Show Notes

• 00:00 – Intro: This Week on the YMYW Podcast
• 01:02 – Can Backdoor Roth Conversions Be Withdrawn at Any Time? (Tyler, Arlington, VA)
• 06:11 – Am I Allowed to Have Two Roth Accounts? Should I Use My Roth 403(b)? (Kimberly, NY)
• 07:06 – Should I Switch Contributions from Traditional TSP to Roth? (Kate, Cleveland, OH)
• 11:47 – Download the Ultimate Guide to Roth IRAs for free
• 12:43 – Self-Insuring Long-Term Care: Traditional IRA or Roth? (Neo, San Clemente, CA)
• 18:05 – Our RMDs Will Be Staggered. Should We Convert $4M to Roth or Leave It Alone? (Mike, Western PA)
• 22:00 – Should I Switch Traditional IRA Contributions to Roth? (Joe, NC)
• 25:39 – Watch Will Your Money Last Through Retirement? on YMYW TV, Download the Retirement Lifestyles Guide for free
• 26:31 – Should We Dial Back Pre-Tax Savings and Put More in Brokerage? (Herc & Angel, MA)
• 31:44 – We Can Mega-Save. What’s Our Plan of Attack? Ricky Bobby, Charlotte, NC)
• 38:42 – Watch Is a Market Correction Coming in 2025? YMYW Podcast Q&A and Feedback (YouTube Exclusive)

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

Watch today’s podcast episode on YouTube

Transcription

Intro: This Week on the YMYW Podcast

Andi: Should YMYW listeners be saving to their traditional 401(k)s and IRAs, or their Roths? That’s up next on this episode of Your Money, Your Wealth podcast. Plus, what are the rules around contributing to two different Roth accounts at the same time? If required minimum distributions are going to be staggered because of a couple’s age difference, should they convert to Roth or just leave it alone? But first, the fellas have a Roth conversion withdrawal debate to settle. Click or Tap Ask Joe and Al On Air in the episode description to ask your money questions or to get a retirement spitball analysis of your own. I’m Executive Producer Andi Last, and here are the hosts of Your Yoney, Your Wealth, Joe Anderson CFP and Big Al Clopine CPA.

Joe: All right. Thanks again for joining us. It sounds like a Roth show today.

Al: Apparently. Yeah. Well, we like to talk about Roths, so-

Andi: Do you think there’s a theme here?

Al: No problem.

Joe: Yeah.  I’m over Roth. I’ve been over Roth for 10 years.

Al: You’re over it?

Joe: Well, I was just talking about it every week.  Over and over again.

Joe: I thought that’s all you thought about.

Andi: You guys are the Roth brothers now. Come on.

Can Backdoor Roth Conversions Be Withdrawn at Any Time? (Tyler, Arlington, VA)

Joe: All right. Let’s dive in. Okay. We got, “Hey Andi, Joe, Big Al. This is Tyler from Arlington, Virginia. I’m a full-time federal agent, also owns a financial planning firm providing advice-only services to federal employees.” All right, Tyler, what’s the name of your firm? So people can look you up. “I’ve been a huge fan of your show for years now and appreciate all the great information you guys provide. You’re part of the reason I got into financial planning.” All right.

Al: Nice.

Joe: “Drink of choice is seltzer water or iced coffee and non-work vehicle is a Kia Forte. Boring, I know.” He’s a federal agent.  He drinks iced coffee and seltzer water.

Al: He’s got to stay sharp.

Joe: He’s got to.

Al: He does.

Joe: He’s got to be jacked. All right.  “On the YMYW podcast episode 507-“oh God, I hate it when people do that. “-at 13:20-“

Joe: Thank you for the very exact-

Al: Also known as 1:20-

Joe: Yeah, like, I don’t know, how many episodes ago was this?

Andi: 13 minutes and 20 seconds into the episode, he’s saying. So he’s calling you out exactly where you said it.

Al: Oh, that’s what he’s saying. Okay, got it.

Joe: All right. “The listener asked if he could withdraw his backdoor Roth IRA contributions to help fund early retirement. You mentioned that he would be subject to a 10% penalty if he withdrew the converted amount within 5 years. I was under the impression that a non-taxable conversion can be withdrawn at any time, even with a 5-year of a backdoor conversion, without a 10% penalty. A Q&A on Ed Slott’s website, along with articles from CPA Sean Mullaney and C.P. Denise Appleby state that non-taxable conversions like the backdoor contributions are not subject to the 5-year conversion rule and will be subject to a 10% penalty if withdrawn prior to the 5 years. These two experts appear-“

Al: – Excerpts.

Joe: Oh, “ -excerpts  appear to support the fact that a 10% penalty would only apply to a taxable conversion if withdrawn within the 5 years.” So all of this, I don’t really care.  If you do a conversion, don’t take the money out within at least 10 years. It doesn’t matter. I guess if it was an emergency, but this guy’s doing a conversion to buy his house?

