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
January 24, 2023

How should young savers invest pensions and estimate their retirement income needs? Is going into your employee stock purchase plan a good portfolio diversification strategy? What do Joe and Big Al think of multi-year guaranteed annuities (MYGA), and dividend-paying stocks vs. ETFs? Plus, a $10.6M retirement spitball analysis, making extra mortgage payments vs. saving to a brokerage account, and contributing to Roth 401(k) vs. traditional 401(k). Also, will a 403(b) held by an insurance company be subject to separation costs or surrender fees when rolled to an IRA? And the specifics on when to file tax form 5500. 

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Show Notes

  • (00:57) How Should Young Savers Invest Pensions and Estimate Retirement Income Needs? (Adam, Oregon)
  • (05:58) Would ESPP Be a Good Addition to Diversify Our Retirement Investments? (Craig)
  • (12:23) Inheritance Retirement Spitball: Guaranteed Annuity (MYGA), Cash, and Stocks? (Joe, Pensacola)
  • (16:17) Retirement Spitball: Extra Mortgage Payment or Save to Brokerage Account? (Michael, Los Angeles)
  • (19:44) Dividend Paying Stocks Vs. ETFs: What Does YMYW Think? (Kevin, NorCal)
  • (22:07) We’re Retired With $10.6M and Need a Retirement Spitball Analysis (Flash Jordon, Willis, TX)
  • (29:09) Must You File Tax Form 5500 When 401(k) Balance is Over $250K? (Smitty in the Villages)
  • (32:19) Can I Roll My 403(b) to IRA With No Cost If It’s Held by an Insurance Company? (Bruce, Kansas)
  • (38:43) I’m a Tight Ass. Should I Contribute to Pre-Tax 401(k) or Roth 401(k)? (Jack Frost)

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Today on Your Money, Your Wealth® podcast 413, how should young savers invest pensions and estimate their retirement income needs? Is going into your employee stock purchase plan a good portfolio diversification strategy? What do Joe and Big Al think of multi-year guaranteed annuities or MYGAs, and dividend-paying stocks vs. ETFs? Plus, the fellas talk IPAs, porters, and bourbon though a $10.6M retirement spitball analysis, making extra mortgage payments vs. saving to a brokerage account, and contributing to Roth 401(k) vs. traditional 401(k) when you’re a tight ass. Also, will a 403(b) held by an insurance company be subject to separation costs or surrender fees when rolled to an IRA? And, the specifics on when to file tax form 5500. I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

How Should Young Savers Invest Pensions and Estimate Retirement Income Needs? (Adam, Oregon)

Joe: We got Adam from Oregon writes in. He goes, “Joe, Big Al, Andi, big fan of your podcast. Have a question about pensions and how they factor into asset allocation in overall retirement planning. My wife and I expect to receive a pension when we retire. She is a federal employee and I’m a state employee. I’m 36 yo, she’s 38 yo. I’ve heard some people consider their pension as bonds receive fixed income in their portfolios and then invest mostly or entirely in equities. I think you have suggested that people first look at what their income needs are in retirement. And then subtract from that amount, their expected pension in order to figure out the gap and they will need to fill with non-pension funds.” Very good, Adam. That’s listening.

Al: Yeah, yep. And we agree with that.

Joe: “We are probably a couple of decades away from retirement, so it’s hard to say what our income needs will be. For now, should we invest more heavily in equities and less in bonds?” Yes. “Or should we be less aggressive knowing we have that guaranteed income stream?” Oh, interesting. Okay. Take the other side of that, I guess. “How should we be thinking about our pension as part of our overall portfolio? We’d love to hear you chat a bit about pensions. We’re currently about 85% equities, 15% bonds. I expect my pension to replace 45% of my salary and my wife’s to replace 33% of hers. I’m driving an old Ford until it won’t go anymore. Recently lost our sweet dog, a Boston terrier mix, 13 years old.” I’m sorry to hear that. “Enjoy good hazy IPA. Thanks. Love the show.” All right, Adam, great question. So he’s looking at it from, hey, if I don’t need to take on the risk, why should I? Or should I just put the pedal to the metal and floor it? Because I don’t need this money for 20 years. I’m on the latter.

