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
July 12, 2022

When the financial markets are down, should you postpone retirement? When inflation is up, should you change your investments and pile into things like value and commodities? Plus, the ever-popular retirement spitball analysis: an early retirement plan, Medicare, Social Security, TSP, and Roth conversions, and when and how business owners should convert $5.5M to Roth IRA. Also, if excess 2021 Roth contributions were returned, can you file last year’s taxes now without penalty? Finally, what’s the difference between a collective investment trust and regular mutual funds?

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Show Notes

  • (00:58) I Didn’t Expect Bonds to Be Down Like This! Do I Have to Postpone Retirement? (Janie, St Louis voice)
  • (06:35) Should I Wait to Retire Until My Accounts Regain Some of Their Losses? (Frank the Tank, San Diego)
  • (10:57) Should I Time the Market in This Inflationary Environment? (Jane)
  • (16:55) Early Retirement Spitball: We Have $200K, Saving $50k/Year. Can We Retire in 25 Years at Age 50? (Da Big Cheese)
  • (21:44) Small Business Retirement Spitball: How and When Should We Convert $5.5M to Roth IRA? (Santana, Arizona)
  • (26:12) Retirement Spitball: TSP, Pensions, & Social Security. Roth Conversions? (Cliff in Troy, Michigan)
  • (31:00) Excess Roth Contributions Returned. Can We File 2021 Taxes Now Without Penalty? (Rich)
  • (33:51) Collective Investment Trust vs. Mutual Funds (Marcus, AL voice)

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Today on Your Money, Your Wealth® podcast 386, when the financial markets are down, should you postpone retirement? When inflation is up, should you change your investments and pile into things like value and commodities? Plus, the ever popular retirement spitball analysis: looking this week at an early retirement plan, Medicare, Social Security, TSP and Roth conversions, and when and how should business owners should convert $5.5M to Roth IRA. Also, if excess 2021 Roth contributions were returned, can you file last year’s taxes now without penalty? Finally, what’s the difference between a collective investment trust and regular mutual funds? Go to YourMoneyYourWealth.com and click Ask Joe & Al On Air to send in your money questions as an email or a priority voice message like the one coming up. I’m producer Andi Last, with the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

I Didn’t Expect Bonds to Be Down Like This! Do I Have to Postpone Retirement? (Janie, St Louis voice)

Janie: “Hey, Joe, Big Al and Andi. I’m a new listener this year and I love the show. I recommend it all the time. It’s the most fun financial podcast to listen to. I’m Jamie from St. Louis. I’m divorced, aged 65 and was going to retire at the end of this year. I planned to take Social Security at age 70. My Monte Carlo numbers were solid for covering my needs and travel with a 60/40 index fund portfolio. But with my stock and bond funds both down, I feel like I have no choice but to postpone retirement. I always thought I would pull from bonds during the market downturn, but I didn’t expect bonds to be down like this. What do you guys tell people in this circumstance? I have a year’s worth of needs and travel in the bank. If I postpone until the end of 2023 and I don’t save in any retirement vehicles, I could have two years’ worth of needs and travel saved. I don’t have pets. I rarely drink alcohol, and I drive a car that’s solid, paid off and unimpressive. I don’t have health issues. I love the outdoors and travel, and I want more free time for all of that and time with grandkids, but I want to have enough money, too. What do you tell a girl like me? Thanks so much for your help.“

Joe: Janie, she sounds like books on tape speaker.

Al: Yes, she could.

Joe: I could have just listened to her for like an hour. I was just waiting for her, talking about more stuff in the outdoors. What are the grandkids’ name?

Al: Yeah, you know what? And I love outdoors and travel. Sounds like Janie, you sound like my kind of gal.

Joe: Yeah. All right. Just the rarely drinks alcohol comment, it just kind of threw me off a little bit. But she didn’t say never.

Andi: You didn’t think there was anybody like that?

Al: No.

Joe: She didn’t say never.

Al: It hardly computes though for you.

