Show Notes

• 00:00 – Intro: This Week on the YMYW Podcast
• 01:32 – $1.1 Million in My 401(k) at 56: Should I Do Roth Conversions Before RMDs Hit? (Aaron, Syracuse, NY
• 04:51 – Can You Fund a Roth IRA With Pension Money? (Mike, San Marcos, CA)
• 06:14 – Can You Roll an UTMA Into a 529 for Tax-Free Education Savings? (Bob the Builder, Westchester, NY)
• 10:29 – I’m 72 With a 25-Year-Old Roth. Do New Conversions Trigger the 5-Year Clock for Roth Withdrawals? (Mike, TX)
• 11:43 – Inherited a Roth Less Than 5 Years Old: Are the Earnings Taxable? Can IRMAA Be Avoided? (Marion)
• 15:59 – You Ignore Future Income! How to Spitball Spending When a Pension and Social Security Are Coming (Stephen)
• 21:02 – Are Your Roth Conversion Calculations Misleading? Why Future RMDs Need an Inflation Check (Lu)
• 24:57 – We’re Teachers With Pensions That Cover Everything. Should We Stop Saving and Fund the 529s? (Tony, NY
• 28:23 – $4 Million and Ready to Exit the Rat Race at 61. Do the Numbers Work? (John and Peggy, San Jose, CA
• 34:37 – $4 Million 401(k) and a 6.5% Rental Mortgage: Pay It Off or Convert to Roth? (Rajesh)
• 38:42 – We’re 62 With $1 Million. Can I Finally Buy the $75K Audi, or Should I Lease? (Wayne, Long Beach, NY)
• 43:17 – Outro: Next Week on the YMYW Podcast

Free Financial Resources: 

Retirement Accounts Guide – free download

401(k) vs. IRA vs. Equity Compensation: The Real Math – YMYW TV

Financial Blueprint (free, self-guided)

Guides | Blogs | Educational Videos | YMYW Newsletter | Subscribe on YouTube

Watch today’s podcast episode on YouTube

Transcription

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

Intro: This Week on the YMYW Podcast

Andi: While I was busy visiting with my oncologist recently, I asked Joe and Big Al to do a stack of rapid-fire spitballs for ya, on everything from Roth conversions and RMDs to whether a guy named Wayne can finally treat himself to a seventy-five-thousand-dollar Audi, today on Your Money, Your Wealth® podcast number 587. Aaron in Syracuse just hit a million bucks in his 401(k) and realizes he needs a spitball on keeping his RMDs low. Do new Roth conversions restart the 5-year clock? 72-year-old Mike in Texas wants to know. Marion inherited a not-yet-five-year-old Roth, and an IRMAA problem along with it. Lu and Stephen each argue that the fellas’ conversion and retirement spitball math might be misleading. Teachers Tony and his wife have pensions that cover everything, so should they even keep saving? John and Peggy need a retirement spitball, Rajesh wonders if he should pay off his mortgage or convert to Roth, and Mike in San Marcos asks about funding a Roth with pension money. Let’s see how the fellas did. I’m Executive Producer Andi Last – my cancer treatment is working by the way, woo hoo! – and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP®, and Big Al Clopine, CPA.

$1.1 Million in My 401(k) at 56: Should I Do Roth Conversions Before RMDs Hit? (Aaron, Syracuse, NY)

Joe: Andi Last is not here, but she’s here.

Al: She– Well, how does, what do you mean?

Joe: She’s not here now, but she will be here-

Al: She will be later …

Joe: the editing.

Al: Got it. She’ll come in in post.

Joe: I think so.

Al: Okay.

Joe: I hope so.

Al: Me too, ’cause we’re nothing without her.

Joe: Yeah. So, so yeah. We’re gonna bust through a couple of questions just to keep us on task.

Joe: Let’s go to Syracuse, New York. Hello, friends. It’s like The Masters.

Al: Yeah.

Joe: You know- Jim Nantz.

Al: That’s right. He does say that every time.

Joe: “Love your podcast.” Yeah. “My pre-tax 401(k) just hit a million dollars in 2025, which made me jump and think, ‘Wow'” “I should start figuring out what’s going on with my retirement finances.” Yeah. “I’m 56. I’m single, no debt, own my home with no mortgage. Made $100,000 per year.

I have about $1.1 million in my pre-tax 401(k) and about $100,000 in my savings account. I signed up for Boldin and played around with that. It told me all is well, but I think I need to learn about Roth conversions or RMDs might eat me alive someday. My annual expenses are about $50,000 per year. I’m hoping to retire early-ish, maybe when I’m 58.

No firm plans yet. I’d probably continue to work part-time if I get bored. I love your show.”

Al: Okay,

Joe: so what’s the question?

Al: I think he’s wanting to know, is there a Roth conversion strategy for him?

Joe: Cause he- What’s he make? He makes $100,000 a year. He’s single

Al: Yeah, and he may retire in, two years.

Joe: I don’t know. He’s in the 22% tax bracket.

Al: And he, spends 50 grand, which would then, put him in the 12% bracket. 12. I think he may be upon retirement. I think he’d do Roth conversions maybe to the top of the 12% bracket.

Joe: Yeah, he’s never gonna s-

Al: I know … touch- And that’s not enough though, but, you could do a 22% bracket if in a down market, just get a whole bunch in.

Yeah. Maybe.

Joe: He doesn’t have a ton of money to pay the cash.

Al: Yeah, that’s the- Or the tax … that’s the problem. Yeah. And-

Joe: I think, Aaron, you’re sitting really well.

Al: I do too, and-

Joe: You spend 50,000. You got a 1.1, $1.2 million saved.

Al: Yeah.

Joe: The RMDs are gonna be around 40,000. I don’t know what your Social Security is.