Al: Yeah. I am too. I am too.

Joe: You got plenty of time to have the markets recover if the markets were to crash. You want the market to crash. You want it to continue to be as volatile as all get out. Because the dollars that you’re saving each month or each pay period or quarter whenever you’re saving cycle is, you know, if the markets are down, you’re buying more shares at a cheaper price. I would be looking at loading up more on Roth IRAs because your pensions are going to be taxed at ordinary income. And then this will give you the diversification to have higher income at lower tax rates. So if I was Adam and I was having a little lazy IPA or a hazy IPA-

Al: Yeah hazy IPA.

Andi: Or lazy IPA, whatever.

Al: Either one is good.

Joe: We turn lazy after we have a couple hazys.

Al: Yes.

Joe: I would say go all equities and all Roth.

Al: Yeah. I like that too. I would go, I would- I don’t have any problems sticking with the current allocation, 85% stocks. You could go 90%, you go 100%. You just have to understand stock volatility, right? And some people can’t handle that, right? And it can’t handle it, then back it up a little bit. But at any rate, yeah, that would be the better answer. And then when you get to retirement, you run through that calculation that you already went through, right? You don’t even think about your pension. It just is what it is. Your pension is your pension, do your shortfall, and figure out what allocation you need to have going into retirement, and then you’re golden.

Joe: Yeah, I think once he gets close to 10 years from retirement, then you might want to slowly start changing your allocation or maybe a little bit before that. You don’t want to do it right at retirement. But, you know, you want to be planning each year of, all right, well, what is the allocation look like? Are you on track? Not on track? What target rate of return are you expecting each year to get to a certain dollar figure? You know, how did you do this year compared to last year? You know, what moves did you make during market volatility? You know, so this is an ongoing process. So, some years you might go a 100% pre-tax versus Roth, but as I’m kind of thinking out loud, and just looking at a lot of our clients that have pensions that were good savers, they have these large pensions and then they also have large 401(k) accounts and they have nothing else. So a 100% of their income is coming either from a 401(k) plan or 403(b) plan, IRAs and then pensions and everything is taxed at ordinary income rates. And they’re not big spenders and so then what happens when they get a little bit older, the RMDs kick in. And then it’s all- then they’re losing even more of their hard-earned money that they save 20, 30 years trying to build. So Adam’s in a good spot so he can be a little bit more diversified and savvy in his overall savings strategy knowing that he’s going to have a fixed income source later in life to protect his floor and essential expenses.

Would ESPP Be a Good Addition to Diversify Our Retirement Investments? (Craig)

Joe: “Gentlemen and Miss Andi. Love the show. Got an investment diversification question that may be new. And if you agree with me, I may try to talk you out of it. Just looking to get an objective take. Here’s for some number vomit.”

Andi: That sounds like fun.

Al: The new way to say it, right?

Joe: Number vomit. “51, married, plan to retire 60.” Okay? So we got 9 years, Al.

Al: Right.