Joe: So first of all, Monte Carlo, I’m not a big fan of Monte Carlo. Because I think it’s just all- I don’t know- what a Monte Carlo simulation is, that they run, like, thousands of different iterations of what the stock market-

Al: -could do-

Joe: – and bond market could have done, and then they look at past performance, and then they forecast it out, and then they look at what your spending need is and what other income sources, and then they’re going to give you a percentage. They’re going to be like, oh, you’re 95% there 80%, 100% there, and then people look at that and they have either a false sense of security and saying, hey, I’m good. But Janie is smarter than the average gal here. I more or less like a cash flow analysis. What that means is that you look at, let’s say, whatever Janie has as a lump sum or whatever that she has for her investment savings, and then she has to look at, well, what is she spending? Is it $50,000? Is it $100,000? Is it $70,000? And then you just take a look at what is her fixed income sources? Is it Social Security, pension, things like that. You look at what the shortfall is and maybe it’s $20,000 a year that needs to come from the overall portfolio. Maybe it’s $30,000, whatever it is. Then you can devise your portfolio a little bit better. And I think she knows what these numbers are because she said, hey, you know what, I have a year’s worth of cash or something like that sitting in for my leisure and travel, something to that effect. Did you hear that?

Al: She did, yeah, one year. If she works another year, she could have two years.

Joe: Sure. I don’t know. I think she probably can retire. Yeah, I get that stocks and bonds are both down, but it’s short term, right. Bonds will recover, interest rates are going up and the stock market will recover. So I get it that there’s nerves involved because you’re making a huge life change. You’re like, I’m 65, I want to retire. But wait a minute, now stocks and bonds are both down. I don’t think I can. I still think you can. But you just have to look at it maybe a little bit differently to make sure that you know exactly where your money is going to come from over the next 3 to 5 years.

Al: Right, so I completely agree. I think, Janie, go ahead and retire. I think you’ve got a good emergency fund already. And so maybe- well, first of all, we’re talking 6 months from now, and bond prices may recover at that point. See, interest rates going up are actually great for bonds over the longer term, not so good in the short term, because if you have mid to long term bonds and all of a sudden the interest rates go up, the bonds you’re holding are worth less. If you hold them to maturity, no harm, no foul. But if you have a bond fund, some of them have to be sold for people that want to liquidate money and so forth. So that’s a little trickier. But the point is, interest rates going up over the long term are actually very good for bonds, particularly if you have shorter and midterm bonds. It’s not as good if you have longer term bonds because you’re sort of stuck with maybe perhaps a lower interest rate. But I would personally, I would still retire. It sounds like you probably have saved up enough to make this happen based upon your Monte Carlos. You’ve got cash. Maybe you draw some from cash, maybe some from your bonds. By the way, bonds as a whole have been down about 10% in 2022 so far, stocks about 20%. But short-term bonds have been down only about 4%. So anyway, it depends what kind of bonds you have. But now I think you can make this work. But check out your cash ____.

Joe: Yeah. All right. That was pretty long winded there, Big Al.

Should I Wait to Retire Until My Accounts Regain Some of Their Losses? (Frank the Tank, San Diego)

Joe: We got “Howdy Joe, Big Al, Andi, quick question as I’m on the final glide path toward retirement.”

Al: I can just imagine the little plane coming to the retirement field.

Joe: Glide path. So he’s doing some research.

Al: That is a common term.

Joe: No, it’s- it’s a common term in our industry for advisors.

Al: We don’t say it, but you will read about it.

Joe: What is your glide path?

Al: Well, it’s a common term for target date funds. Wouldn’t you say that?

Joe: Okay, hopefully next year is when his glide path ends.

Al: Got it.

Joe: Or starts.

Al: Okay. Got it.

Joe: “First, the key data points. I drive a 2014 Jeep Wrangler Freedom Edition.”

Al: Oh, that’s the one, right?

Joe: Freedom. All right. The William Wallace Edition.

Al: Yeah. Who wouldn’t want to be free right?

Joe: “My lovely wife drives a 2014 Ford Edge.” 2014 was a big year for the family there.

Al: You just drive until they drop.

Joe: Yeah. Both new cars. Drink of choice, single malt scotch. No pets at the moment, but a Boston terrier puppy is in our future. Okay. Maybe call him Whiskey. Currently, we have $80,000 in a Roth, $35,000 in my traditional 401(k), $750,000 in a rollover IRA, $250,000 in an IRA- Roth IRA, $30,000 in a brokerage account, $75,000 in emergency savings, and, of course, the iPod, $10,000

Al: $10,0000. That’s about $1,200,000.