Al: Right.

Joe: He probably said it just to- tell him not to.

Al: It could be. I forget, but-

Joe: “My personal CPA, on the other hand, said the 10% penalty would apply to the withdrawal of a backdoor conversion amount if taken in the first 5 years. Can you please settle the debate? Thanks again for all you do. Love the show. Tyler.”

Al: Well, I don’t exactly remember what we said. It was a few episodes ago. However, I can tell you, Joe, that it’s, generally with a Roth conversion, if you’re under 59 and a half, then you have to wait 5 years for the principal part, right? The part you pay taxes on, to be able to pull that out without penalty. So that’s a true statement. So this question was taken to the next step, which is what if you do a backdoor Roth, get the money into a regular IRA, where you didn’t get any tax deduction, and then you convert that amount?

Joe: And that makes sense.

Al: Yeah, it kind of does. And I did a little research on this rather than kind of off the cuff. And I think Tyler is right.

Joe: Well, now you think about it.

Al: It does make sense.

Joe: The 10% penalty on the conversion is only to avoid people to take dollars out of a retirement account before 59 and a half.

Al: Yeah, yeah.

Joe: -that took a tax deduction. So, hey, I received a tax deduction on my 401(k) or my IRA, you know, it was pre-tax, and I’m under 59 and a half, and I’m going to take the money out. Yeah. People would convert their retirement accounts, pay the tax, and then take the money out the next day. Right. So it was a loophole in the law. Yeah. And so they’re like, well, let’s close the loophole. So if you do a conversion and then you want to take the money out, even though you paid the tax, you still have to wait 5 years.

Al: Right.

Joe: So with this, it was already after-tax dollars that was accessible already. Right, so you took money from your checking account or money market account or whatever, you put it into the IRA, then converted it. I suppose that makes sense that those dollars could be accessible because you never got the tax benefit to begin with by putting the dollars in the retirement account.

Al: And publication 590B on page 33-

Joe: Did you memorize it?

Al: No, I got it right here.  But it says to that effect. Basically, it says that you don’t have to pay penalties on the part you did not include in income on the conversion. So, that seems to state that Tyler’s right. And again, I’m not sure what we said. That was a few episodes ago, but I, whatever we said-

Joe: You’re not going to go back and listen to it.

Al: No. Are you?

Joe: No.  All right. Well, hey, good luck with the career in financial planning and being a federal agent. And all the best. And, yeah, if you’re a federal employee, and you need some help, you gotta look up Tyler. No idea of where Tyler’s firm is? What’s the name?

Andi: We know he’s in Arlington, Virginia, which makes sense if he’s a federal agent.

Al: Yeah, look him up.

Joe: Yeah, he’s calling us out.

Al: Which is fine, I’m fine with that.

Am I Allowed to Have Two Roth Accounts? Should I Use My Roth 403(b)? (Kimberly, NY)

Joe: Alright, we got Kimberly from New York. “Just a quick question. I have a work 403(b), a Roth IRA and a brokerage account. My work also offers a Roth 403(b).  Should I be using my Roth 40- my 403(b) Roth? Am I allowed to have two Roths?” Quick answer is yes.  You can do a Roth IRA and a Roth 403(b). So, you can do a Roth 401(k) and a Roth IRA.

Al: Right.

Joe: So, 401(k)s or 403(b)s are different than IRAs, so yeah, you can definitely double up there.

Al: Yeah, and I think Joe, a lot of people don’t really realize that, that you can, completely max out your Roth 401(k), 403(b), whatever, and still do a Roth IRA contribution. So that’s still available, it’s considered to be different.

Should I Switch Contributions from Traditional TSP to Roth? (Kate, Cleveland, OH)

Joe: Okay, let’s move on to Kate from Cleveland, Ohio goes, “Hey, Joe, Big Al, Andi, this is Kate from Cleveland. I’m 36 single and drive a Acura Integra. My favorite drink is bourbon and in my spare time, I try to golf as much as I can.” Oh, Kate from Cleveland, Ohio, got something in common with you.

Al: You do.

Joe: “I have approximately $450,000 saved in investments, $300,000 in my traditional TSP, $40,000 in my Roth TSP, $50,000 in a taxable brokerage, $45,000 in a Roth IRA, $15,000 in an HSA. I’m sure Al will add all that stuff up momentarily, so if you weren’t following, no problem.”

Al: Well, she already said it’s about $450,000.

Joe: Total.

Al: Yep, total.

Joe: All right. “Current income is $150,000 annually.  And I’m maxing out my traditional TSP, Roth IRA, and HSA.  I usually add another $5000 to $10,000 into my brokerage account.” Man, what do you live off of? What kind of bourbon do you drink? And what courses are you playing?

Al: It’s the public course on Tuesday.

