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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 7, 2021

How much company stock in your investment portfolio is too risky? Can series I savings bonds act as the cash in your portfolio? In the sequence of retirement savings, would contributing to a brokerage account instead of maxing out your 401(k) or 403(b) ever make sense? How should a 20-something self-employed couple, investing monthly in Vanguard’s Total Stock Market Index Fund (VTSAX), get retirement-ready? Is it possible to pay for the construction of a new home and keep the earned income tax credit and child tax credits? Should Roth conversion funds come from an inherited IRA, 401(k), brokerage account, or Social Security? 

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Show Notes

  • (00:59) How Much Company Stock is Too Risky? (podcast survey)
  • (03:54) I-Bonds in an Investment Portfolio? (Kevin, Denver)
  • (06:54) Sequence of Retirement Savings: Save to Brokerage Instead of Retirement Accounts? (Kevin, Denver)
  • (12:37) Self Employed Retirement Planning in Your 20’s: VTSAX and What Else? (Preston, AL)
  • (16:26) How to Pay for New Home Construction and Retain Tax Credits? (Nick, Omaha, NE)
  • (24:07) Roth Conversion from Inherited IRA, Brokerage, 401(k), or Social Security? (Rose, Southeast WI)

Free financial resources:

NEW! WATCH Joe and Big Al answer questions from the YMYW podcast – on video! 

LISTEN | YMYW Podcast #257: Why Not Just Go All In On VTSAX, Vanguard’s Total Stock Market Index Fund?

Why Not Just Go All in On Vanguard’s Total Stock Market Index Fund VTSAX? | Your Money, Your Wealth® podcast #257

Listen to today’s podcast episode on YouTube:

Transcription

Today on Your Money, Your Wealth® podcast 355, YMYW listeners are dialing in their retirement saving and investing strategies: is it too risky to have 7 or 8% of your portfolio in your employer’s stock? Are series I bonds a good investment for the cash portion of a portfolio? Would it ever make sense to save to a brokerage instead of maxing out a retirement account? Besides investing each month in VTSAX, Vanguard’s Total Stock Market Index Fund, how else should a self-employed 20-something couple begin setting themselves up for retirement? What’s a good strategy to pay for construction of a new home and retaining the earned income tax credit and child tax credits? And finally, does it make sense to convert to Roth from an inherited IRA, brokerage, 401(k), or Social Security funds? Visit YourMoneyYourWealth.com and click Ask Joe and Al On Air to send in your money questions. I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, C PA.

How Much Company Stock is Too Risky? (podcast survey)

“I started participating in my ESPP earlier this year. The company gives a 15% discount on stock price. I deferred the maximum allowed (15% of my pay). The first accumulation period just ended and the stock purchase has taken place. These shares represent approximately 2% of my total portfolio (401(k) and brokerage combined). To avoid paying ordinary income tax on the gain, I’m considering holding the stock for 18 months after the purchase period. But since a new purchase period happens every six months, I will go through three more accumulation/purchase cycles before I sell any shares, so it’s possible that the stock could grow to as much as 7 to 8% of my total portfolio. Is it too risky to have this much invested in my employer’s stock? Would it be wiser to sell my shares immediately after the purchase, even though it would mean paying ordinary income tax on the gain?”

I-Bonds in an Investment Portfolio? (Kevin, Denver)

“Hey Andi, Joe & Big Al, after the beating I took from Joe on my last set of questions in podcast 290, it’s taken me a year of therapy and a lot of Barrel Aged Stouts to seek your insights on another topic. What is your take on I-Bonds in the cash portion of a portfolio? What is the downside beyond the purchase limits and penalties for early withdrawal? With the recent rate increase, it seems like a better alternative than what can be earned in a high interest savings account or CD. Historically, I’ve held a $100K in a CD ladder, but with my higher rate CDs all maturing over this past year, I’m trying to find a low-risk alternative that can earn at least a little bit of interest.”