So if- let’s say he retires and spends 50, He’s gonna retire at 58. He’s got 20 years roughly to do Roth conversions.

Al: Sure, yeah. I think that’s probably good enough, and I think, Joe, the fact that he’s, spending $50,000, he, I- that’s similar to his RMD, so it’s not like he’s got a RMD issue. So here’s, what I-

Joe: But the Social Security’s probably gonna be what, 40 grand?

Al: Yeah, I mean, that will make it worse, yeah. But I guess what I mean by that is when you’ve got, when your RMD, future required minimum distribution, is roughly what you’re spending, it’s not like you, have more required minimum distribution than your, spending need, right? So it’s not as big a deal.

Now, when you have a situation where you have a lot of pension and maybe s- a little bit of Social Security, and then your required m- minimum distribution is on top of that, throws you into a higher bracket, and Roth conversions are even more important. I would still do them here, though, but just be careful.

Maybe stick in the 12% bracket, occasionally go in the 22 when the market’s down. And the reason why I say that is if the market’s down, you do the conversion then, and then the recovery then will happen in the Roth IRA, right? So you get that tax-free growth. So that would be a good time to do it.

Joe: Okay.

Can You Fund a Roth IRA With Pension Money? (Mike, San Marcos, CA)

Joe: Mike San Marcos, he asks, “Hey, I’m blessed and will be able to take my pension at 54 years old. If I decide to retire, keep working, is, in an unrelated job, can I still stack my pension money into a Roth IRA for tax-f-free use?”

Al: Yeah, so can you fund an IRA-

Joe: With pension money …

Al: with pension money.

Joe: As long as he has other earned income-

Al: Exactly. Yeah.

Joe: … doesn’t matter.

Al: In fact, the IRS doesn’t really care where your money comes from. In fact, as long as you have earned income, I was gonna say unearned, earned income, salary, for example, as long as you have enough, salary to cover what a Roth contribution would be, then you can go ahead and use money from any source, including your pension.

Joe: Yeah. All you need is earned income up to the contribution limit.

If you make $3,000, then the maximum contribution that you could make would be $3,000. But if you make $20,000, let’s say from your W-2 job, your pension gives you 50,000, it doesn’t necessarily matter as long as the earned income is above the contribution limit is the amount of dollars that you can fund into your Roth IRA.

Al: Yeah. And by the way, contribution limit this year is 7,500.

Joe: 75 or 85 if you’re over

Al: 50. 8,600- Oh, 86 … ’cause it’s $1,100 catch-up. So yeah, $8,600 is your contribution limit if you’re 50 or older.

Can You Roll an UTMA Into a 529 for Tax-Free Education Savings? (Bob the Builder, Westchester, NY)

Joe: Bob the Builder.

Al: Okay, good.

Joe: Writing in from snowy, cold, wet New York. Westchester

Al: Westchester.

Joe: What, when did he write? Oh, in February.

Al: Yeah.

Joe: We got a lot of catching up to do, Big Al.

Al: We do. We’re way behind.

Joe: “Love the podcast. Was, catching up on November 2025.” Wow, this is just going way back in time now.

Al: It is, yeah.

Joe: “And heard about the person with the large UTMA for education. Nice problem, of course. There is a tax advantage option you don’t speak of, an UTMA 529. I believe you can roll the UTMA into an UTMA 529, and all future growth, so long as used for education purposes, is tax-free. I know y’all love tax-free. Check it out.” “Keep up the good work.” All right. So we got comments. We got a bunch of- Just a hodgepodge.

Al: We got all kinds of stuff. And, you know, Bob the Builder is right. Maybe we didn’t mention that.

Joe: So UTMA, Uniform Transfer to Minors Act.

Al: Yeah, so you can take that account, you can transfer it to a 529 plan, which then all future growth and income and is, tax-free if used for education. A couple caveats though, Joe.

Joe: Okay.

Al: One is if you have it invested, right? Let’s say it’s in a brokerage account. you’ve gotta sell the assets. You can’t roll the assets in. You gotta sell the assets and pay the tax, right? So you have that issue. And number two, because it was an UTMA, which is a personal account, you cannot change the beneficiary, even in the 529 plan. So just be aware.

Joe: It would have to be the kid’s 529 plan. If he doesn’t use it all-

Al: it’s his plan

Joe: … it’s stuck in the 529 …

Al: it’s stuck in his 529 plan.

Joe: Or hers.

Al: Yeah, and, typically we know that if you have a 529 plan for a child and they don’t use it all, you can transfer it to your other kid or beneficiary or grandkid or whatever. This is different ’cause this is an UTMA account going into a 529 plan, so it has to be in their name in perpetuity.

Joe: Would you do that?

Al: Yeah, I think so. I think that’s a good deal. It depends upon the gains, right? I guess, that you’d have to pay.

Joe: Would you set up an UTMA?

Al: No. I mean, if I had one. But, yeah, would I set up an- if that’s the question, no

Joe: So I mean, I remember- UTMAs like 20 years ago. Yeah. Or UTMA’s and UGMA’s?

Al: Yeah.

Joe: Unified Gift to Minors Act?

Al: Yeah.

Joe: What’s the purpose of this? It’s like, all right, so now because a minor can’t hold an investment account on its own. So my son is four. I wanna set up a brokerage account and put some dollars into it. So I’m gonna set up an UTMA account with, I’m the guardian and then he’s the minor.

Al: Yeah. And how- but it’s his money …

Joe: how much can I fund it with? Just like whatever the gifting amount is?

Al: I believe that’s how they worked. you don’t see them now because of the 529 plans. I mean, the, a lot of the reason was to fund their education. Was for education. And now you don’t need to do it ’cause a 529 plan is better. But, if you had one, it’s a good way to go.