Joe: “Current salary, $220,000. Usually get about $60,000 to $80,000 in annual stock vesting and have about a $150,000 unvested, which grows each year at bonuses. Currently about $75,000 vested. Debt free, net worth, $1,700,000. Including paid off house in the mountains worth around $700,000, 401(k) $475,000, about $305,000 which is Roth, which I’m converting more annually. I max out mega garage door, Roth 401(k) every year. So about $57,250 all Roth, and $10,250 employer match, maxing me out. Employer match is pre-tax, so I put it all in a bond fund. And then rebalance when advantageous- advantageous to my equities. Pretty aggressive. Heavy value focused large, small, mid, international, about 20% S&P, small cap value is my largest holding.” Wow. He’s going all in. “Roth IRAs, brokerage and HSA through diversified across Vanguard, Avantis in dimensional funds. $50,000 each Roth IRAs for wife and I similarly allocated, largest holdings are large and small value. $300,000 in a brokerage account, we got an HSA, maxed, fully invested. Able to contribute about $30,000 to $40,000 to brokerage annually. I front-load payroll contribution so at September bonus everything maxes me out. So I get a full paycheck in Q4. All that said, there isn’t anything else to invest for retirement, but could do more in the brokerage. Would ESPP would be a good addition? The tech company I work for offers 10% discount. I could sell day one. It’s vested quarterly. Concern is that the quarterly investing of stock from bonus is already automatically added to my AGI. Whether I cash it out or not, as would the ESPP. And I think not only might put me into the next tax bracket but reduces my flexibility of doing Roth conversions in the 401(k) before tax hikes in 2025. Use to hold the stock for over a year- used to hold the stock for over a year to take advantage of long-term capital gains but have been letting it build as we have gone from $350 a share to $250 a share over the last year. However, that means it’s on sale, right? And this means to be the time to go all in and max out the ESPP for $25,000 a year. What are your thoughts? Pretty high risk tolerance. Appreciate any spitball or thoughts you can provide. Value for your insight. Follow up. Just asked a long question about ESPP. I forgot the most important part, Jameson-“

Andi: Caskmates Stout.”

Joe: Boom. Caskmates Stout. “5 cats.” This guy has 5 cats. “Got a husky, a little Rotty-shepherd mix. ‘07 Tribeca, ‘12 Durango, ‘12 Yamaha Royal Star-“

Andi: Motorcycle.

Joe: Boom. Cool. Craig’s got a lot of stuff going on. He’s a big time saver, Al.

Al: Yeah, big time. And you could answer this either way, Joe. Why don’t you take what way- or you can do both answers? Because you can make an argument either way.

Joe: I don’t know. Does he max out the ESPP? He gets a discount if he’s going to hold it and he puts another $25,000 into it. But- I like- what would I do if I was Craig?

Al: I think there’s an important thing that we have no knowledge of, and that is what’s his feeling about the company. Because the company’s just gone from $350 a share to $250. So is it going to bounce back or not? Who knows? But those working in the company might have a better sense than us. If I was super bullish on the company, I might do it just because you’re buying it on sale. You already get a 10% discount, but then you’re buying it on sale and then watch that thing launch back up. On the other hand, I would be super careful on doing this because your salary, your stock, bonuses –

Joe: restricted shares.

Al: Restricted shares, all of that’s tied into one company. It kind of makes me nervous to go in even deeper with one company. So I would- I would probably not do it unless I just was so bullish on the company that I felt like I’m going to try it because I’m feeling really good about this.

Joe: Yeah, I think I would do it. It seems like he’s fairly diversified. He’s a good saver. He’s 51, wants to retire in 10 years. You know, he makes a good income. And, you know, what the hell? It’s down quite a bit. Yeah, I like it. I would go all in. I would not sell it until- it’s long-term capital gains though.

Where you hold what types of investments matters! Proper asset location is an important and often overlooked strategy in maintaining your wealth. Learn how owning assets with higher expected returns in your Roth accounts, lower-returning assets in your 401(k)s and IRAs, and NOT holding income-producing assets in your brokerage accounts, for example, can result in better returns on those investments. Download the free guide on Why Asset Location Matters in the podcast show notes at YourMoneyYourwealth.com – just click the link in the description of today’s episode in your favorite podcast app, you’ll see the guide just before the episode transcript. 