Joe: All right, thank you. “I plan to retire 4-1-23 and will be 69 at the time. For the remaining first quarter of 2023, should I go 100% in funding the Roth 401(k) or continue with my 50/50 strategy for the final working period? I plan to max out my allowable 401(k) contributions during the first 3 months. Finally, what are your spitball thoughts on continuing to work due to the current economic dark clouds? I believe I can afford to retire, but should I wait until my accounts regain some of their 2022 losses? Thanks in advance for your insights. Frank the Tank”. All right. He’s 69 years old. He’s worried about the markets. Again, this is a common theme, right? Markets get a little bit volatile. And then it’s like, should I hold the reins and should I hold off and not retire? I say retire. Life is short. Have a plan.

Al: At 69. Go for it.

Joe: Have a plan in place, folks. You guys listen to this program. What do we constantly talk about? Have a strategy, have a plan. Right? You know, things are going to happen. Things are good, things are bad. It doesn’t matter. Once you’re in retirement, Frank the Tank, guess what?
We’re probably going to have another recession. We’re probably going to have another market downturn. So now you’re 75. What are you going to do? You’re going to go back to work?

Al: I’ve got to wait. I got to work all that time.

Joe: No, you’re not going to go back to work. I hope, you don’t have to go back to work.

Al: No, no. But you’re right. In other words, I guess what we’re saying is have a plan so that in all markets, when you want to retire, you’re able to because you got safe money, you got more aggressive money. You got emergency fund, you’re all covered.

Joe: I guess his question is, does he go out Roth or pre-tax because he’s going to work? I don’t know, go Roth. Well, who cares? No, I’m kidding.

Al: Yeah. It’s only a year. It hardly matters. The correct answer is, look at your-

Joe: -tax return-

Al: – tax bracket this year versus retirement years. But probably if you retire at 70, you only have a couple of years before your RMDs. We don’t know how much your RMDs are going to be, but yeah, without knowing anything else, I would tend to go Roth.

Joe: I don’t know his income, so that’s the only thing. He’s got a good diversification. He’s got more Roth than most. He’s got about $300,000 in Roth.

Al: He does.

Joe: He’s got about maybe $800,000.

Al: Yeah, he did tell us that.

Joe: Right? $800,000 in the retirement account. You’re going to work half the year. You’re probably going to have lower income. I would just go Roth. That’s what I would do.

Al: Yeah. Makes sense.

Joe: If I’m spitballing here.

Al: Yeah, that’s all it is, spitball. Based upon what we know.

Joe: Thanks, Frank the Tank. Appreciate it.

Should I Time the Market in This Inflationary Environment? (Jane)

Joe: We got “Hi. Thank you again for taking my question. Should I consider investing into other types of stocks during this inflationary environment, like value and commodities?” Oh, boy, here we go.

Al: You want a little gold?

Joe: “I typically just invest in large cap growth and VTSAX.” What’s that? Total stock market index fund?

Al: I think so.

Joe: “I am not planning on slowing down investing, but just don’t want to be missing out on a good opportunity.” You know what this person has? FOMO. Isn’t that what that is?

Andi: Fear of missing out?

Joe: Yes. “While everything being down, is it best to keep investing the same as always because it’s on sale and that could even out the cost basis? I’m not looking for advice, but would love to hear what you all are doing. Thank you. You’re the best. Jane.” OK, Jane, what you’re telling or what you’re asking is that should you time the market and we say no.

Al: Right, I agree with that.

Joe: Because you should have already owned commodities. You should have already owned value.

Al: You should have already owned international.

Joe: Right. And so when you’re reacting to the markets, you’re late to the party, everyone’s already drunk, you know what I mean? You’re too late, go home.

Al: You can’t catch up.

Joe: No, you can’t catch up. Well, maybe if you’re really lucky.

Al: You could.

Joe: Well, you know me. It’s too late. So it’s not like, oh, in this environment, I’m going to switch my investment philosophy because we never know when these environments are really going to happen. The stock market is so forward looking like we might be already out of the recession that we were in in first quarter. Who knows?

Al: I agree with that.

Joe: I mean, the numbers are crazy. And so it’s like, oh, look at all this high inflation now. So now I should buy. But what are those prices of those particular investments that you want to buy now? They’re already doing fine because of the environment that we’re in, they’re outperforming. So now you want to buy outperforming investments in the period that we’re in, and then all of a sudden, when we get out of it, what do you think are going to happen with those investments? They’re not going to continue to outperform.