Joe: So the, and then what? What’s the tax rules with UTMAs? Isn’t it under the kiddie tax rules?

Al: Yeah. Yeah. Sure it is.

Joe: So there’s not ton of tax advantage here?

Al: There, there used to be more tax advantage, too, because you had at the kids rate. I mean, I guess it’s some of the kids rate, ’cause the kids get, you know, like a-

Joe: Hundred bucks?

Al: Yeah. it, it’s, about, I forget what the– It’s like, $1,200, you know, where they get their lower tax rate.

Joe: Isn’t it $1,200 of gain? So at the kids rate? So.

Al: Yeah, something like that.

Joe: All right.

Al: Yeah. So but yeah, if you have an UTMA, which they’re less common, that wouldn’t be a bad way to go.

Joe: Okay I haven’t, yeah, I-

Al: You don’t see ’em much anymore- No … do you?

Joe: Yeah. I wouldn’t even know where to set one up. If a client came in and was like, “I really want an UTMA account.” I would refer ’em to Vanguard.

Al: you go, yeah, you go to a custodian or you go to your bank. Banks love UTMAs. ‘Cause they pay a little interest and make money on your money.

Joe: Okay.

Al: Yeah.

Joe: So let’s go, what? Because they fund it with a CD or something?

Al: Yeah, something. Yeah.

Joe: Cash?

Al: Yeah, cash. Yeah. Yep.

I’m 72 With a 25-Year-Old Roth. Do New Conversions Trigger the 5-Year Clock for Roth Withdrawals? (Mike, TX)

Joe: All right. this is gonna be a fun show, I can already tell. Let’s see what just, we got Mike from Texas. We got, “I’m 72 years old, and I have a Roth IRA for 25 years.” Okay. How can you… What, 1997.  It’s 2000, so I suppose- Roth IRAs are 30 years old …

Al: no, that’s right.

Joe: Yeah, they’re, 29 years old.

Al: Yeah, almost 30. Yeah.

Joe: Man, I’m getting old.

Al: I wasn’t gonna say anything ’cause you always talk about how young you are.

Joe: Yeah. “I’m 72 years old, and I’ve had a Roth for 25 years. I’m making Roth conversions this year and next. Will I have to wait five years before assessing the conversion money?”

Al: The answer’s no.

Joe: No money.

Al: and you can explain.

Joe: ‘Cause he’s already 72.

Al: Yeah.

Joe: You’ve already had a Roth for five years, so check. You’re over 59 and a half, check.

Al: Check. See, you, make it on two for two reasons.

Joe: So, that’s, I think all we have to say with that.

Al: You don’t wanna go into all the five-year clocks?

Joe: No, I don’t.

Al: It is so complicated. it’s a d-

Joe: We have a white paper somewhere on the website, five-year clock.

Al: Yeah, just go to that if you need more help on that.

Joe: Yeah, get that. Download that.

Inherited a Roth Less Than 5 Years Old: Are the Earnings Taxable? Can IRMAA Be Avoided? (Marion)

Joe: Let’s go to Marion. “Hi. Long time listener. I drive a 2019 Chevy Silverado. I drink Dos Equis to excess occasionally.”

Al: Occasionally, okay.

Joe: All right. “I ran into a possible IRMAA trouble with an inherited Roth IRA. How would you find,” Okay, let’s see what’s going on here. “My question is, if the inherited Roth IRA was established less than five years before it was inherited, then are the earnings taxable? Can I hold it for a while to satisfy the five-year holding period for tax-free withdrawals? Taxable earnings will cause the trigger to IRMAA deduction from my Social Security. Thank you for all you do for us DIYers.”

Al: Okay.

Joe: Okay. First off, if you inherit a Roth IRA, as long as the Roth IRA was established for five years, the distributions are going to be tax-free.

Al: Yeah, but she says it was less than five years.

Joe: If the inherited Roth IRA was established less than five years before it was inherited-

Al: Yeah.

Joe: then are the earnings taxable?

Al: The answer is yes, but if you take money out, the contributions are tax-free first, before the earnings.

Joe: Yeah, the hierarchy is what is the four layers. It’s gonna be the distributions first, or, I mean, not distribu- the contributions, then the conversion amount, then the earnings on the contribution amounts, and then the earnings on the conversion amount.

Al: Yeah. that’s right. And so usually the conversion amount of contributions is high enough that it doesn’t cause an issue. But to answer the question specifically is, like, let’s say you inherited an IRA that was only three-year seasoned, you just have to wait two more years, right? And then it’s all tax-free, even the earnings. So that, whatever it was, like, you, kind of inherit that holding period. You just have to wait another couple years in that example for it to be fully tax-free.

Joe: So can I hold it for a while to satisfy the five-year holding period?

Al: Yeah, the answer’s yes.

Joe: Absolutely. Yep. Yeah. Yep. Because there is no RMDs in Roth IRAs. So let’s say if you inherit this account after the required beginning date for a normal IRA from someone, right? yeah. So now with the new SECURE Act, you have to follow the RMDs of the deceased.

Al: Yeah.

Joe: But there is no RMD of a Roth IRA. So let’s say I’m 90 years old, I die, Marion inherits my Roth IRA- but I’ve only had it for, because I did a deathbed conversion.

Al: Yeah, yeah.

Joe: I converted the year that I died.

Al: Right.

Joe: then the beneficiary will have to hold onto that Roth IRA for five years to get the tax-free distributions.

Al: Yeah.

Joe: So, but there is no RMD on the Roth. It’s not like you have to take the money out. You have to take it out within 10 years-

Al: But that’s the only thing.

Joe: … but then still, it’s still tax-free.

Al: Still tax-free. You wait for five years, and then it becomes tax-free.

Joe: All right.

Al: Okay.