Inheritance Retirement Spitball: Guaranteed Annuity (MYGA), Cash, and Stocks? (Joe, Pensacola)

Joe: Joe from Pensacola. “Hey Joe, Big Al, I love your show. My wife and I are 5 to 7 years from retirement, and we have substantial tax-deferred savings. We’re also coming into a large inheritance that will be all cash. Got 3 questions. First, what do you think about placing 3 to 5 years in cash in a multiyear guaranteed annuity that will be available to us upon retirement?” MYGA. Sure. That’s fine. “Second, what do you think about having 3 to 5 years of cash cushion upon retirement and then investing all else in stocks versus a more diversified portfolio? Third, I have been told to keep a cash cushion upon retirement, so I do not need to draw down my stock portfolio when the market’s down. What guidelines do you suggest to determine whether to take my money from the cash cushion or the portfolio or- at any given time?” All right, so he’s just asking a standard kind of a distribution plan. He’s got a lot of tax-deferred dollars. He’s going to get some cash. He’s thinking, do I keep in the cash while invested until I buy a MYGA? What’s the rule of thumb that you would give Joey from Pensacola here, Big Al?

Al: Well, I’m not going to- you can talk about the guaranteed annuity pros and cons. But the way I guess the way I would think of it is, yes, you want a lot of safe money when you’re retiring so that you can draw that down to pay your bills when the market’s down. So it doesn’t have to be cash only. It can be bonds. I know bonds are no fun right now because they’ve been sort of beat up in the market, but that’s not necessarily true long term. Long term bonds have outperformed cash for 100 years, right? So there’s an advantage to having bonds and you can think of bonds as your safe money. The principal is not a 100% guaranteed if you’re in a bond fund, but as when they do slip, it’s usually not that much. So I would say, yeah, your thinking is right. You probably want to have 3 to 5 years of safe money, maybe even 10, depending upon your situation. But that can be bonds as well as cash.

Joe: Yeah, here’s the- Joe, this is what you want to look at in my opinion is, what is your cash need? I mean, what’s the demand for the portfolio? So is it $50,000 a year that you need from the portfolio? Then you might want to go 5 years of $50,000, right? So you have your income in cash or something very safe for 5 years. Maybe it’s 7 years, maybe it’s 10 years really depending on your risk tolerance. So this is all based on your planning and your planning needs. So how much capital that you have? How much fixed income that you will have coming in as pensions and Social Security, and then taking a look at what else is needed to supply or to make your lifestyle as you wish. So what is the demand for the portfolio? And then from there, you might want to have, I would put 5 years sitting in something very safe. Cash, you could do a MYGA, you could do CDs, you could do whatever, right? And so then who cares what happens to the overall markets in 5 years. If they crash for two to 3 years, you’re not pulling any money from there. Or if you think 5 years is not long enough, it might go 10 years. I don’t think there’s been a period of time- don’t quote me on this- that an overall diversified portfolio has been negative over a 10-year time period. So you don’t have to worry about pulling from your diversified portfolio if you have that cushion. So you could go 3 years, you could go 5 or 7 years, 10 years, it really depends on your risk tolerance and it sounds like this is added money that you maybe weren’t expecting that you might not need. And you have all the rest in this tax-deferred accounts. Maybe you use some of that cash to help pay for taxes as you convert and let that grow tax-free. So a lot of different ways to look at this. Appreciate the question.

Retirement Spitball: Extra Mortgage Payment or Save to Brokerage Account? (Michael, Los Angeles)

Joe: All right, let’s go to Michael from Los Angeles. “Hey, we are 61, and we have 11 years left on our home mortgage that’s 2.25%. Balance of $234,000, payments $1900 includes tax and insurance. We plan on retiring in 4 years and we have a pension of $80,000 and about $800,000 in retirement accounts. Income is $150,000. Roth will be maxed out each year until retirement. Should we pay an extra $1000 per month on our mortgage or invest a $1000 per month in a non-retirement account? We would like to lower a market- we like the lower market’s current downturn. It’s a buying at a discount prices. But would like to pay off the whole mortgage. Thank you, Michael.” All right, he’s got 2.25% mortgage rate, Al. His mortgage is $230,000. He’s 61 years old. He’s got 11 years left. And he’s like, hey, we got a $1000 extra a month. What do we do? Should we pay down the mortgage or should we save more in our brokerage account?