Al: That is true. And that’s a tendency, to invest in what’s done well the past year, 3 years.

Joe: Well, growth is sucks. So let me get out of that. Let me get into value. Because values outperform growth.

Al: Yeah. And then they flip.

Joe: So they flip as soon as you buy value.

Al: And the problem is you never know when they’re going to flip. Except you do know once you buy it, it’ll change. It’ll flip the next day for you.

Joe: Yes.

Al: But I will add that value stocks and international stocks have not performed as well as domestic growth stocks. So what does that tell you over the long term? It tells you there might be more opportunity. Is that going to happen next year, year after, 5 years from now? No idea. But you should have a globally diversified portfolio to take advantage of the differences in the asset classes at all times.

Joe: So what are we doing? We own all of these, but then we rebalance and tax manage. So when growth is down, what do you think we’re doing? Do you think we’re buying more growth or do you think we’re selling? We’re buying more. When value is up, do you think we’re buying more or selling? We’re selling. So you’re buying and selling at the right time. But we’re not timing the markets because of the economic era or the stats that are going on in the world. It’s just basically because the portfolio needs X amount of dollars and a certain percentage of whatever asset class that we choose. And once it breaks those bands, that’s when we sell. It’s not like we feel that inflation is going to go down or inflation is going to continue to go up and then that makes our investment decisions. It’s all process driven. So Jane, I would recommend that you start looking at your portfolio maybe a little bit differently and then have maybe a little bit more disciplined process that things will trigger versus you reading a headline or emotions come into play for you to make those decisions.

Al: And I’ll just add- so we’re talking about rebalancing and let me tell you how we think about it, which is if you think you should have 10% of a certain asset class, like large company growth, if it goes up to 12% of your portfolio, that’s a 20% deviation. You want to sell 2% to get back to 10%, it forces you to sell high, it forces you to take profits off the table. Now when it goes down to 8%, that’s a 20% deviation from 10% we’re buying to get back to 10% forces us to buy low. Our emotions tell us to do just the opposite. We want to buy more what’s doing well, we want to sell what’s not working. Actually, if you can change your mindset and have a process driven approach, you will generally do a lot better.

Joe: Without question. You’ll probably do a heck of a lot better.

Before making any major decisions about your investments or your retirement, schedule a free assessment with one of the experienced financial professionals on Joe and Big Al’s team at Pure Financial Advisors. They’ll analyze your entire financial plan to help you get on track for retirement, and find ways to optimize your investments, maximize your Social Security benefits, and reduce your taxes. Pure is a fee-only fiduciary, so they don’t sell any investment products, they’ll never earn any commissions off of you, and they’re required by law to act in the clients’ best interest. Click the get an assessment button in the podcast show notes at YourMoneyYourWealth.com and pick a date and time to meet at one of Pure’s 6 offices in Southern California, Seattle, or Chicago, or meet with an advisor via video call from anywhere you happen to be. Click get an Assessment in the podcast show notes and schedule yours now.

Early Retirement Spitball: We Have $200K, Saving $50k/Year. Can We Retire in 25 Years at Age 50? (Da Big Cheese)

Joe: We got “Hey Big Al and Joe, you could call me Da Big Cheese.” Oh boy.

Al: Would you like to be called the Big Cheese?

Joe: Yeah, call me the Big Cheese. No. Hey, how are you doing? Just call me Big Cheese.

Al: I go by Cheese for short.

Joe: “I have a 2008 Ford Escape called Eddie Escape.

Andi: Actually, I think he says Eddie Escape’.

Joe: Oh, Escape’.

Andi: Notice it’s got a little accent mark on it.

Joe: Eddie Escape’.

Al: Is that the French version?

Andi: Maybe so.

Joe: The Big Cheese. Oh, man. I don’t know if I can continue on reading this if we got more little sayings like this. “Drink of choice is a little hazy New England IPA M43 by Old National or anything from Big Lake Brewing.”

Al: Big Lake. Okay.