Andi: Alright lemme bust in here for just a second because a few minutes ago Joe told Mike in Texas to go download our white paper on the Roth 5-year rules, and you know I love giving you free financial resources. But if I was with the fellas when they recorded this, I would’ve reminded Joe that, number 1, Marion, who’s email they just answered, compiled the information that’s in that guide by listening to previous YMYW episodes, so thank you very much Marion. And number 2, we’ve rolled that great guide on the 5 year Roth rules, along with a bunch more of our guides, into something bigger and even better. Our new Retirement Accounts Guide is a comprehensive resource that covers those 5-year rules for Roth IRA withdrawals, plus Roth conversions, backdoor Roths, RMDs, and every major account type in one place. And the timing’s kind of perfect, because this week on YMYW TV, Joe and Big Al explain just about every type of retirement account, from 401(k)s and other defined contribution plans to self-employed and small business retirement plans and even equity compensation. So watch the show, then grab the Retirement Accounts Guide. Links for both are in the episode description. And don’t forget to share all these free financial resources with a friend.

You Ignore Future Income! How to Spitball Spending When a Pension and Social Security Are Coming (Stephen)

Joe: All right, let’s go to Stephen. He goes, “My question is, how do you account for future income sources?” How do you account for future income sources? Okay. All right. “It seems that when you give your spitballs, you ignore future income.” I don’t know if we ignore anything, bro. “I’ll adjust my numbers a bit for easy math. I have $3 million at age 60. You might spitball 4% or $120,000 a year, but I have a pension at 65 that’ll pay me 60,000 a year, so my withdrawal rate would drop to 2%. And if we take Social Security at 70, our combined benefit of $60,000 a year or so, our withdrawal rate would be zero.” Zero.  Obviously, we could continue the 4% and double our spending, but how would you recommend we smooth out the spending to enjoy our active younger years? I enjoy IPAs, and my wife, when she does drink, likes espresso martinis or Cabernet.”  No, that’s a good question. And this is where Excel really comes into play.

Al: Yeah. And I was gonna say financial planning software. Because when we are spitballing this, Joe, we can’t do multiple incomes, I mean, just on the back of an envelope. This requires some more analysis. This is why you go to a financial planner or you get financial planning software like Boldin or one, one of those that’s available that can tell you if, you’re on track or not. What we’re doing, we’re just trying to tell you whether we think you can retire based upon the numbers that you’ve given us, and-

Joe: If someone gave us these numbers, if you have $3 million at 60 and you have a pension at $60,000 and Social Security is another $60,000 or whatever the case may be, we’d say, “Yeah, go ahead and retire.” Here’s how I would look at this, is that in most cases we would look at your full retirement age when you have all of your fixed income sources.

Al: Yeah.

Joe: So l- let’s say that’s $120,000 or whatever. What did he say? He’s got at 65 his pension pays $60,000.

Al: 60, and then he gets another-

Joe: And if we take Social Security at 70, our combined benefit would be 60,000.

Al: And he’s took the 3 million at 4% and said, “Maybe I can spend 120 grand a year,” but he wants to spend more ’cause he’s got pension and Social Security.

Joe: So this is what you do. So at age 70 you’re going to have $120,000 of fixed income. Right? $120,000 at age 70. He is 60 today. So he’s, trying to understand how much that he can spend, or what is his goal?

Al: he never told us what he wanted to spend.

Joe: Yeah, he never told us what he wants to spend.

Al: Yeah.

Joe: So you could do it one way of saying, all right, let’s say he wants to spend $100,000 in today’s dollars. All right? Fair enough?

Al: Yep.

Joe: So that’s 100,000 in 10 years at 3% inflation, so that would be $134,000.

You’re gonna have $120,000 at age 70. Your distribution needs to be $14,000 at age 70. Yeah. You have $3 million today.

Al: And probably it would be better than that ’cause we’re not even doing cost of living on pension and Social Security.

Joe: But yeah. And so- … 120 minus that, and then let’s say .03. So you need about $400,000 in 10 years. You have 3 million, so go ahead and blow $2.5 million over the next 10 years.

Al: Yeah. And this is where the financial planning software can help you.

Joe: I don’t, yeah, I don’t think you even need that. No. All you need is a calculator.

Al: unless he tells us he wants to spend 400,000 a year, then it doesn’t work.

Joe: Sure,

Al: So it… We don’t have that fact, so it’s… I guess, here’s how I would approach it if I knew what the spending rate was. I just made up a number. What if he wants to spend 180,000? And his pension is 60. 10 years before Social Security, so I’m not counting that yet.

Joe: Okay.

Al: So he’s got $120,000 shortfall. I divide that into the 3 million, and I get a 4% distribution rate at age 60, which is kind of on the border, but that’s not even accounting for Social Security, which will come in 10 years for another 60 grand. So my intuition is this’ll be just fine. But I, need to have a spending number to kinda give a sense whether this seems like it’s gonna work or not, and,

Joe: He’s trying to calculate, like, max spending.

Al: What he, can spend. Yeah.

Joe: then you’re calculating what your max spend is, so- … but yeah, we always look at future income. I don’t think we ignore it.

Al: Yeah, like, like for example, if this came out, maybe it, what if it came out to 5% distribution rate, not accounting for Social Security?

We might say, maybe that’s a little rich, maybe not, ’cause when you consider Social Security. But it’s too hard on the back of envelope to compute all these different incomes.

Joe: All right. I think you’re in good shape though, Steve.

Al: I do too.

Are Your Roth Conversion Calculations Misleading? Why Future RMDs Need an Inflation Check (Lu)

Joe: Let’s go to Lu. “Hi Joe and Al. I listen to your show along with other podcasts during my daily walk.” How long’s your walk, Lu?

Al: It’s long.