Al: Yeah, I’d save more in the brokerage account. That’s a great interest rate. And likely given that the market is down, you’re going to do a lot better than that long term in the market. That’s what I do.

Joe: Yeah, I would do the exact same thing. Because let’s say he continues to build out the brokerage account, right? And how many more years does he have? He’s got 11 years left on the mortgage, but he wants to retire in 4 years.

Al: 4 years, yeah.

Joe: Okay. He’s got an $80,000 pension and $800,000 in retirement accounts. So he’s going to have $1,000,000plus in retirement accounts and he’s got $80,000 in pension. He doesn’t have a fixed income problem, right?

Al: Yeah. I agree.

Joe: It’s a huge pension. If he didn’t have that big of a pension and he had a little bit lower savings, then I would be like, okay, yeah, you probably want to pay that thing down or pay it off. But in his case, I mean, Mike’s sitting fine.

Al: Yeah, I agree with that. And this would be a case where we don’t know how much he has in his brokerage account, but you do want to have that flexibility so that you’ve got money in your retirement account, in your Roth account, in your brokerage account, if at all possible. $1000 a month for the next 4 years will definitely put a dent on the mortgage, but it’s still going to be there, Joe. You’re not going to get it paid off in that 4-year period of time. It’s such a low interest rate. It’s not going to impact your retirement negatively. I would just keep it. And invest the money, particularly while the market’s down.

Joe: Yep. I mean, 2.25%. I don’t know if we’ll- people would beg to have that mortgage.

Al: Yeah, I know. My first mortgage was 12.5%. That was a while ago.

Andi: Oh. Wow.

Joe: I mean, what are mortgage rates today? 7%?

Al: Yeah, I don’t know.

Joe: 6%?

Al: I just remember refinancing at 10% thinking this is- this is a steal.

Joe: Yeah. I mean, let’s see. 30 years fixed today-

Al: is 7%.

Joe: 7%. Yeah. Just crazy.

Al: 15 year, about 6%. Yeah, that is. I remember my parents talking about having a mortgage for 5% and I was thinking, I don’t get that. How could that even happen? And now it’s- it got down to like 2.25%. Who would have thought?

Joe: Well, here we are, 7%.

Dividend Paying Stocks Vs. ETFs: What Does YMYW Think? (Kevin, NorCal)

Joe: All right, “Hey, Joe, Big Al, your podcast is one of my favorites and very informative. I now consider myself a backdoor Roth expert. Even though I was unable to make this type of contribution, my question mark is about YMYW– oh, my question is about YMYW investment strategies when it comes to dividend-paying stocks? Local NorCal firm that also has a weekly podcast, not nearly as good as your podcast, trashed the concept of dividend reinvestment as a false return because the share price gets discounted after the payout. Their investment strategy is a 100% index ETF bonds, ETFs. If you compare SDY versus SPY, SDY’s down 3% year to date, net zero after dividend and SPY is down 17%. I would like to know about YMYW’s typical portfolio and dividend approach recommendation for recently retired 60plus. For an example, how does-?” okay, so he just wants our opinion on- our approach on dividend-paying stocks.

Al: Right, right.

Joe: Yes, you want dividend-paying stocks in your portfolio, 100% absolutely, yes. But it’s not a one all strategy. I don’t think we believe in, hey, we’re just going to have just solely dividend-paying stocks and live off the dividend. The podcast or the radio show that you listened to was absolutely correct in regards to the stock is discounted exactly by the dividend. The stock price goes down by the dividend. So you can create a synthetic dividend by just selling a share of a stock that doesn’t produce a dividend. But I don’t want to exclude all the other stocks that don’t necessarily produce a big dividend. That’s my two cents.