Joe: “I feel like I’m in good overall financial position. However, I work in federal law enforcement, which adds some different nuances to retirement. And would love to hear your thoughts. Plan on retiring at age 50. And I’ll become eligible for my full pension, conservatively estimated at $65,000 annually, and also have full access to my TSP withdrawals with no penalty as special category government employee.”  All right, so got a couple questions. “Number one, switching my TSP contributions from traditional to Roth because my pension plus Social Security, when I take it, will pretty much always fill up the lower brackets. Number two, continue traditional contributions and just plan for Roth conversions. Or number 3, lower my TSP contributions down to the match and put everything else into a taxable brokerage to limit RMDs in the future.  For spitball purposes, my anticipated spending in retirement will be approximately $110,000. Appreciate any jokes, criticisms, and insights.”  All right, okay.

Al: Okay, so she’s asking should she go Roth or traditional in her TSP contributions, and for a little context, she’s in the 24% tax bracket.  So what do you think?

Joe: Let’s see, she’s going to have a really good sized pension, $65,000. Well is Kate going to get married? Because that will change-

Al: – could change, yeah.

Joe: – it could change your tax bracket, right? I mean the question she’s asking has nothing to do with like, what she’s gonna do in retirement.

Al: Yeah, well, she’s only 36. So it’s a little early. But she wants to retire at 50-

Joe: Yeah, she’s a badass cop. Drinks bourbon and plays golf.  I don’t know. Yeah at 36, you’re in the 24% tax bracket. She’s probably-  She’s saving a ton of money. She’s got $450,000, $300,000 in the TSP now, she’s got another 15 years of fully funding that.  I would go Roth if I were her at the 24% tax bracket, I still think that’s a decent rate. Right. If her income continued to increase, then I would probably, or if tax rates changed, I would try to stay in the 24%.

Al: Right.

Joe: And so I would split the contributions, if, let’s say if I jumped into the next bracket. Yeah, so I would just take a look at what those brackets are each year, but I like Roth at the 24%.

Al: I think I agree with you because she’s in the 24% bracket. She makes a good salary at 36, you know, I don’t know federal government what her prospects are for higher salary or higher roles. But chances are at 36 doing as well as she is, she’ll probably promote and make more money, maybe be in higher tax brackets later. You know what? If that seems like too much to go all Roth from TSP, maybe you could do 50/50 if that’s a little easier to stomach. But yeah, I like the idea of going Roth.

Joe: 50/50. That’s like the worst advice I think I’ve ever heard.

Al: That’s-

Andi: It’s not advice, it’s a spitball.

Al: You dip your toe in and see how you like it.

Joe: Well, you’re so scientific most of the time.

Al: I know, but there you go.

Joe: Alright, alright. I like Roth in the 24%. She creeped up, then I would go pre-tax, but yeah.

Al: Yeah, I’m, I agree with you.

Joe: 50/50.

Al: I’m just saying, some people, when they do that, then they, have a lot less take home and it doesn’t feel as good.

Joe: If I ever saw, I’m like, why are you going 50/50? They’re like, Big Al told me.

Al: Well, I’m just saying what I might do.

Joe: All right.

Al: How about that?

Download the Ultimate Guide to Roth IRAs for free

Andi: It’s important to understand Roth accounts and how they work so you can take full advantage of the lifetime tax-free investment growth that they offer. Click or tap the link in the episode description to download the Ultimate Guide to Roth IRAs for free. You’ll have valuable information – in print, mind you – about how Roth contributions and conversions allow you to keep and grow more of your money. Plus, you heard the fellas mention the infamous Backdoor Roth strategy earlier? This guide explains how it can help, even if you make too much money to contribute directly to a Roth. Plus, learn the differences and pros and cons of saving in a traditional IRA vs. a Roth IRA vs. a Roth 401(k), the rules for taking money out of your Roth account, and much more. Click or tap the link in the episode description to download your copy of the Ultimate Guide to Roth IRAs, and share YMYW and all the free financial resources with anyone you know who would benefit.

Self-Insuring Long-Term Care: Traditional IRA or Roth? (Neo, San Clemente, CA)

Joe: Okay. All right. Let’s move on. We got, “Hi Andi, Joe, Big Al. This is Neo, 66 yo from San Clemente with another no brainer spitball question for you to answer while I’m walking on the beach as I continue to recover from brain surgery.”

Al: Oh boy.

Joe: Oh, “It is going as expected and fortunately coming along well.  I’m still going to crack an 805 once I’m 100% recovered  on the first tee. And Trinity-” All right. On the first tee-

Andi: – he’s going to crack an 805 on the first tee once he’s fully recovered.

Al: Yep, I can picture that.

Andi: And then Trinity.

Joe: And Trinity-

Andi: His wife.

Joe: “- and 63 year old still prefers 80- And Trinity, 63 year old-“ Who’s Trinity?

Andi: His wife. It’s Neo and Trinity.

Al: Neo and Trinity.

Joe: That’s Mr. Anderson. You know how many times someone said that to me?