Joe: “I want to say your show is fantastic.” Thank you. Nice. “Several of your episodes discuss whether you’re doing Roth conversions or not. I understand that we have to make many assumptions. Tax brackets is one in which we have to make an assumption before we can analyze.”

Al: Okay.

Joe: “The easiest assumption is the tax bracket would stay the same, which is reasonable, or lack of any other information. Our example is a 60-year-old wonders if he should convert some money until his RMD at 75 years old. You and those from other podcasts was you- would use future dollars of the RMD at 75 and apply that to a current tax bracket in 2026 in stating that you’d be in the 37% tax bracket. Convert, convert now. I think this is misleading.”

Al: Okay.

Joe: you gotta run an inflation factor on the tax bracket too, right?

Al: Yeah, which we, she, makes a point, ’cause we don’t usually talk about that. But I, can say in my head, Joe, I’m already kind of thinking, “Okay, the tax bracket is this now, it’ll…” I don’t say that, but I’m already- And so I’m not gonna say definitively they’re in the 37% tax bracket if they’re right on the border, right? ‘Cause probably the tax bracket will have creeped, you know, bracket creep.

Joe: Sure.

Al: Yeah.

Joe: “Don’t you have to bring in the RMD at 75 back to today’s dollars, roughly one half if investing into the S&P 500, before applying that in today’s tax bracket? What have I gone wrong with this analysis? Thank you in advance, Lu.” No, I think-

Al: Yeah, no, Lu’s correct. But I would say, I mean, I, we, I, at least me, you’re probably the same, I kinda give that some thought. I, and we, don’t say definitively. We, just say, “You know, you might be in 34 or 37% bracket based upon what this looks like.” Again, this is just back of the envelope spitball. This is not definitive. Without a full-blown financial planning software, putting the numbers in, you, and doing, figuring out what tax brackets would be based upon a certain cost of living rate, it’s hard to say. And even if you did that, you’re still guessing because- You’re guessing. Things are always different than you think.

Joe: Who knows what’s gonna happen in 15 years? Yeah. You know? So, you, you, kinda look at it at the back of the envelope of saying, “All right, at 60 years old, here’s my dollars. You use a certain assumed rate of return on the overall money, and then you apply whatever the RMD is today and what that number is. You look at the tax brackets, and you can kinda gauge where, do you think you’ll fall?

Al: Yeah.

Joe: And if you’re on the cusp of something, then you’re like, “All right, here, I’m either gonna be in the 24 or the 22.”

Al: Yeah. and the other, thing-

Joe: if rates go up or if they stay the same or if they go down, you know, I probably made a mistake.

Al: The other thing that we don’t necessarily say is tax brackets are at the lowest level in our careers right now.

Joe: They are.

Al: And do you think they’re gonna go lower? Maybe. Stay the same? Maybe. Do you think they may go higher being that we’re in a lot of debt in the country? That seems like a reasonable possibility. So that’s kind of part of what we factor into-

Joe: But we’ve been saying that for 20 years, too.

Al: I know, and it hasn’t happened. So maybe we’re wrong.

Joe: But you know what has happened, is that they got rid of, like the SALT deduction

Al: Yeah. They kinda, the back- they kind of-

Joe: They, they got their higher tax with-

Al: Through the back door, they got their higher tax

Joe: They got their higher tax, but it looked like they lowered rates.

Al: That’s true.

Joe: All right.

Al: Okay.

We’re Teachers With Pensions That Cover Everything. Should We Stop Saving and Fund the 529s? (Tony, NY)

Joe: All right. Let’s go to Tony in New York. “Love your show. My wife and I, both 45, are teachers, and we retire, and will retire in about 10 years.”

Al: Okay.

Joe: “We will both have pensions that will cover all of our monthly needs, especially since our mortgage will be done in two months. I have a 403(b)worth $220,000 and my wife has a Roth IRA worth 320,000. I am still maxing out my 403(b). Is there a need for this? We don’t contribute to the Roth anymore because we are past the income limits. I feel like our RMDs will be really high and we won’t need it necessarily. We do have two kids, 11 and 16, and we do have 529 plans, about $110,000. Should we relax with saving for our retirement and maybe focus on the 529 plans? Thanks for your insight.” All right. 45 years old, Al.

Al: Okay.

Joe: They got-

Al: Retire in 10 years …

Joe: 403(b)200,000, Roth IRA 300,000, so half a million bucks, and they are fully funding the 403(b)- Correct … still maxing the 403(b)plan.

Al: Yeah. yep,

Joe: Okay. What would you do? They, they, can’t put money into the Roth IRAs because they make too much money.

Al: Could do backdoor, maybe, depending upon if they have IRAs or not.

Joe: Okay. No, you keep saving.

Al: You keep saving. I agree. And I would see if there’s a Roth option on the 403(b). That’s what I would do. And secondly, Joe, I don’t think the RMDs are gonna kill them. It’s a balance currently of 220,000. They’re 45. The RMD on that, I mean, just to give you an idea-

Joe: I think he wants us to say, “Oh yeah, no problem- No, I, stop saving. Just spend a bunch of money. Enjoy it, Tony.

Al: I know what he wants us to say. You deserve it … but we’re gonna say what, would I do and what I… I would just keep saving-

Joe: Yeah, because- …

Al: because, you never know what you’re gonna need.

Joe: You don’t know. you’re gonna retire at 55. You know how young 55 is? I mean, you’re gonna have a 40-year retirement or more, and then you probably wanna travel. You probably wanna do different things. Your kids are gonna go to college, and then you probably wanna travel to where they go to college. Then you probably wanna do this and that, whatever. Maybe you wanna-

Al: You wanna start, going on cruises.