Al: Yeah, well, I think that is the point. I think we believe you should have a globally diversified portfolio with everything, right? Dividend paying stocks, non-dividend paying stocks, it’s a simple fact that every time there’s a dividend, the stock price goes down by the amount of that dividend. That’s just the way it works. And so we’re somewhat indifferent. We want to have all stocks and some are dividend paying and some are not.

Joe: Yes, we like all good stocks. Some of them are dividend, are bad. I mean, some of them are not dividend.

We’re Retired With $10.6M and Need a Retirement Spitball Analysis (Flash Jordon, Willis, TX)

Joe: “Hello, my name is Flash.” Flash. That’s sexy.

Al: Yeah. Flash Jordon. I like that.

Joe: If my last name was Jordon, I guarantee my name would be Flash. “Stumbled across your super podcast a couple of months ago and realize we need to be spit balled.” Pretty cool.

Al: Yep.

Joe: “My wife and I are both 63. We are both engineers, worked 30plus years, and retired at age 54.” Wow, Flash Gordon. “Haven’t worked-“

Al: Yeah. Superhero.

Joe: He’s super fast. “Haven’t worked at all since retirement. Our two kids are off the payroll. We travel, golf, boat, root for our baseball team, and drink way too much bourbon.” God, I love this guy.

Andi: First step is admitting you got a problem, Flash.

Joe: I love this guy. I want to be Flash.

Al: Yeah, you can relate to him, huh?

Joe: Yeah, I’m going to retire at 54 and just golf and drink bourbon.

Al: Bourbon, yeah.

Joe: “We drive a 2015 Nissan Armada and a 2016 Infinity M60.” Infinity M60. Sounds fast.

Al: Yeah, it does sound fast.

Andi: Fast for Flash.

Joe: Yeah, for Flash, right? It’s got to be quick. “We have $5,000,000 in brokerage accounts. $5,000,000 total in two IRAs.” Look at Flash. I mean, it just gets better and better. Every time, yeah. Bourbon, he’s got $10,000,000 bucks. He golfs.

Andi: His name is Flash.

Al: Now you really want to be him, don’t you, Joe?

Joe: This is my goal. This is my new year’s resolution. I’m going to be Flash by the time I’m 54. So “we got $5,000,000 in a brokerage account. $5,000,000 total in two IRAs and $600,000 total in two Roths. About 75% of this is in a wide variety of stocks, the remainder is in bonds and cash. We have a monthly payment of- a monthly pension of $9000 a month-“ just gets better “-dividends and interests about $8000 a month. We start receiving $5000 a month in Social Security in a few years. We have no state income tax. We spend about $25,000 a month.” That’s a solid lifestyle.

Al: Yeah, that fits your goal too. How about that?

Andi: It’s all that bourbon.

Yeah, I know. I want like $35,000.

Al: Got it.

Joe: “Yikes. We had our house paid off, but did a cash out refi and got a 30-year 3% loan because it seemed like a good idea. That’s our only debt. Our plan is to deplete our brokerage accounts, take RMD’s out of our IRAs, and finally spend the Roths. Does that make sense? After listening to you, I realized maybe we should be moving money over to our Roths. I don’t think we are going to run out of money, but would prefer to minimize our donation to the IRS and maximize the donation to charity or in the kids.” All right, Flash. Great email here too. It’s succinct.

Al: Yeah, it’s understandable.

Joe: Fun.

Al: Yep.

Joe: It got to the point. And then gave like some really good nuggets. I could see Flash right now. It’s like I’m talking Flash.
He’s got a little, he’s got some bourbon. You know, he’s got his, I don’t know, he pays no income tax, so maybe he’s got his little Florida Marlins jersey on.

Al: Maybe so, yeah. Well, and what he wrote is half a page, instead of like 3 pages.