Al: I would imagine a lot.

Joe: Millions.  It’s Mr. Anderson-

Al: Just like that.

Joe: “Still prefer a pomegranate martini.  This time I’m wondering about saving in traditional IRA versus Roth IRA to self-insure for long-term care expenses.  Which are way expensive to buy at my age. So self-insurance seems like a logical choice. Should I convert all of my $1,200,000 IRA to Roth in the next few years before I take Social Security at 70 in 2028, 58,000?” Okay. “Or should I hold $300,000 plus in a tax-deferred account since I think long-term care expenses are tax deductible?  Trin’s pension is about $80,000 in 2024, and Social Security should be 50% of my FBA benefit, which should be $23,000 in 2028. Currently, we have about $115,000 in high-yield savings, $1,200,000 in an IRA, 401(k), $36,000 in a Roth,  as well as $500,000 in a brokerage account.  We’re going to retire this month, $330,000 in income in 2024. So already in the 24% tax bracket, converting the top-“ What, how old is this thing?

Al: He’s 66.

Joe: Oh, 12… This was in December.

Andi: Email’s from December. We’re a little behind.

Joe: A little bit.

Al: Yep. Yep.

Joe: “Converting to the top of the 24% tax bracket in 25, 26 and 22 and 27 through 29…” Okay. (mumbling) All right. “Love the show. I’ve learned a ton. Figured out my plan by listening to archived episodes, about 150 of them.”

Andi: Wow! Neo!

Al: That’s impressive.

Andi: Holy cow!

Al: Can you imagine?

Joe: 150 episodes?

Andi: And he says “the real world example set you guys apart.” See, that’s why we keep doing the Roth show.

Al: Okay, alright.

Joe: So, alright.

Al: So should he convert the whole $1,200,000?

Joe: No.

Al: Not yet.

Joe: I don’t know, he’s-

Al: In 4 years.

Joe: No, no, no.

Al: It’s too much.

Joe: Way too much.  Stay in the 22% tax bracket. You’re retiring, he’s, it’s go to the 22% tax bracket and if long-term care is going to be tax deductible. So you want to pull the long-term care costs out of your IRA versus Roth.

Al: Yeah, you kind of you don’t really necessarily want to convert everything just for that reason. And plus I mean the other thing too is you look at your tax bracket when you’re paying the tax on the conversion versus your retirement bracket. And being retired, it’s gonna be in a lower bracket. Something you have to consider though, at the end of 2025, unless the tax laws are extended, we go back to the old laws from 2018, which are no longer 10%, 12%, 22%, 24%, they’re 10%, 15%, 25%, 28%, and then they ratchet up from there.

Joe: What do you think?

Al: I think that’s a good- like, I mean, it seems like they get extended, but you got to watch that though, right? If you’re thinking about a 4-year plan, you got to make sure that the taxes are where you want them to be when you do these conversions. But I would say in 2025, if you want to do a bigger conversion in 25, you could even do the top of the 24%. But there’s no reason why you would convert the whole $1,200,000.

Joe: No.

Al: And in fact, there’s no reason to stop doing conversions when $58,000 of Social Security comes in. You still have an opportunity before RMDs.

Joe: Yeah. There’s an $80,000 pen- I mean, it sounds like the fixed income is good. Yeah. The RMD.  And they’re still young, 66 and 63. Yep. So, they have roughly 10 years to get a lot of this out.

Al: That’s right.

Joe: $1,200,000. I mean, if you just, you know, if you go big in 24, I don’t know, I went, 24% tax bracket’s giant. If they don’t have a ton of income, they could probably convert 24%.  I mean, like $200,000.

Al: Yeah, if they want to go that far and they’ve got the brokerage account to pay the tax. That again, that, that could make sense mathematically, but it’s another thing where you can, you know, when you get your tax return and you got this big tax bill, are you okay with that?

Joe: Yeah.  All right.  Well, I’m glad that you’re doing all right, bud.

Al: Yeah, me too.

Joe: Keep, plugging and chugging and that 805 is coming right down the pike here for you.

Our RMDs Will Be Staggered. Should We Convert $4M to Roth or Leave It Alone? (Mike, Western PA)

Joe: We got Mike from Western PA. “Thank you in advance for your evaluation.” It’s not an evaluation, Mike. It’s not advice.  It’s a spitball.  “I’m 67 yo, my wife’s 69 yo. I plan to retire with my wife at age 70. Couple of years.  We have $5,000,000 in retirement. $1,000,000 in Roth. $400,000 of that is for me.”  What are you gonna do with that, Mike? $400,000 of that is for me, or is $400,000 of the $1,000,000 yours?

Al: I think that’s what he means.

