IRMAA. After that, you can dial that in better if you want.

Andi: Comments are now open on our YouTube channel, so join the conversation and tell us what you think of today’s episode. I’m in there daily, responding to you and taking notes to pass along to Joe and Big Al, because you know they aren’t paying attention after the microphones are off! If you missed it, last Friday was the first YMYW Extra. These are bonus podcast episodes, where I enlist the help of the experienced professionals on Joe and Big Al’s team here at Pure Financial Advisors to answer even more of your spitball requests. In the first one, David Cook, CFP® from Pure’s San Diego office did a full retirement spitball analysis for Sunshine in Orange County, covering asset allocation and asset location, assumptions for inflation and returns, Roth conversion plans and so much more. Sadie in Seattle’s CPA made her feel like an idiot for converting her 403(b) to Roth. But was it really a bad idea? This Friday, Tony Vu, CFP® will join me on YMYW Extra, from Pure Financial’s Brea office, to spitball for Sadie – look for the bonus episode in the Your Money, Your Wealth® feed wherever you get your podcasts, and find the video of our conversation on our YouTube channel this Friday.

Retired, in the 24% Tax Bracket. Should We Convert $50-$75K to Roth in 2024? (Susan, OH)

Joe: All right. We got Susan from Ohio.  “My husband and I are retired civil servants and have been retired for 20 years and 15 years, respectively.  We have pension, which cover all of our needs and wants.  My husband has begun to take his RMDs on his TSP and IRAs. He has donated the money since we don’t need it.  I prefer not to pay the taxes. I will start taking my RMDs in two years.  That was $175,000 in a TSP and $150,000 in an IRA. $90,000 in a Roth, $130,000 in a brokerage account, $30,000 in I Bonds, $20,000 in precious metals.”

Andi: Physical precious metals.

Joe: Yeah, she’s got a little safe in the basement.

Andi: Yeah, right.

Joe: “I’m considering doing a $50,000 or $75,000 Roth conversion both this year next. We are in the 24% tax bracket. Is this a good idea or a bad idea?  We both have longevity in our families and we’d like to celebrate. Oh, and we will be celebrating Mike’s mother’s 100th birthday this year.”

Al: That’s great.

Joe: “Our home is paid for.  We pay cash for cars. Hubby drives a 2015 Honda Accord EXL, and I drive a Honda Civic EXL. Mike drinks Bell’s Two Hearted Ale.” Bell’s Two Hearted Ale. Anyone.

Andi: Never heard of it.

Joe: Never heard of it.

Al: It’s an ale.

Joe: Sure.  “And I drank a Great Lakes Commodore Perry IPA when I could find it.”  Where the hell do you find any of this stuff?  “And occasional Manhattan.” All right.

Al: I guess it’s in Ohio.

Joe: Okay. Well, I’ve seen that before.

Al: You have?

Joe: Yes.

Al: Oh, you get around, don’t you?

Joe: No. I don’t know where I’ve seen that, but I know I’ve seen that before.  A little two hearted.

Andi: It’s got a fish on it.

Joe: Yeah, it’s right next to the Coors Light, my local  liquor store. I’m kidding.

Al: Well, probably. That’d be something you’d see in Minnesota, it seems like.

Joe: It seems like it, yeah. All right.  Okay. So we’ve got “the Great Lakes Commodore Perry IPA, where I can find it and occasional Manhattan. We also have a black and white PITA.”?

Andi: Pain in the, yeah-

Joe: Pain in the ass?

Andi: Yeah.

Joe: “- named Scout. I’ve been listening to your podcast for a year now. Would appreciate your thoughts.”

Al: Okay. So let’s see.

Joe: A year. That’s a long time.

Al: It is.  It’s a very long time.

Joe: All right.  I don’t know.  I totally lost track of, should she do a conversion of $50,000 to $75,000?

Al: That was the question.

Joe: Right. They got pensions? They’re in the 24% tax bracket?

Al: They’re in the 24% tax bracket.  They got longevity.

Joe: Let’s see, $150,000 to $300,000, 3 times 4 is 24. The RMD is roughly gonna be $25,000 for her. So should she do a conversion of $50,000 or $75,000? I would look at what tax bracket that you’re going to be in the conversion. And then I would do the -what tax bracket you’re going to be on your RMD?

Al: With the RMD.

Joe: And then I would do the conversion and stay in that tax bracket.

Al: Yeah, and they, and she says she’s in, they’re in the 24% bracket. And the fact is the 24% bracket will be 28% bracket in 2026. And you may be even subject to alternative minimum of tax, which would make it even higher. So I would say, Yes. Now we don’t have any other figures, so I’m assuming you’ve got the money to pay the tax. And I’m, yeah, the, the fact that you’re in the 24% bracket means there’s a lot of income here, either from other RMDs from your husband or, or, or both.