Sequence of Retirement Savings: Save to Brokerage Instead of Retirement Accounts? (Kevin, Denver)

“A second question if you’re willing as a follow-up to episode #350 and the sequence of retirement savings.

1. 401K Match
2. Max out Roth IRA
3. Go back and max out 401K
4. Money into brokerage

My wife and I plan to retire in 5-8 years respectively. We max out our contributions to an HSA, my Roth 401K, her 403B account, along with her annual $7K back-door Roth, but there isn’t enough extra income to also establish a brokerage account. We currently have 80% in pre-tax and 20% in Roth, with a conversion strategy of eventually reaching a more even mix by utilizing farm rental income for paying the taxes on the conversions. My question: would it ever be feasible to put money into a brokerage account in lieu of maxing out the 403b? It seems counterintuitive to continue to put money into a pre-tax savings plan, only to convert it to a Roth after my wife retires. We’re in the 24% tax bracket and our projected retirement spending will probably keep us within that tax bracket range, or higher. FYI, I’m neither an engineer nor a professor, as Joe has surmised in the past. I’m a nurse who’s become a transition project manager helping hospitals move and open new hospitals, and thus a walking spreadsheet who needs a plan for everything. Thanks again for taking my questions. – Kevin in Denver”

Kevin asked about investing in I-Bonds – with so many sexier investments out there, why would you want to own bonds? We’ve got a new guide on that very topic and you can download it for free from the podcast show notes at YourMoneyYourwealth.com. Learn about the different types of bonds, the pros and cons of owning them, and the role bonds play in a diversified investment portfolio. If reading financial literature or asking questions on a podcast with a financial advisor going through a crabby spurt aren’t providing the in-depth answers you need for your retirement plans, why not click the Get an Assessment button also there in the podcast show notes? Schedule a financial assessment with one of the experienced professionals on Joe and Big Al’s team at Pure Financial Advisors. It’s free, like the guides and the podcast, but unlike them, this comprehensive financial assessment is expressly tailored for you – your tax situation, your ability to tolerate risk, your retirement needs and goals. Click the link in the description of today’s episode in your podcast app to download the guide to bonds, and to schedule your free financial assessment.

Self Employed Retirement Planning in Your 20’s: VTSAX and What Else? (Preston, AL)

“I am currently 24 years old. I am getting married in June, and my fiance is 22 years of age. We are in the process of setting up retirement accounts. We are self-employed so we are setting up our own accounts. My plan as of now is to open up two separate Roth IRA with plans to max them out every single year. Along with that, I want to have 1-2 more accounts that offer a tax benefit. I just finished reading A simple path to Wealth by J.L Collins. I have done my research and considering opening a Vanguard account and contributing to VTSAX with a percentage of my salary each month. I was curious to know what else should I be doing? And how to set us up for the most successful moving forward. I appreciate any advice you could offer.”

How to Pay for New Home Construction and Retain Tax Credits? (Nick, Omaha, NE)

“Hi Joe, Al, and Andi. Love your show and appreciate you answering my last question regarding the earned income tax credit. By the way my 4 kids do have clothes and eat plenty haha. I have another question regarding the earned income tax credit and paying for a new construction home with cash vs a 30 year loan. Is it best to take a loan for around 300k at 3-3.5% interest for 30 years or choose to pay cash?

Normally I would not be on the fence about the decision with interest rates where they are and I would just take the loan and invest the difference in the market. However with a paid-off house I can continue to max all my retirement accounts (401k, 457b, hsa) around 46k annually) or close to so that I can reduce my agi in the 26-30k range to get the max earned income tax credit and child tax credits. For 2021 these credits come out to 6,728 EITC, and 13800 for child tax credits fully refundable. If the child tax credit is not extended into 2022 it would still be over 14k per year going forward in return/refund. To sum it all up, is it better to take a 30 year loan for 300k at 3-3.5% and invest the difference or get a guaranteed rate of return from Uncle Sam with the EITC and child tax credits ranging from 14k-20k (46-67% rate of return) on the 26-30k agi? I would need at least a 5-7 % return on the 300k annually to keep up with Uncle Sam’s generosity…”