Joe: “Or a nightcap is Bourbon. Curious what the wife and I should do, Roth versus traditional. I live in the Midwest in a high tax state with miserable cold winters. Marginal tax rate between state and federal is 30%. Both in mid 20s. About $200,000 saved in retirement. Split 50/50, Roth and traditional. Have been doing 100% Roth contributions and the other 50% is matches, employer, discretionary contributions, et cetera.
Thinking about retiring at 50 or so in about 25 years. Want to retire $120,000 a year after-tax and planning to do a good amount of charitable giving. But that said, was thinking maybe a 50/50 split for Roth versus traditional to do some QCDs.”

Al: Got it.

Joe: The Big Cheese. He’s got a big brain.

Al: He does.

Andi: Big brain on the Big Cheese.

Joe: Throwing out some QCDs.

Al: Yeah, the QCDs only are available at 70 and a half, just so you know.

Joe: “Curious what you would do in our situation. Mid 20s, trying to save about $50,000 a year. Both have access to 401(k) Roth and traditional. Also, are we on track? I feel like I can already hear the trolling. And yes, I’m a super nerd.” Oh, come on, Big Cheese. I’m not trolling ya. I’m not calling you a big nerd. Just calling you a big brain.
Big brain on the Big Cheese.

Al: Yeah, that’s right.

Joe: “Also, while saving about $50,000 a year, what would be reasonable to spend at 55? Is $120,000 a year too high? Trying to manage our expectations. Thanks.” Okay, Big Cheese, I got it for you. We’re going to make this happen. So if you need $120,000 after-tax, I’m going to say you would need $4,800,000. I would say you need $4,500,000 to $5,000,000 saved. He’s got $200,000 saved today. He’s going to save $50,000 a year and he’s got 25 years. And let’s say he gets 8% on his money. That’s going to get 5.3%. I believe the Big Cheese is on track if he can continue to save $50,000 a year at $200,000 on nest egg now. So, yeah. Okay. You’re good there. Second question should he go 50/50 because he wants to do some QCDs? Or does it go all Roth? You’re 25, right? I would say all Roth.

Al: Me too. Yeah. When you’re younger like this, all Roth. Because chances are your salary is going to increase later. Get the money in the Roth, get that compounding for 25 to 50 years in tax-free, big time.

Joe: Without question. With the amount of money that you have right now, Big Cheese, and the amount of money that you want to save, go Roth. Cheese that thing up.

Al: Cheese it up.

Joe: Cheese it up.

Andi: So what would you suggest that he does for his charitable giving that he wants to do?

Joe: Do a QCD. He’s got a big brain. He’s no dummy to this stuff.

Al: He’s got to wait till 70 and a half.

Joe: Yeah, he’s got to wait 60 years. So he can give to his charities.

Al: Just keep saying, Hold on, I’m going to come into money here-

Joe: – this year.

Al: It’s only 55 years.

Joe: I really want to give your charity. I will be right back in about 50 years.

Al: In the meantime, here’s a couple of bucks.

Joe: Yeah. Trust me. You’re going to get some QCDs, charity.

Al: Yeah, they’re going to be big.

Joe: They’re going to be huge.

Andi: I think you might be trolling now.

Al: It’s possible.

Small Business Retirement Spitball: How and When Should We Convert $5.5M to Roth IRA? (Santana, Arizona)

Joe: “Hi, Joe and Al. I love your podcast and sometimes your snarky comments.”

Al: Are we snarky?

Joe: No.

Andi: No, I think Joe is. I think that’s all.

Al: Maybe occasionally.

Joe: No, it’s called just-

Al: – having fun.

Joe: Yeah, we’re just shooting a breeze.

Al: We’re spitballing.

Joe: You know? It’s called a spitball.

Al: We’re just having a conversation.

Joe: Yes. We could be just dry as all get out.

Al: We could. And then who would listen?

Joe: It would be awful. It would just be, like, terrible.

Al: But anyway-

Joe: “My husband and I, we have our own business.” Look at you. “We have our profit-sharing plan for retirement, along with Roth 401(k) plan. We would like to convert all of our profit-sharing holdings to a Roth IRA. My husband’s account balance is approximately $3,000,000.”

Al: Oh my, okay.

Joe: Gee. “My account is about $2,500,000.” So $5,500,000 to convert. That’s a lot of money there. “My husband is 65, I’m 62. We plan on retiring when my husband is 70.” So,like, 5 years from now. “Every year we’re in the top tax bracket, and even through the stock market is down, most of the stocks we hold are still in the green. When do we convert? Now when taxes are low but our income is high? Or in 5 years when taxes are probably higher but our income is lower? How do we tackle this with such a large amount? How do we tackle this? Thank you, Santana from Arizona.”