Joe: Pensions-

Al: Yeah. Or both. Oh yeah. We have pensions that cover needs and wants. So yeah, I would say if you can stay in the 24% bracket, sure. Why not? As long as you can afford to pay the tax.

Joe: Yeah, I agree with that. Alright, thanks for the question, Susan.

Roth Conversions and Selling Rental Property to Bridge to Early Retirement (D-Rock & Matilda, New York)

Joe: We got, “Yo, yo, this is D-Rock-” Oh boy, I wonder where this one’s going.

Al: We’ll see.

Joe: Yo, yo, D-Rock, what up? “- and my spouse, Matilda,  from New York.”  I bet Matilda’s a very sweet, nice woman, and D-Rock is just like, wearing a tank top right now, with some cheesy ass tattoos on his upper shoulders. That’s my vision.

Al: That’s what you got so far. Okay, let’s read on and see if we still think that.

Joe: Alright, let’s see D-Rock.  “Love your show and your personalities. We drive nothing specials.” Alright. “Partial to a little frosty IPA, Matilda Martini with stuffed olives. By the way, doesn’t Big Al sound almost exactly like Chris Collinsworth.”  I know Chris Collins- He’s a Florida Gator. Yeah, he’s a NFL sports announcer.

Al: I’ll take that as a compliment.

Joe: Wow. I would take that any day.

Al: I, I hope I even look like him.

Joe: “Has anyone actually seen Chris Collinsworth and Big Al in the same place at the same time?” Ah.

Al: Well, I don’t think anyone has because it hasn’t happened, but maybe we’re the same person.

Joe: “We would like your spitball regarding one, selling the rental property and two, doing Roth conversions during the bridge years between early retirement and drawing on our retirement savings, Social Security and our small pension. Our situation, 50 and 50, children, both children expected to be off to college in 4 years, college savings, fully funded by 529 plans, with values not included in the figures below.” All right. “Work retire situation. Both W2 employees, combined income is $400,000. We plan to retire at 4 years in the Summer 2028 when kids off to college.”

Al: They’re just counting the days.

Joe: I know, he’s like, he said kids off to college like 6 times. He wakes up every morning, hey, kids off to college yet?

Al: Can you imagine D-Rock, he’s got the little calendar with the red X every day? Hey dad, what does that mean?

Al: Don’t worry about it.

Joe: Oh god, “Fixed income projections, He’s got a pension of $16,000 a year. He’s got no COLA on there starting at age 60 for D-Rock. Social Security of $45,000 for each spouse totaling $90,000 together at age 62.  We will delay if possible, but I’ve assumed age 62 in case we need it. This yields a total of $106,000 fixed income at age 62. Investments, we closely manage our portfolio expenses.  The realistic rate of return expectations.  This is our balance projection in-“ oh God-

Al:- future dollars.”

Joe: Here we go. So they closely manage, Alan.

Al: I’ll save you the troubles- $4,500,000 of future dollars.

Joe: $4,500,000.

Al: Yep. All right. Congratulations, D-Rock.  “Expenses, $165,000. Here’s the question. Number one, rental property.  We would like to sell the rental property in 2028 and help simplify the headaches and allow un cumbered travel.”

Al: Yep, unencumbered.

Joe: Un encumbered?

Al: Yep.

Joe: travel. Alright, let’s see.  “We estimate we’ll pay 20% of $1,000,000 rental property sale in fees, gains, and depreciation recapture taxes. Adding the $800,000 net proceeds to the $1,200,000 brokerage will give us $2,000,000 in the bridge fund.  This will likely be spread 50% of money market and the other 50% in stock bond mutual fund portfolio. From a tax perspective, is there any reason  we should wait until the full year after retirement in 2029, given our income will effectively be zero?” Wait for what?

Al: Well, so I guess it’s a choice. Do you sell the year, the final year that you work or the following year? If you, if you can, if you can spread it into a different.

Joe: Ah, we wait till the following year, January and sell when is income at zero.

Al: Yeah, right.

Joe: All right. “We don’t believe the sale on the rental property relates directly to tax brackets. So don’t believe it shouldn’t matter if we sell when retiring in mid-2028 or afterwards in 2029.”

Al: Well, here’s another forward thinking. It could matter because your, your depreciation recapture is the lower of 25% or your tax rate. If your tax rate is 15%, 12% or whatever it is at that point, that could be cheaper. Capital gain rates go from 0% to 15% to 20% plus the net investment income tax rate. So I think you said you’re in-

Joe: $200,000 he’s thinking.

Al: Yeah, if you make $400,000, then you’re going to have to pay an extra 3.8% capital tax on capital gains. So, yeah, I think if you, if you have the opportunity between 2028 and 2029, then wait, push it another month.

Joe: Yeah, what are you doing in 5 years? The date.