We’ve got two new free guides ready for you to download from the podcast show notes at YourMoneyYourWealth.com: First, find out how to maximize the tax deduction you receive from your donations to charity in our Charitable Giving guide with Steps on Informed Donating. Next, learn how to fast track your retirement savings, regardless of your current account balance with our Tips to Fast Track Your Retirement. Download both of these new guides, and revisit that episode that touches on the Vanguard Total Market Stock Index Fund, where the fellas answered the question, why not just go “all in” on VTSAX? Access all three by clicking the link in the description of today’s episode in your podcast app to go to the show notes and look for Free Resources.

Roth Conversion from Inherited IRA, Brokerage, 401(k), or Social Security? (Rose, Southeast WI)

“Hi Andi, Big Al and Yo Joe: For the important stuff…. Call me Rose. I drive a 2006 Toyota Prius, gotta love the 57 MPG. No pets anymore. I am 57 and retired (after 55). I own my home with no mortgage. I have NO earned income. This is about ROTH conversions, sorry. No back door, I don’t want to deal with the pro-rata nonsense. I can take money from one or more of 4 sources to do ROTH conversions from traditional IRA/401K accounts. I could take about the same amount of money from each source. The 4 sources I could take the cash out of are:

• Inherited IRA (RMD through age 87)
• Brokerage
• 401K (the rule of 55 applies)
• social security (starting age 62)

I understand the tax implications of the RMD/401K (ordinary tax), Brokerage (mostly LT Cap Gains and Dividends) and social security starting at 62 (85% tax). As a note, the funds are being converted to get them into a tax-free account and to reduce my future tax bracket (would be 28-33% if I do nothing). The longer it takes to move the funds, the more years I will be in a higher bracket. The plan below includes my personal spending budget and the rest is for conversions and taxes. This is the plan:

• 2022-2025 – max out the 24% tax bracket (until tax brackets change)
• 2026-2029 – max out the 28% tax rate (ideally 4 years only)
• 2030-forward – max out the 25% tax bracket until all funds are converted and then stay in that bracket

Ideally, I’d like to have most/all of the conversions done before age 72 RMDs kick in. This is my plan unless certain presidential administrations mess up my plans, again. I live in a state that collects state income taxes but want to move to a state that does not collect income tax in 2022 or 2023. Here are my thoughts…
We are currently in a low tax time (22/24% brackets versus 25/28% brackets or higher). I know at the end of 2025 the brackets are planned to increase to 25/28%. If I use ordinary taxed funds, the remainder of the tax bracket for the conversion shrinks due to the higher ordinary tax rates. However, the federal tax bracket percentages are lower now so the overall taxes due will be lower. This will allow the pre-tax accounts to continue to grow and will extend the timeframe for the conversions.
If I use funds from the brokerage account, I will pay less in taxes (15% bracket on about 55% gains) and can convert more to fill up the tax bracket each year. This will allow me to convert faster but will also leave the ordinary tax funds to be paid when the tax brackets are higher.

I could also use social security at age 62 (taxed at 85%). This would allow me to leave my brokerage and 401K accounts alone at that point. If I wait until FRA for social security, it will push me into the 28-33% tax bracket. I am curious to hear your thoughts… Should I use the higher tax funds while the brackets are lower and then switch to the lower tax funds after the tax brackets go up? Or, vice versa? Thanks for your thoughts. Make it a great day! -Rose”

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They’re like squabbling brothers sometimes, aren’t they? They’re way behind on answering your voice messages and emails since Big Al has been vacationing in Tahiti, but we’ll start catching up next week. Make sure you’re subscribed to the YMYW podcast so you don’t miss a thing.

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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.