Joe: Right. It’s like don’t forget about your future self. I get it. You wanna hang out and you wanna do the fun things now at 45, and you feel like, “Yeah, I’ve saved all this money, and you know what? Our pensions are gonna cover everything.” I would not think that way. I would be like, if you can afford it, continue to save it. Still live within your means. Do the things that you’re doing because once you retire, it’s going to be like Saturday every day, brother.

You know? And then what do we do on Saturdays? We find a way to spend money. And your kids are gonna be older, you probably wanna do more things, and you’ll be happy that you have, you know, a couple million bucks sitting in the accounts.

Al: Yeah, that’s exactly right. I can tell you, Joe, now that I work a little bit less-

Joe: Yep or a lot less.

Al: Yeah, we spend more. There’s more time.

Joe: There’s more time. Hey, what are we gonna do? Let’s do this. Let’s go here.

Al: Let’s go to this restaurant Let’s do this. Let’s, let’s go to this activity. Oh, you know what? Let’s go to Europe again.

Joe: Yeah.

Al: Yeah.

Joe: Oh, man. That was fun, wasn’t it? Should we do that again?

Al: Oh, yeah … let’s do that again.

Joe: But listen, let’s-

Al: Are we booked the next year trip? Or let’s go next quarter.

Joe: Yeah, let’s live it up a little bit. Maybe we stay at that m- fancier restaurant-

Al: Yeah, you know what? … or a fancier hotel. I have trouble sleeping in economy. Let’s get the business class.

Joe: Yeah, there you go. all right.

$4 Million and Ready to Exit the Rat Race at 61. Do the Numbers Work? (John and Peggy, San Jose, CA)

Joe: We got, “Hello, this is John and Peggy from San Jose, California. Wanted to get an assessment of our situation. Wife is already retired. I’m looking to exit the rat race in the next couple of months.”

Al: Okay, good.

Joe: “We have about 4 million in savings, of which one half is in a brokerage account and two and a half is in a 401(k).

Al: Okay.

Joe: How do you get one half and then two and a half? Isn’t it one half is in this and then the other half is in-

Al: I, think he meant one and a half million is in the brokerage account, and two and a half million is in the 401(k). That adds up to four.

Joe: Okay. I was like, half is in a brokerage account- … and then another half is here, and then another half is there.

Al: But it’s a different amount.

Joe: Got it. One and a half is in a brokerage account. Why didn’t you just say that? All right.

Al: It’d be easier if he said 1.5 million.

Joe: Yes, that would.

Al: Then we’d follow it better.

Joe: We’d catch it. Yeah. All right. Yeah. “And our spending is roughly $150,000 a year. House is fully paid off. Looking to see if those numbers work. I’m 61, the wife is 63.”

Al: Yeah.

Joe: “So we need to consider healthcare certainly before that, but also just wanted to see how those numbers look, if it’s feasible. Favorite drink in California is different types of IPAs.

Al: Yeah. You better get with the program. The…

Joe: There’s no way. I went to a birthday party over the weekend.

Al: You’ve been a Californian for a while.

Joe: 20-some years, yeah.

Al: And you still don’t like IPAs?

Joe: No. Oh, my. So we went to a birthday party, kid birthday party, and then it was like, all right, you know, they’re running around, and then the dad goes, “Hey, you know, in that blue cooler- there’s some beer in there.” And I said, “Oh, thank God.”

Al: And it was an IPA.

Joe: Oh, it’s all it was IPA. Stone IPA and some other IPA, and-

Al: Oh, some of those are heavier than others.

Joe: Oh, my God.

Al: Stone is, a rough one-

Joe: Well- …

Al: if, you don’t like them.

Joe: they, he had every assortment of IPAs in this cooler.

Al: Got it. But hazies, I like hazies ’cause they’re-

Joe: Yeah, there was a hazy in there.

Al: You might like that.

Joe: There was another- I don’t know. It was… I could barely choke down a half of it- Some of the s- … and like, and I, would much rather watch kids play on a slide than drink that IPA.

Al: some of the IPAs are pretty bitter. That’s, for me, that, that’s why I like the hazies, because the s-

Joe: I can drink 12 Coors Lights in a golf course,

Al: Yeah … in a golf setting.

Joe: And that’s, that’s fine. I could barely choke down- … an IPA in, like, two hours. Half.

Al: Got it. maybe that’s how you’ll stop your drinking problem.

Joe: Oh, yeah. Thank you. I think that’s it.

Al: That’s it. Only IPAs from now on.

Joe: Oh, man. No, I would never drink again. “I hope you would be able to help me out.” All right, so let’s see. he’s got plenty of money. He’s got $4 million … the numbers work. He wants to spend $150,000 a year.

Al: Yeah, even without considering Social Security, Joe, he’s got a 3.8% distribution rate at age 61 to 63. Yeah, that, that seems just fine.

Joe: Yeah. I love the diversification he’s got.

Al: Yep.

Joe: one and a half in taxable. I would do some conversions for sure. You could live off of those taxable dollars-

Al: Yep … Oh, for sure, yeah …

Joe: At least until you claim Social Security. You could convert to the 12% tax bracket roughly.

Al: You know, the only thing I would say, Joe, and this, pertains to anyone that’s right around that 4% line, ’cause it, it, typically works, but, you know, you’re kind of on the bubble. I think this works fine, but is this: when you look at your expenses, figure out what the needs are versus the wants, and if there’s a bad market year Then kind of put off some of the wants, like some of the vacations or the new car or whatever it may be, just to, for peace of mind that you can ride it out. I think that’s kind of true of everybody, that is… Unless you got millions and millions, it doesn’t really matter.

Joe: Yeah. he has millions and millions.

Al: He does.

Joe: He’s got one half of-

Al: He does …

Joe: another half …

Al: but it’s a 3% dis- it’s not a 2% distribution rate, which is what I’m suggesting.