Joe: Yeah. So yeah, we could spitball this. I think he’s right. I think he’s probably missed some opportunity because he’s been retired since 54. And he’s 63. So the last 10 years or 9 years, he could have been doing some conversions and getting a lot of that $5,000,000 out of the retirement accounts in into Roth IRAs. Because Al, he’s got $5,000,000 in retirement accounts, in 10 years when he has his RMD, his RMD is going to be like $500,000 a year.

Al: Yeah. Yeah, right. It would probably be $10 million and 4% of that. It’s a lot, right?

Joe: Right. And then plus, he’s got a huge pension plus the dividends and interest that are kicking off of his brokerage account?

Al: Yeah, plus his pension and Social Security?

Joe: He’s going to be in the highest tax bracket, for sure.

Al: Right.

Joe: And tax rates are only going to go up. So yeah, I would be peeling as much money out of the IRAs and into Roths as much as you can now- until he turns 73. So he’s got 10 years.

Al: Yeah, I would at a minimum, go up to the top of the 24% bracket, right? Which is over what $340,000 or so ish?

Joe: Yeah, I might even go a little bit more than that.

Al: I might too, given these numbers, yeah. I mean, I would want to look at that. Yeah, I might pop into the 32% bracket because Flash, you’re going to be in probably the highest tax bracket when you consider what the RMDs would be if you didn’t do anything right now? And then he wants- he wants the money to go maximize donation to charity and to the kids. So charity can get what’s left over in your IRA. The kids would get the Roth IRA that you converted because you may not need much of it. Boy, that would be a great strategy.

Joe: Yeah. I mean, 24% is a no brainer. I hate that term, no brainer. I don’t know why I just said it, but it’s already out there. It’s out in the universe.

Al: It’s too late, yep.

Joe: So because of 24%, he’s going to be in the 37% or 39.6% tax bracket potentially.

Al: Yeah, potentially, right. Or whatever, or whatever it becomes, Joe. It could be higher.

Joe: Yeah, it could be higher. Because his RMD is going to be $400,000, $ 400,000 plus. He’s got a pension of a hundred some. He’s got Social Security plus his interest dividends. You know, you’re looking at $650,000 of income, so a lot of that required distribution is going to be taxed at the highest rate. So, you know, yeah, you would want to look at it and map this out a little bit better. He’s an engineer, right?

Andi: Spreadsheets.

Joe: Yeah, he’s got a spreadsheet, guaranteed. Get the Excel. Get it, get it going there. Poor a nice glass of bourbon. Get the Excel going.

Al: But then check it in the morning after- Just to double check.

Joe: Yeah, you might need to double check your math.

Al: Right.

Or get some professional eyeballs on your retirement plan – just to make sure the bourbon isn’t doing the talking when it comes to your entire financial future. Click the link in the description of today’s episode in your favorite podcast app to go to the show notes and schedule a free financial assessment with one of the pros on Joe and Big Al’s team at Pure Financial Advisors. It’s a much deeper dive than a spitball, and it’ll uncover any potential tax saving strategies or any possible weak points in your plan. And since Pure Financial is a fee-only fiduciary, they won’t sell you any investment products or earn commissions, and they’re legally required to put the clients’ best interests above their own, so you got that going for you as well. 

Must You File Tax Form 5500 When 401(k) Balance is Over $250K? (Smitty in the Villages)

Joe: “Hey, Andi, Joe, Big Al. I’m still digging your podcast every week. Love the show.” Our boy Schmitty from The Villages.

Al: Smitty, yeah. Haven’t heard from him in a while.

Joe: Yeah. He’s cruising around in his golf cart.

Al: I know.

Joe: “I have another one for you. I understand that when your 401(k) rises above $250,000 that you’re required to file a form 5500. I’m curious to what the scenario is would trigger this. Scenario one, let’s say I have a 401(k) with $200,000 and a Roth 401(k) with $100,000. Are you to combine them making the total of the 401(k)s equal $300,000 and then required a file to 5500?” Usually that’s one plan with a Roth provision.