Joe: But it’s all for me. It’s not like my 3-year-old. That’s mine.  That’s for me. Don’t touch it. “$600,000 of the Roth belongs to my wife. We have $700,000 in our brokerage account. We plan to spend $20,000 to $25,000 per month in retirement. Does it make sense to do Roth conversions with the remaining $4,000,000? Alternatively, could we just leave the accounts alone, since we’ll be taking RMDs at different stages based on our age difference? Okay, we’re currently in the 22%, 24% tax bracket. Thanks again for any thoughts.” You have $5,000,000. He’s 67, 69.

Al: So $4,000,000 is in, tax-deferred, $1,000,000’s in Roth.

Joe: Right. So Mike, no, you still wanna do conversions. Let’s say $4,000,000. 4 times 4 is 16-

Al: $160,000.

Joe: Your RMD is $160,000 plus.

Al: Yep.

Joe: And it’s only gonna go up from there. So yeah, you want to continue to convert out. How you think about it from an age difference, is that you would want to convert your wife’s out first because she’s going to hit the RMD age sooner.  Or you look at who has the larger balance, but I would usually go with the older person to convert that out.

Al: I would too. I’d go with the older person just because they’ll hit RMD first. Yeah, no, there’s definitely, looks like be some good room to do conversions. How much should you convert? I mean, basically, you look at that, you look at that, your tax bracket between now and RMD age, what the tax bracket’s going to be then. Then that’ll give you a better sense on how much to convert, but let’s see, you say you’re in the 22% to 24% bracket, you could go to the top of the 22% or even to the top of the 24% if you want.

Joe: So their Social Security is going to be $72,000 a year at age 70, $72,000 minus the, you know, standard deduction, go to the 24%. You could probably convert $300,000 out.

Al: Right.

Joe: I would definitely be thinking about that over the next few years. At $5,000,000, I mean, that RMD only gets higher.

Al: It does.

Joe: And then if one person dies, even though this is morbid. But guess what? It’s still the same RMD, but then you just cut your tax rates in half. So you hit those higher tax rates a lot quicker with income. Because the top of the 12% and the 22% and 24% tax brackets are cut in half. So, I would utilize the 24% as much as you can, while you’re both young and healthy. Because as you age, that RMD continues to increase, and unfortunately, you know, one spouse usually dies before the other, and then you want to give a lot of that maybe to the next generation or things of that nature, and the IRS ends up getting a lot more than maybe, than you thought. Especially that, with that big of a balance of a retirement account.

Al: Yeah, I think, to me, that’s the key. Given their age, they got $4,000,000 in a retirement account- The thought of getting more of that out with a Roth conversion, to me, that makes a lot of sense. You could look at the 22% bracket. You could look at the 24% bracket. I would not go above 24%. Be careful there. There’s no reason to pay any more tax than that. But yeah, certainly this year we know for sure we have the 24% tax bracket. Next year we’ll have to see. It may be extended, but it may not. We’ll just have to see.

Should I Switch Traditional IRA Contributions to Roth? (Joe, NC)

Joe: Okay, moving along. We got “Hi Joe, Big Al and Andi. This is Joe from North Carolina. I’m 38 yo, single, no children. I’ve been listening to your show for about a year while on my daily 4-mile walks.” 4-mile walks a day.

Andi: That’s a lot of listening.

Joe: That’s impressive.  How many times do you have to go up and down your stairwell to get 4 miles?

Al: Well I do, I typically walk about 5 a day.

Joe: 5 miles a day.

Al: But that includes everything, like, like walking from my car to the office, cause I just track my steps on my phone and my miles that way.

Joe: What is it? How many steps?

Al: 10,000.

Joe: That’s 5 miles?

Al: Hmm, For me.  Yep. Yep. How about you? How much do you walk?

Joe: I don’t know.  I bike. I bike like probably on the old Peloton.

Al: Well, that, counts. That works. That’s about 60 miles a week.

Al: Yeah. Okay. There you go.

Joe: “My drink of choice is a craft beer.  It’s a little too early for me to be thinking about retirement, but I like your spitball about whether I should contribute to, guess what, a traditional or a Roth.” Here we go.

Al: We got a theme going.

Joe: 38 years old. He’s got $1,300,000 in savings.

Al: How can that be?

Joe: At 38. How much money did you have at 38?

Al: $4.

Joe: Yeah, I didn’t have $1,300,000.  Oh my God. “I currently rent, have no debt. My gross income is $200,000 a year. I spend about $50,000.” Spend more money, dude.  He’s walking.  Stop walking. Maybe sit down.

Al: Get a car.

Joe: Watch a movie. Spend a little cash. No, $50,000. Good for him, man. “About 5 years ago, I realized my company allowed for the Megatron-.” He has been listening for a while. “-in addition to the regular backdoor Roth. My yearly savings is roughly $34,000, 401(k) plus match, $35,000 backdoor Megatron, $35,000 brokerage. Since the pre-tax contributions keep me in the 24% tax bracket, I find it difficult to give up all that tax break now. Although I know Joe, he’s going to tell him, he’s trying to convince me to go all Roth.”  Yeah, you’re 38 years old. You’re in the 24% tax bracket. That’s a low bracket, historically. We would have loved just to be in the 24% tax bracket just a few years ago. You’re going to be in the 28%, Joe. Take advantage of the 24%. “Thanks for all the great content. I recommend your show to as many people as I can.” All right. Well, thank you very much. Congratulations, by the way. 38 years old, $1,300,000. Saving a ton.