Joe: Yeah, but he’s just gotta bridge the gap for five years.

Al: I know. and we don’t know what the Social Security-

Joe: he’s got $4 million. It’s- He probably maxed out his Social Security for sure …

Al: it’s, gonna be high, for sure.

Joe: It’s gonna be a pretty good number. Yeah. And he spends 150, he’s gonna have a-

Al: Yeah, 2% burn rate, for sure.

Joe: Yeah, probably.

Andi: Interesting. John and Peggy didn’t want a spitball, at the top of their email they literally asked for an assessment of their situation. Smart instinct, John and Peggy. A back-of-the-envelope spitball from the fellas is a fun first take, but this is your real retirement. It deserves a real look. Pure Financial Advisors’ free assessment is a two-meeting process with experienced professionals who were trained by Joe and Big Al. They’ll take a deep dive into your entire financial life and work with you to create a plan that fits your specific needs. In the first meeting, they’ll review your tax return, your investment statements, your trust and insurance documents. In the second, they’ll walk you through the real strategies for your situation: how to build your retirement income, get the most out of Social Security, lower your taxes now and down the road when required minimum distributions hit, and whether your portfolio’s risk and fees actually fit your goals. The whole point is to educate and empower you so you can decide what’s right for you. It doesn’t cost you anything, and it doesn’t put you on the hook for anything. So if you aren’t sure when you can pull the retirement trigger or if RMDs are gonna eat you alive, this is how you get real answers and a real plan. You can meet with the Pure team in person at one of our offices in San Diego, Seattle, Chicago, Denver, Salt Lake City, Nashville, Davis, Los Angeles, Irvine, Brea, and Prescott, or meet with us online from anywhere in the world. Why not book it now? Click the Free Assessment link in the episode description to get started.

$4 Million 401(k) and a 6.5% Rental Mortgage: Pay It Off or Convert to Roth? (Rajesh)

Joe: We got Rajeesh.

Al: I think that’s probably right.

Joe: Okay. Age 60, 57. Plan to work another two to three years. Income is 5 to $600,000 per year.

Al: Wow.

Joe: 401(k) $4 million. Wow. Okay.

Al: Okay. We’re in good shape …

Joe: Roth IRA, a million. Brokerage 1.2, cash 250. No mortgage in primary residence. Two rentals are paid off. We have a $800,000 mortgage on two rentals with an average 6.5% interest rate. Rentals generate 140 per year. Once retired, we’ll have about $7,000 from pensions at 65, plus Social Security. Question. You do whatever you want, bro.

Al: Yeah, you’re good.

Joe: Should I pay off the mortgage in the next one to two years or should I focus on Roth conversions when stop working in two years? You got $4 million in a 401(k) plan. He’s 60, 57. Pay off the mortgage at 6.5%. There’s $800,000 on the mortgage. The RMD will pay off the mortgage.

Al: Yes. And the rental income pays off the mortgage. Use some of that to make higher payments.

Joe: Yeah. I would do conversions myself.

Al: I would do conversions, too. It doesn’t say how much they’re spending, so we don’t really know. But I would, if your rentals generate that much money, 140,000. Of course, I don’t know, is that gross or net after expenses? It doesn’t really say. And your 7,000 pension, I don’t know, is that monthly or is that annual? It doesn’t say that either, so we don’t really know. But in general, Joe, I would say if your rental income covers your rental mortgages, just let it ride. You, can pay some extra. I wouldn’t use my hard-earned cash to pay that down if it’s already being covered.

Joe: Yeah. Let someone else pay it.

Al: Yeah.

That’s the whole point, right? Yeah. And I get it, it’s a higher interest rate, so that’s why he’s thinking that. But I still would… I would make extra payments, but I, would be hard-pressed to take half of, more than half of my taxable investments and pay off the mortgage myself.

Joe: Yeah. He’s done a great job

Al: Yeah, And, and-

Joe: They’re in great shape … and- But let’s see, $4 million. And that $7,000 is what’s interesting to me. I’m guessing that’s $7,000 a month.

Al: That’s what I would guess too, but I don’t know that for sure.

Joe: Plus his Social Security.  I think, you know, and he makes 4 to $500,000 a year. With this much saved, 4, 5, 6, 7- roughly $7 million at age 60 and 57.

Al: Yep. Yep.

Joe: They’ve had to save about $150,000 a year-

Al: To get there, yeah.

Joe: You, you make 500, he’s p- you got 200 to tax.100 to save. That’s three, so they spent 200.

Al: Spent two, maybe a little bit more, but yeah.

Joe: There, then you got-

Al: If it’s, a couple hundred thousand, if they got 140,000 a year, if that’s net, then that covers most of it just right there- from the rentals. And then pension- Yeah … and Social Security. So the truth is it hardly matters. Do whatever you feel like.

Joe: But if it were- But the, 4 million is what I’m seeing. It could go to eight.

Al: Yeah.

Joe: Or it could go to, like, seven.

Al: Agreed, and then, you’ve got a big RMD.

Joe: Then you have a pretty big RMD, and then, then take the present value of that RMD and then figure out what tax bracket you’re in.

Al: Which tax bracket is that, Joe? A 15-year present value?

Joe: Yeah.

Al: Can you do that in your head?

Joe: I could. Not in my head, no.

Al: Yeah, I would, keep the mortgage myself, but I would, because it’s a high interest rate, I think I would, probably just prepay him it, prepay it with some of the rental income that I don’t really need.

Joe: Yep.

Al: Yep.

We’re 62 With $1 Million. Can I Finally Buy the $75K Audi, or Should I Lease? (Wayne, Long Beach, NY)

Joe: We got Wayne. Big Wayne.

Al: Okay.