Al: Well, I’m going to sell in December, either 22nd or January 7th.

Joe: Yes. All right. “So from ages 54 to 60, we will have zero earned income living off that bridge fund and we’ll only have the small pension starting in age 60 and then perhaps collecting Social Security at age 62 if needed. Isn’t this 68 years the ideal time to do Roth conversions? We know tax rates or brackets will change, but for simplicity’s sake, using today’s tax brackets, wouldn’t we be able to convert $94,000 plus the standard deduction of $29,000 for a total of $123,000 and still be in the 12% tax bracket?  Does dividend earnings from the money market or realized capital gains from the sale of the mutual funds affect Roth conversions tax bracket? Thanks. Keep up the good work.” All right, D-Rock.  Good questions here. Like the planning opportunities that you’re looking at yourself. But yes, all income is going to affect your Roth conversion.

Al: Sure, yeah, because it’s your Roth conversion is added to the other income that you have to figure out what tax bracket you’re in.

Joe: So, when you look at this stump period, or what’s he calling it, his bridge period, he’s going to have a few million dollars, he’s going to have half of it in money market, he’s going to have half of it in some stock bond portfolio.  You just want to be very tax efficient with the, the money that you have. So, you want to try to keep out the interest and dividends and all of that stuff off the tax return. You want to start thinking about creating income from, like, selling shares versus getting a large coupon. Right. Now, who knows where interest rates are going to be, but sometimes people start collecting investments and they don’t understand the taxation of those investments, and their after-tax rate of return by picking some investments are going to be a lot lower if they just used maybe a different strategy that was not looking at maybe a yield or a dividend yield or maybe just a yield on a fixed income instrument or a CD or something like that.

Al: Yeah, and then I guess if you look at whether you need Social Security or not, I don’t know. I mean, you’ve got, you’ve got $4,500,000 or you, or you will have $4,500,000 is what’s expected in 2028. Maybe that’s enough to fund this thing until you hit Social Security. Maybe one of you collects early just to have a little bit more cushion. I mean, there’s, you have a lot to work with, I guess.

Joe: Yeah, but that stump period is when you want to do the conversions and you could do a fairly large conversion and still be in the lowest tax bracket.

Al: Yeah, and plus, if you look at the brokerage account at $1,200,000, pre-tax at $3,100,000, so there’s money to pay the taxes, that $3,100,000 at age 50, can you imagine what that would be at age 75, RMD ages, depending upon how much of it you use?

Joe: How old’s D-Rock?

Al: 50.

Joe: And he’s got $3,000,000 in retirement accounts? What’s up with this?

Al: I don’t know. It’s amazing.

Joe: At 50? $3,000,000 in a retirement account?

Al: Yeah, I don’t know how that happens, but-

Joe: Just jamming or you-

Al: Company stock. And it’s the right company.

Joe: Company stock. Right. Wow. Yep. So I take back- I’ll call you D-Rock all day, D-Rock. $3,000,000 in a retirement account at 50.

Al: Anyway, so to, to-

Joe: Retirement accounts are not that old, Al.

Al: I know. Exactly.

Joe: And you can’t put like $200,000 in a retirement account. No, you can’t.

Joe: For years it was a few thousand bucks.

Al: Yeah. I mean, when I started my career it was $2000 you could put into an IRA.

Joe: Yeah. Right. 401(k)s came out in, I suppose it’s been 50 years maybe.

Al: Yeah. They, they were around. I just didn’t happen to work for a company that had one.

Joe: Sure.  But, all right, yeah, I think D-Rock’s doing just fine.

Al: Yeah, me too. I think Roth conversions during that stump period, absolutely. And I think selling the property, yeah, if you can, all things equal, if you can do that in a year with less income, the taxes will be even less.

Andi: You can see for yourself whether Big Al looks like Chris Collinsworth on Your Money, Your Wealth® TV. D-Rock and Matilda and a lot of other couples have laid out their retirement plans, but what happens when you’re single? Watch Going Solo: Navigating Your Financial Future Single, this week on YMYW TV. Learn how to map out your retirement journey, create a budget, and manage debt. Joe and Big Al have specific tips and strategies for singles in every generation around emergency savings, Social Security, saving for retirement, including catch-up contributions, and managing your investment portfolio during market downturns. Check it out and download the companion guide – you’ll find the links in the description of today’s episode, wherever you get your podcasts. If you’re not single, why not share the episode and the guide with someone who is?

Required Minimum Distributions for Inherited Roth IRAs Explained

Joe: All right. We got, “Hey, Joe, Big Al.  Still enjoying the show.”

Al: Still.

Joe: See, usually what happens is that after about, I don’t know, a handful of episodes-

Al: They’re not, they’re not still enjoying it anymore.

Joe: Oh my god, it’s the same stuff over and over and over.

Al: It’s like enough already.