Al: It’s pretty amazing.

Joe: He’s single, no children.

Al: Yep. Doing a lot of things right.

Joe: Just wait until he finds that significant other.

Al: That beautiful lady and starts to have kids. Do things change?

Joe: Yeah.

Al: From experience?

Joe: Yeah.  I waited.

Al: A couple years?

Joe: I waited until I was in the, yeah, my late 40s. I was living Joe’s life.

Al: You were.

Joe: I was.

Al: Yeah.

Joe: It was great.  My life is perfect.

Al: Yeah. I know it is.

Joe: Okay, what, I don’t know, I already said my answer.

Al: Yeah, no, I, agree with you.  Yeah, I guess maybe I’ll just say this. If you get into the 32% bracket, you might want to do the traditional just to get back to the 24%, but make sure you utilize all the 24% bracket. So you’re taking advantage of that and getting the Roth dollars while you’re in that bracket.

Watch Will Your Money Last Through Retirement? on YMYW TV, Download the Retirement Lifestyles Guide

Andi: How much money will you need to have saved by the time you retire? It’s probably more than you think, and many factors impact whether your retirement savings will last as long as you do. This week on a brand new episode of Your Money, Your Wealth TV, find out from Joe and Big Al how your lifestyle and spending, your longevity and health care, inflation and taxes, and where you retire all impact the kind of life you’ll live in retirement. They’ll teach you financial moves that can help you become a millionaire, and income strategies so you don’t run out of money. Plus, download the Retirement Lifestyles Guide to make the most of your lifestyle, growth, health, and relationships in retirement.  Click or tap the links in the episode description to watch Will Your Money Last Through Retirement, and to download the Retirement Lifestyles Guide, yours free courtesy of Your Money, Your Wealth, and Pure Financial Advisors.

Should We Dial Back Pre-Tax Savings and Put More in Brokerage? (Herc & Angel, MA)

Joe: “Hi Joe, Big Al and Andi.  I’m Herrick.”

Andi: Herc.

Joe: Herrick. Herc?

Andi: Herc. Herc and Angel.

Joe: Hercules?

Andi: I think so.

Joe: That’s kind of a cool name.

Al: Herc.

Joe: “61. 61 and a half. “She is Angel at 60 and a half. We are both divorced. We’ve been together for 13 years.” So they were married and divorced and still together?

Andi: I have a feeling they were each married to other people and they are each divorced and have been together since then.

Al: That’s what I get out of it too. They were divorced with other people.

Joe: Got it. Okay. Okay.  “We haven’t yet gone around to get married.” Oh, well, I should have just read one more sentence.  “I enjoy your podcast, and I hope you can help us out. A drink of choice for me is a lager, vodka, or whiskey.” All right. “Hers is sherry-” Wow.  When’s the last time I had a sherry?

Al: I didn’t even know they made that still.

Joe: “A little Skrewball-“ All right. That’s, that’s made right here in Southern California, San Diego. “-and Pinot Grigio.  Or tea with honey bourbon.” Wow. You guys have a lot of little favorite drinks of choice here.

Joe: “We also like martinis and margaritas and just anything else that has booze in it.”

Andi: Yeah. They’re kind of like those people that said “we’ll drink anything alcoholic.”

Joe: Yeah. We’ll just drink it. Even gasoline.  “She drives a 2015 Nissan Rogue. I drive a 2015 Toyota RAV4. I plan to buy a new or slightly used SUV in the next year, with cash. We both work local government in Massachusetts and both will collect traditional pensions. We would both like to retire in 2026 at the ages of 63 and 62, respectively. At that point, our estimated combined pensions will be $216,000. There’s a survivor benefit equal to two thirds of the pension allowance. There is a modest COLA, 3% on the first $16,000, but we are not factoring that. We are subject to the windfall elimination provision and we are not factoring in Social Security.” When did he write this?

Andi: This was also in December. This was before the Social Security weapon GPO change.

Al: Yeah, so it’s gonna be even better.

Joe: “Our house is worth $620,000, and we have $220,000 remaining on a mortgage of 3.75%. Angel has about $25,000 remaining in her car loan. We have no other debt. My two kids on their own and her son will graduate college in May 2025. We have no college debt and expect the kids will be self-sufficient. Current annual expenses, including the mortgage and contributions to savings at brokerage accounts are approximately $180,000 a year, expenses in retirement expected to be $200,000 a year. We’re planning to travel extensively in retirement.  Our mothers are in their 90s. And we’re each to stand to receive an inheritance, unknown amounts. We’re not factoring inheritance into the planning. It feels like we are in pretty good shape.”  You have a $220,000 pension.