Joe: “Hi, Joe and Al. We drive 2013 Subaru Crosstrek.” And a 2022 Subaru

Al: Impreza

Joe: Impreza?

Al: Which was pre-owned.

Joe: Yeah. They love the Subaru.

Al: They do. I think-

Joe: They love fly fishing.

Al: They’re probably…

Joe: Oh. They probably live in Seattle.

Al: no, they’re-

Joe: Love IPAs.

Al: Looks like they’re in Long Beach, New York.

Joe: Oh, look at this. Lex love IPAs. Of course you do. Deep Red and Maple Jim Beam Rye to sip.

Al: Nice.

Joe: A little Jim Beam. Did they, like, close a bunch of distilleries?

Al: That I don’t know ’cause I don’t drink Jim Beam.

Joe: I don’t think I’ve ever bought a- … anything close to Jim Beam. “I am married, no kids. Rent-controlled apartment in Long Beach, New York for 1,250.”

Al: It’s a pretty good deal in Long Beach.

Joe: Yeah. “CrossCheck is paid off, and the Impreza has a little over $3,000 left. We have $5,000 in debt. Our net liquid value- … is a million dollars. Household income is 130,000. We rarely go out to eat, and we max, At max, it’s 100 bucks. We are both 62 years old, and I soon wanna start withdrawing from my Ameriprise very soon, and very flexible with that amount.

It is time to finally want to treat myself to the Audi RS3, which is $75,000. Please confirm this might be possible. As you can see, we own our cars- … but it might be time to lease. What are your thoughts?”

Al: Hey.

Joe: Okay, Wayne. We’re- I have no clue.

Al: We are missing everything.

Joe: You… Yeah. You-

Al: So here’s what we need. We need to know what you’re spending. We need to know what your fixed income is. We need to know the breakdown of your liquid assets. Is it all in retirement? Is it in a Roth? Is it outside of retirement? We need to know when you wanna retire, so what your retirement balance is going to be when you retire. Then we can answer the question. At this point, we don’t know. The answer is maybe. I think especially if you got a good pension, right? If they have a good pension, Social Security, go for it.

Joe: Go for it.

Al: But if they don’t, if they need all of their assets for their lifestyle- Lease … probably not, but we just don’t know, any of that.

Joe: Would you lease or buy?

Al: Lease or buy? if I could afford it, I’d buy, particularly since they like to keep their cars for a long time.

Joe: Right.

Al: but, otherwise… The thing about leasing is, you can get a little bit better car for your cash flow needs, and that, you know, I’m not against it at all. Just know what you’re doing.

Joe: Yeah. I just-

Al: You lease, don’t you?

Joe: No.

Al: Oh, you don’t? I thought you did.

Joe: I used to.

Al: You used to.

Joe: I can’t stand those car payments.

Al: Yeah, I, hear you. I’ve never leased myself.

Joe: No. I leased for a coup- you know, then you kinda lease up, right?

Al: yeah.

Joe: Drive a new car for a couple years-

Al: Yeah, no, I-

Joe: and then you get another new car …

Al: I get why it’s cool. Yeah.

Joe: Yeah.

Al: I don’t care that much. I mean, I’ve had my Tesla now for four years, I guess. So I’m, good with that.

Joe: Yeah. Way to go, Elon. All right. Aaron, you wanna… You say lease?

Al: He lease- There’s a leaser. Aaron leases.

Joe: Yeah.

Al: Yep

Joe: But then you bought it? Then I bought it. So you leased it, but then you stopped leasing and you purchased it?

Al: Just decided, yeah. Okay. There you go. A lot of flexibility that way.

Joe: Yeah, so you can test, you know? Yeah, Try it before you buy.

Al: Test drive it for three years.

Joe: Yeah. Try before you buy. I like it.

Al: Yeah, yeah. I like that. That’s okay. Nothing wrong with it.

Joe: All right. well hopefully you enjoyed the show. Andi hopefully has come in and out. But Al’s gonna be in Yosemite for a couple weeks. I have to go back to Minnesota for a couple of weeks.

Al: Yeah. Maybe we have some best of coming up or-

Joe: No, we’re taping, like, nonstop just so there’s no best of.

Al: Got it. Perfect.

Joe: So it’s just the fresh material just coming at you live and hot.

Al: Yeah, ’cause I’ll be gone, and then you’ll be gone. Maybe I’ll record with someone else and see how that works.

Joe: Just do whatever you gotta do. I think Aaron’s gonna be excited about that one.

Al: Yeah, he is.

Joe: All right. thanks, all. We’ll see you next time. Show’s called Your Money, Your Wealth.

Outro: Next Week on the YMYW Podcast

Andi: Next week YMYW is on FIRE, baby. Financial independence, retire early, that is. Can Dr. Kickass Seabass and his Dr. wife retire at age 55? Steph in the San Francisco Bay Area is facing mandatory retirement at age 56, but he and his wife Ayesha wonder if he can punch at 50. You can watch us do YMYW now, you know that, right? The video version is on Apple Podcasts, Spotify, and YouTube. Make sure you’re following the show so you don’t miss anything. And if you’ve got a finance-phobe friend who’d actually enjoy a money show this entertaining, send them this episode. Word of mouth is how we grow.

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.
_______

Listen to the YMYW podcast:

Amazon Music

AntennaPod

Anytime Player

Apple Podcasts

Audible

Castbox

Castro

Curiocaster

Fountain

Goodpods

iHeartRadio

iVoox

Luminary

Overcast

Player FM

Pocket Casts

Podbean

Podcast Addict

Podcast Index

Podcast Guru

Podcast Republic

Podchaser

Podfriend

PodHero

podStation

Podverse

Podvine

Radio Public

Rephonic

Sonnet

Spotify

Subscribe on Android

Subscribe by Email

RSS feed

YouTube Music

See All Platforms