Al: Got it. Well, that’s a good problem to have, isn’t it?

Joe: I like that name, Santana.

Andi: Oye como va.

Joe: Okay, so they’re in the highest tax bracket. They’re in the 37% tax bracket. They’re going to retire in 5 years. One thing we need to know really, is how much money do you think they’re putting in the profit-sharing plan? Right? So let’s say they put nothing in there, and what, they want to retire in 5 years? And let’s say they get, I don’t know, 4% on the money over the next 5 years. Okay, so that’s $6,700,000. And their RMD is going to be $267,000.

Al: Although she’s 3 years behind, so there’s a little time lag there.

Joe: Okay.

Al: So he wants to work till 70. I think you’re in the highest bracket now. I’m not converting right now. If it were me. But I am looking at it upon retirement, and I would probably even do it into RMD age. Because chances are, if you’re in the highest bracket now, you’re going to be the lower bracket, even with your RMDs.

Joe: I’m converting.

Al: I’m not.

Joe: Market is down 20%. I get a 20% discount. I got $5,500,000. I’m still saving money, right? So here’s what I would look at. How much money are they putting in the profit-sharing plan? So they could do one of two things. They say, you know what, we’re already building up this big balance in our profit-sharing plan, and we’re putting like a $200,000 in the profit-sharing, and we’re getting that tax deduction. So let’s say you told them maybe stop putting money in the profit-sharing plan and build up your nonqualified investments.

Al: Yeah. Could do that.

Joe: Right. But if you do that, it’s after-tax.

Al: I know. So you might as well-

Joe: – might as well do it and convert.

Al: Well, yeah. So you bring up a good point, which I wasn’t thinking. So the point is this. When the market is down and you’re in the highest bracket, but by the time you have to pay the tax, and by the time you pull the money out, the markets recovered, you actually got a really good rate of return, and it makes the tax you pay seem a lot lower. So I’m going to change my mind. I’m converting now, too.

Joe: Because here’s what you’re looking at. You do a conversion, and let’s say the market recovers 20%, maybe the recovery in the Roth IRA covers the tax.

Al: Yeah, it could. And we’ve seen that before.

Joe: For sure. We’ve seen it over cover the tax.

Al: Yeah, for sure.

Joe: So, yeah, markets down. Yes. Convert. Especially when you have this. And let’s say the markets continue to go down. Convert some more.

Al: Yeah, convert some more.

Joe: And then if the markets continue to blow up, don’t ever call this show again.

Al: Because we gave you bad advice.

Joe: Yes, I kept on converting.

Al: Just like you said-

Joe: – and I lost my ass. And I pay all this tax. Santana, this is not advice. We’re just sitting around a little bar stool, just talking finance, telling financial stories, you know?

Al: Yeah, right.

Retirement Spitball: TSP, Pensions, & Social Security. Roth Conversions? (Cliff in Troy, Michigan)

Joe: Troy, Michigan, here. “We got three questions.” This is Cliff from Troy. Three questions. “Want to I retire, May 2023, I’m a mailman, should we take Medicare? Should I wait until 70 for Social Security and spend TSP money? Oh, and what about Roth conversions?” So those are the 3 questions he’s got. OK. “Me 61, wife, 57. Me, 2021 Ford Escape Titanium.”

Al: That’s a big- that’s a solid car.

Joe: “Wife 2019 Suburban Outback. Dudley the dog, little Beagle mix from the pound. He’s got a “postal pension of $30,000, Social Security is $3600 a month at age 70. Should be accurate since I have 38 years of earnings. Wife will get two small pensions, $5000 and $7000.” So add that up. Okay, so that’s (calculating) $75,000 of fixed income?

Al: Yeah, something like that.

Joe: Okay. “So the way I got it figured, at 70, $43,000, Social Security, $12,000. Wife pensions, $30,000, $21,000 Social Security for me and wife is at $106,000.” So I forgot the other Social Security. I should have kept reading.

Al: Sure.

Joe: All right. In today’s dollars.

Al: But you were accurate to that point.