Al: And they have $1,000,000. So that’s pretty good.

Joe: If you want to spend $200,000.

Al: So you’re good.

Joe: There’s the math. Herc, I think you’re good.

Al: Oh, here’s the questions.

Joe: “I am concerned about our tax liability in retirement due to our pensions of 457s that will grow for the next decade plus before our RMDs kick in. Here’s the spitball. Should we start doing conversions?” Yes.  “Should we dial back our pre-tax contributions and put more into a taxable brokerage account or cash?” No, I would go all Roth. “At what point should we reduce our stock holdings and move towards bonds?” I wouldn’t, you don’t need the money, you’re living off your pension and Social Security. “What pension and stocks and bonds should we aim for?” Whatever your risk tolerance is. This is just rapid-fire.

Al: It is, I like it.

Joe: “Should we ditch the annuity?” Yes.

Al: Okay, I’m going to read my answers.

Joe: Alright, there you go. What’s yours?

Al: “Should we start doing Roth?”

Joe: I feel like this is the Family Feud.

Al: “Should we start doing Roth conversions? Yes.  “Should we dial back our pre-tax contribution to put more into tax and brokerage?” No, but go into the Roth.

Joe: Oh, wow. Okay. Number one answer.  Ding, ding, ding.

Al: “At what point do we reduce our stock holdings and move into bonds or safer investments?” Depends upon your goals, which is the same answer for the next one. “How much to have in stocks and bonds?” Last one. “Should we ditch the annuity?” Need more info, but likely yes.

Joe: All right. Very good.

Al: Okay. I guess we’re on the same page.

Joe: Yeah, we’re on the same page there.

Al: Yep.

Joe: Yeah, you’re doing fine. You’re doing great. you got great pensions.  I thought the question was going to be, do we get married? Yeah. I thought that was coming.

Al: Yeah.

Joe: With a couple hundred thousand dollar pensions and then with $1,000,000 in retirement accounts.

Al: It’s looking sweet. Yeah.

Andi: This is the bonus round of Family Feud.

Joe: Well, no, it’s just like, well, I don’t know if they get married from a tax perspective, we’re getting a lot of those questions. We get married because of tax, because that-

Al: Well, you get married for love.

Joe: Yes. Thank you. Reverend Al.

Al: You’re welcome.

We Can Mega-Save. What’s Our Plan of Attack? Ricky Bobby, Charlotte, NC)

Joe: All right. We got Ricky Bobby from Charlotte, North Carolina.  Shake and bake.  “Hey Joe and Al. I’ve listened to your podcast twice after seeing Mike’s suggested list on Apple podcasts.”

Al: And I will never listen to it again.

Joe: This is the worst s**t I’ve ever heard in my life.

Andi: Bleep.

Al: Bleep.

Joe: Yeah, that’s funny. Alright, now, what did he say? “And I think I may be hooked.

Al: Oh, that’s different than what you thought.

Joe: Yes. “I wanted to send you my family situation to get your thoughts on a little spitball.” Okay. “Currently, my wife and I are both 33 years old, both work in tech consulting and make $310,000 combined, bonus puts us closer to $330,000 or $350,000.  The problem is both of us really don’t enjoy our jobs and we both want to stop working in the field as soon as possible.  Whether that looks like switching careers or finding a much less stressful job, we’re not sure yet. Here’s our financial picture. We spend $80,000 a year on expenses and expect to increase that to about $100,000 annually for the next 4 years that our daughter is about to start daycare.”  All right.  “We have two paid off cars, a paid off house purchased in 2019, $150,000 in a taxable brokerage, $40,000 in a rainy day savings account, $600,000 in traditional and Roth 401(k)s. We’ve also managed to save over $80,000 per year the last 3 years while we attack- while we attacked our mortgage payoff and stacked up our taxable brokerage. So we have the ability to mega save.”  I love mega save.

Al: Yeah, me too.

Joe: But it gets a little trickier with kids moving forward. “What would you suggest the plan of attack be? Stack up brokerage as high as possible while we are in tech and fed up  and feed off of that account when we’re done with tech? Get the brokerage high enough for it to be sufficient and we take significantly lower paying jobs that can pay for our day-to-day expenses and health care?  We both love to be working part-time jobs and financially independent by the time we’re 43 so we can enjoy our kids and have more freedom. Happy to hear your thoughts. Thanks. Ricky.”  Okay, hates his job, makes $300,000, almost $400,000.

Al: Between the two of them.

Joe: They have, let’s see, $600,000,

Al: Yeah, call it $800,000.

Joe: $800,000? At 33 years old?  God bless you, Ricky.  Man, you’ve got some savers in the group.

Al: We sure do.

Joe: Okay, and he’s saving $85,000 a year, so he’s like, alright, where should I put this $85,000?

Al: Right.