Joe: It’s so bad. I appreciate you’re still enjoying it. “Thank you for the great content.  Would you dig in a little deeper into the RMDs?” Oh, I can’t wait.  I cannot wait to dig deeper into the RMDs.

Al: It’s one of your favorite topics.

Joe: “Will come into play for heirs on Roth accounts. I’ve heard they may need to take an RMD unless the person that passed away finished taking RMDs from traditional accounts before they converted to Roth. Since you are the Roth experts, I’d love to hear your explanation of these rules.”  Okay. So, required minimum distribution is what she’s referring to.

Al: Yeah, and there’s different rules for-

Joe: – different accounts.

Al: – IRAs versus 401(k)s versus Roth IRAs versus Roth 401(k)s versus inherited IRAs and inherited Roths. So, I guess we’re, she wants us to dive into the rules on heirs. In other words, you inherit a Roth IRA, Roth IRA account. So the original account holder never had to take an RMD. At least that’s how the rule is currently, but when you pass away, your spouse can then, doesn’t have to take RMDs, but if it goes to anyone other than your spouse, like kids, or grandkids, or nieces, nephews, or friends, whatever, that’s an inherited Roth IRA. And you do have to take required minimum distributions there. There’s different rules on when you start those, but all Roth IRA accounts need to be fully distributed, RMDs, within 10 years of when you, when the person passes away.

Joe: All retirement accounts now. So the Stretch IRA used to go on life expectancy, depending on how they were, or how old they were when they inherited the account. Then the tax was distributed over their life.  A few years ago, they changed the rules there and saying, hey, there’s a lot of money sitting in retirement accounts. So we need to flush this money out. If it’s a Roth IRA, they still want to flush the money out, recycle it so they can tax it at some point. If it just sits in a Roth IRA forever, it’s just going to compound tax deferred.

And then It’s going to continue to come out tax-free.  So, always on inherited accounts. So, if you inherit account, a non-spousal beneficiary, you had to recycle the money. You had to take a required distribution. So, that’s why RMDs exist. Right. So, some people, why do I have to take the money out? Because they want the you- appreciated the tax deferment of that money for years. Now it’s time the IRS to get their tax money from it. So the deduction you all receive from a 401(k) plan or a retirement account of any kind, it is not a true deduction in my opinion. It’s a loan that you have to pay back because the money comes out of the account regardless and taxes are due.

Al: Yeah, it’s a timing difference. In other words, you get a tax deduction when you put the money in, but when you take the money out, you have to pay the tax at that point. So in this particular case, you, the person that made the contribution got a tax deduction and the person that withdraws it, the heir has to pay taxes on that. Now Roth IRA is a little different. So the person that put the money in, there’s no tax deduction and it grows tax-free. But the person that receives it on inheritance, as long as they’re not a spouse, a non-spousal beneficiary, now you do have to take RMDs, Required Minimum Distributions, out of a Roth IRA. Good news is it’s not taxable, but you do have to take the money out. Money has to be fully distributed within 10 years.

Joe: Alright, hopefully that answers your question, but I guess the point that I was trying to make too is that why do we like Roth IRA so much?  It’s because a retirement account, you don’t really get the tax deduction. You get partial deduction depending on what tax bracket that you’re in. And maybe you get the time value of money, but there’s always going to be tax due.

Al: Yeah. True. There’s no way around it.

Joe: There’s no way around the tax on the other side of it. You might not have to pay it, but your heirs are going to pay it, or your spouse is going to pay it.

Al: Right.

Joe: Thought you’d be a little bit more excited, Al?

Al: I think we already exhausted that one.

Joe: That’s it for us today, appreciate you hanging out. We’ll see you again next week. Show’s called Your Money, Your Wealth®.

Andi: The Defender, how limericks work, the tall tales that golfers tell, and PITA in the Derails at the end of the episode, so stick around.

This is Your Money, Your Wealth, your podcast! If you enjoy YMYW, tell your friends and help us reach even more listeners like you. And don’t forget to leave your honest reviews and ratings for Your Money, Your Wealth in Apple Podcasts and all the other apps that let you do that, like Amazon, Audible, Castbox, Goodpods, Pandora, PlayerFM, Podcast Addict, Podchaser, Podknife, and Spotify. We’re on all of ‘em!

Your Money, Your Wealth is presented by Pure Financial Advisors. To really learn how to make the most of your money and your wealth in retirement, you need more than a spitball: schedule a no-cost, no obligation, comprehensive financial assessment with the experienced professionals on Joe and Big Al’s team at Pure. Click the link in the podcast show notes to schedule yours, or call 888-994-6257. Meet in person at any of our locations around the country, or online, right from your couch. No matter where you are, the Pure team will work with you to create a detailed plan that’s tailored to meet your needs and goals in retirement.

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.

The Derails



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. 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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