Joe: It was pretty close. “My TSP, $770,000. Wife IRA, $740,000. Me, $125,000 in Roth, wife, $125,000-“ Does he talk like that all the time? Me hungry, wife cook. “I want to spend $40,000 a year out of my TSP till 70 and then collect Social Security. So $320,000, $450,000 left for growth. Wife works part time making $15,000 to 62. I don’t have to take Medicare Part B since federal employee, and neither does wife. House paid off, worth $450,000. No debt since no Medicare, I don’t have to worry about IRMA. What about Roth conversions?” Man Cliff, you write something special here. Yes, I think you got it dialed. Ask Dudley the dog. Okay, so he’s fine. He wants to spend $40,000 out of his TSP to bridge the gap before Social Security. Like it. Does he do Roth conversions? Yeah, just look at the tax bracket. You might want to do a little bit. I don’t think he really needs to because he’s already evened out his taxes by taking the large distribution from the retirement account to bridge the gap to Social Security.

Al: Yeah, true.

Joe: So, I mean, yeah, there’s probably some room for conversions, but I wouldn’t say not a ton because there’s not a lot of non-qualified monies here to pay the tax, and he’s already depleting it, so he’s not going to have a huge RMD issue.

Al: Yeah, right. But you should look, if you’re 61, you want to retire in a year from now. Okay, so 62. So you basically have 10 years to do smaller conversions before RMD. But you’re right, Joe, RMD may not be that much anyway.

Joe: It’s not because he’s taking $40,000, $50,000 out of the retirement.
So he’s going to have a few hundred thousand- like $500,000 left for growth. But his wife still has $740,000, so he’s not looking at that.

Al: You got that- but you got the pensions and you got Social Security.

Joe: So you got $1,500,000 in retirement accounts. And they got really good fixed income. So, yes, I would probably convert to the top of the 22%.

Al: Yeah, that would be good.

Joe: If I’m spitballing here, I’m going to give Cliff a big spitball.

Al: I will make one comment, and that is the Social Security Administration assumes that you’re working to full retirement age to get those amounts. So if you retire at 62, it’s going to be something a little bit lower than the amount that’s showing at age 70. So just be aware of that because they presume you’re working for another 4 years.

Joe: Got it.

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Excess Roth Contributions Returned. Can We File 2021 Taxes Now Without Penalty? (Rich)

Joe: Go to YourMoneyYourWealth.com. Click on Ask Joe and Al on The Air, and we’re going to answer your questions. We’re going to have some fun, and we’re going to make you a little bit more smarter. We got your money.

Al: We’ll try. Let’s be honest.

Joe: Yes. Got a question here in regards to filing taxes. “Can we file our 2021 taxes now with no repercussions?”

Al: The answer’s probably yes, but-

Joe: I don’t want to bother you or anyone else, but I’m hesitant to file my return because we don’t want to be penalized in the future. In April, we realized our max Roth contributions needed to be returned due to our salary increase.”

Al: Got it.

Joe: “We filed for an extension and received our full excess contribution checks less our losses due to retracting markets. My question is, can we just file a return now with no additional paperwork since our 2021 excess contributions are out of the Roth accounts and there is no gain or extra income to add to our 1040?” What do you think, Al?

Al: Well, you can file your return, and you need to file your return certainly by October 15. There will be no paperwork until next year. And probably on the form 5498, you’ll probably get in May of next year. But yeah, you go ahead and file as if you got the paperwork. And this happens all the time. I actually got this question from one of our advisors, and the accountants of one of our clients wouldn’t file the return because they haven’t got the paperwork. I’ve got this question so many times, it’s like, you file it, just file it. IRS knows the paperwork is not out, so you’re not going to get a notice.

Joe: So we got Honest Abe here. Very good. So we’ll realize the income was a little high. We got to get that money out.

Al: Yeah, well, it’s good you do, because if you leave it in there-

Joe: 6%

Al: -and you shouldn’t have, it’s a 6% penalty. And usually by the time the IRS is going to catch this, probably 10 years from now, 6% times 10 years, 60% of the balance- anyway, or the contribution. I don’t even know how they calculate it, but it would be painful.

Joe: Yeah, it would be very painful.

Al: Actually, it would be the balance because they’re going to include the growth and income.

Joe: Oh, for sure. So yeah, that excise contribution amount. So 6%. So he took it out. That’s good.