Joe: So he’s 33, wants to retire at 43, but does he want to retire at 43 and then just work part time jobs?

Andi: Yes.

Joe: Or is it, hey, I want to retire right away and then work part time jobs?

Al: I think, what I’m getting is that they want to work, they want to stockpile a bunch of money. At 43, they want to either work less or work part time or change careers. That’s what I think he’s saying.  I think, yeah, building up the brokerage account, yeah, that’s, that would be a good thing to do. I mean, that’s kind of true in all 3 of these scenarios.

Joe: I would fully fund the 401(k) plans. Here’s what I’m going to –

Al: For sure, yeah.

Joe: Here’s my suggestion. Both of you fully fund the 401(k) plan. Anything after that then I’m doing Roth IRAs if I qualify. If not, I’m gonna do the backdoor Roth IRA and then from there anything after that I’m gonna funnel into the brokerage account. Yeah, under that $85,000. That’s what I would do and then at age 43 you have $800,000  and say he’s got 10 years.

Al: Yep.

Joe: And let’s say you get 7% over that 10 years, hypothetically, and you save $85,000 a year. Right. You’re going to have roughly $2,700,000 at age 43.

Al: And if you’re spending $80,000 plus a little more for kids, right?  You can-

Joe: That’s $82,000 at 3%, but I bet you don’t even have to touch that. Both of you get a little part time kind of hobby work that’s a lot less stressful. But the trick is, can you make it another 10 years of saving $85,000 a year and working in a job you hate?  10 years? Well, I don’t know. I’ve done it 17.  Andi: Are you saying you hate your job? Come on now.

Joe: I was seeing if Alan was listening to me.

Al: Back at ya.  How about that?

Joe: I’ve been doing this for the last 18 years, Al. But I keep coming back because of that fat paycheck.

Al: You know, for me it’s been 19 years of drudgery and-

Joe: Well,10 years, you can make it 10 years, Ricky Bobby, you’ve got this.

Al: Now, if we read this wrong, if they’re wanting to retire sooner, they’ve got good savings. Get as much as you can into savings, but then have jobs that at least pay for your expenses. So you’re not touching your principal.

Joe: Yeah. $800,000 will turn to $1,600,000, let’s say, just do the rule of 72, just double that money every 10 years.

Al: Right. And live and make enough to live off what you need. Right. That’s it. And then let that keep growing and then when you want to stop working all together, you’ll probably have enough money to do it.

Joe: Yeah. So at age 53, you’re going to have a roughly, I don’t know, $3,500,000, give or take. Yeah.  Then that probably given inflation, you’re still going to be a little bit short. You’re cutting cold turkey at 33? You’ve already saved a ton. You can save a little bit more over the next couple of years. I think you’re going to be just fine.

Al: I would keep grinding a while and then, go part time, change careers, whatever, and make enough to cover your expenses.

Joe: Yeah, with kids though, it’s always tough.

Al: It is.  Yeah. I mean, do you think?

Joe: I would have left a long time ago if I didn’t- I got these little ones.

Al: You have to get out of the house.

Joe: Yeah, love that.

Al: Can you imagine that? And 24 hours a day?

Joe: They’re expensive.

Al: I know they are.

Joe: You want to spoil them? You want to make sure they’re taken care of? You want to, you know? So. That’s it for us. Hopefully you enjoyed the show. Bring your questions in. We’ll answer them. Is that it, Andi? Are we good?

Andi: Sure. Thanks for doing that.

Joe: You’re welcome.  Thank you, Alan.

Al: It was fun.

Joe: Thank you, Aaron.  Alright, we’ll see you again next week. Show’s called Your Money, Your Wealth®.

Watch the YouTube Exclusive Q&A

Andi: Those of you who watch us do the YMYW Podcast on YouTube have been getting feisty in the comments lately, especially in response to episode 513, so last week we made a video just to address your questions and feedback – find it exclusively on our YouTube channel or just click the link in the episode description to watch “Is a Market Correction Coming in 2025? YMYW Podcast Q&A and Feedback.” Click or tap Ask Joe And Al to send us your questions or comments. Even the feisty ones. YMYW is your podcast, we just make it for you. Tell a friend we’re making fun of finance over here on Your Money, Your Wealth.

Your Money, Your Wealth is presented by Pure Financial Advisors. Click or tap the free financial assessment link in the episode description or call 888-994-6257 and schedule a comprehensive review of your entire financial picture with one of the experienced professionals on Joe and Big Al’s team at Pure. It doesn’t cost anything and you aren’t committed to anything, and they’ll help you craft a plan that meets your unique needs and goals in retirement. Meet in person at one of Pure’s offices around the country, or online, at a date and time convenient for you, no matter where you are.

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

Podknife

podStation

Podverse

Podvine

Radio Public

Rephonic

Sonnet

Spotify

Subscribe on Android

Subscribe by Email

RSS feed

See All Platforms