Al: And by the way, Joe, you know how with Roth conversions, they took away recharacterization, so we used to be able to do a Roth conversion up to December 31, and then all the way until October 15, we could recharacterize it back as if it never happened. It was almost too good to be true. We loved it for a decade-ish. Now, you can’t do that, but you still can-

Joe: – recharacterize-

Al: – recharacterize a contribution. And they have to have that rule. Because when you make the Roth contribution, you don’t necessarily know what your income is going to be to where you don’t qualify. And so they had to allow a recharacterization of a Roth contribution. Very normal. Happens all the time. The paperwork comes out the next year. Don’t worry about it.

Joe: Yeah, just file the return and you’re all good. All right. Thanks for the question, Rich.

Collective Investment Trust vs. Mutual Funds (Marcus, AL voice)

Marcus: “Joe, Big Al, how’s it going? It’s Marcus from Alabama. A quick question, been a minute. Just recently got a new job and part of the 401(k), they offer some of the funds in there, to a regular mutual fund, and then some of them is a collective investment trust. The question I have is, what are some things I should be on the lookout for as it relates to investing inside of a collective investment trust versus a typical mutual fund? I did a couple of little Google searches. I found out that the collective investment trust is not regulated by the SEC and all that good stuff. And then I saw something that said you couldn’t roll it over, which didn’t make sense to me, because I figured you can just go to cash. The funds that are part of the collective investment trust are index funds, so that’s a plus. But anyway, that’s the question I have. What are some pros and cons? What are some things I should be on the lookout for when I’m looking at it? All right, thank you. Hey, Andi. Hey, Keep the guys in line too.”

Andi: Thank you, Marcus. It’s good to hear from him. It’s been a while. It has been a minute, as he said.

Joe: It’s been a minute.

Al: It’s been a minute and keep us in line, please, Andi.

Andi: Doing my best.

Al: Okay.

Joe: Collective investment trust, Big Al.

Al: Yeah, it’s like pooled investments inside of a retirement, I guess, inside of a 401(k).

Joe: What is it, like a fund of funds?

Al: No. Sort of. I don’t know a lot about them.

Joe: I don’t know anything about them.

Al: Here’s what I think I know, which is, it’s sort of like you invest with like a bank trust company, or I should say the 401(k) invests with a bank trust company, and they pool a whole bunch of peoples’ money together. And I think the advantage is you get cheaper prices and pricing and that kind of thing, but you have less control. I mean, it’s kind of mixed in with all this other stuff. It’s not like you’re picking all these mutual funds. I think it just is what it is. And maybe I’m wrong. Maybe there’s different allocations inside of it, that I don’t know. But I did recently see that there is something about not being able to roll it into an IRA, and I honestly don’t know why that’s true.

Joe: Yeah, great question, Marcus. I have no effin’ idea.

Al: Well, that’s honest.

Joe: I could totally guess, and I could BS my way through this, and I would bet 95% of our listeners would be like, oh, yeah, that sounds all right.

Al: Well, I’ll tell you what little I know is, Marcus, if you got a choice between a mutual fund or collective investment trust, I would pick mutual fund. Just because we all understand it better. But I’m not saying that’s-

Joe: I wonder if Marcus got a job, maybe in a smaller company, and they have a 401(k) plan for their employees. People, I don’t think, realize that the employer, they put these plans together, costs them money. And some ways to get around the cost of that is they try to look for other types of plans that they can still offer their employees a way to save money pre-tax and have it grow tax-deferred and all that other good stuff.

Al: I suspect that’s true.

Joe: Maybe. And then so it’s like well, if it’s a collective investment trust, right? There’s a collective, so that means more than one.

Al: I think you killed it, it’s more than one.

Joe: There could be some investments in there and it’s in a trust. There you go. So, yeah, I don’t know. Invest in what you know, Marcus. If they offer other types of funds, go in those. Yeah, I guess I should probably do some prep before the show. Is that it for us?

Andi: That’s it.

Joe: All right. Hey, thanks, everyone. I appreciate the emails. Keep them coming. We got a lot of them. Thank you. Makes the show a lot easier when we can just fly through them, and we’ll see you on the flip side.


Working for the post office, Frank the Tank, Will Ferrell, Perry Farrell, Pharrell in the Derails at the end of the episode, so stick around. 

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