Al: Yeah, usually. But let’s just say you do have two plans. And the truth is, if one employer has more than one plan, right? You have to combine them together. And if you’re- if you’re sole proprietor and we’re talking about individual 401(k)s, solo 401(k)s, we’re not talking about other types of 401(k)s when you have employees. So in that case, you got to presumably as a self-employed everything is kind of under that same umbrella because you have a- you have a sole proprietorship. So yeah, you have to add the two plans together or 3 plans or 4 plans, if they’re over $250,000, you’ve got to do 5500s for every single one of those. So just be aware of that. That’s how that works.

Joe: “Scenario two. Let’s say you have $265,000 in a 401(k) and $265,000 in a Roth 401(k). Are you required to file a form 5500 for each 401(k)?” We answered that.

Al: Yep. Answer is, yes. If they’re separate plans. If it’s just the Roth option inside the same plan, it’s one 5500.

Joe: “Thanks, as always. Schmitty in The Villages. PS, my new drink of choice is a tall glass of water.” Oh no.

Al: Oh, okay.

Joe: Yep. “According to my Doc, I developed GERDS-“ is that right? GERDS?

Al: Yeah, that’s right.

Andi: Yeah, I think it’s gastroesophageal reflux disease or something like that.

Al: It’s heartburn. It’s like heartburn, kind of the same idea.

Joe: You got that, Al? You got some GERDS?

Al: I’ve had it before, yeah. But now that I’ve cleaned up my eating, yeah, not very much anymore.

Andi: Wow, I actually got that correct off of the top of my head, what GERD stands for. I’m impressed.

Al: Yeah, yeah.

Joe: Medical genius.

Andi: Apparently.

Joe: “Maybe all that scotch whisky finally did me in. No worries. I’ll modify and hang in there.” Just a little scotch and water, come on, Schmitty.

Al: Yeah, just have a little more water with it, right? Or have a tall glass of water as you drink your scotch? That could work.

Joe: Yeah, a little scotch back, you know?

Al: Yeah. And then- or just do like I do. Eat lettuce and rice and beans and tomatoes, fruit, all day.

Joe: Oh, boy. All right. Well, Schmitty, hang in there, buddy. Thanks for the question.

Can I Roll My 403(b) to IRA With No Cost If It’s Held by an Insurance Company? (Bruce, Kansas)

Joe: “Hello, Andi, Joe and Al. I really appreciate everything you taught me through your YouTube presentations, and I enjoy listening to your education and humor. I enrolled in a 403(b) through one job and a 457 through a second job. I also fully fund a Roth IRA in a brokerage firm. I do not make enough money to max out my tax advantage contributions but enjoy saving to try to apply principles I’m learning on your show.” Okay, very cool. “My question has to do with the 403(b), which is under the stewardship of Security Benefit, which, as you know, is a life insurance annuity company. However, my plan has good investment options and I have chosen funds like a Vanguard total international and Vanguard 500 index funds. My 457 plan is through Empower Retirement and I also have good fun choices like DFA and Vanguard. I try to employ a 60/40 stock/bond mix in a globally diversified portfolio throughout my 3 investment options. When I leave my teaching job, I have planned to roll my 403(b) into an IRA with a brokerage firm. But I have grown concerned by listening to you and others talk about the dangers of annuities and their high fees associated with them. Because Security Benefit is an annuity company, i.e., life insurance, will I be saddled with separation costs or surrender charges when I roll over to an IRA? Am I doomed to accept the annuity option rather than my plan of pulling my investments into a consolidated portfolio? Since I don’t max out my retirement plans, would the option be to forgo the 403(b) and just add it to my 457? My question there is the income limitations for each plan according to the income for each job, or is it total income and I can max out one plan and forego the other? My apologies for the lengthy question, but I really appreciate it. And will eagerly await your reply. Thank you. Bruce.” Oh, Bruce from Kansas. All right. I’ll take a stab at this. The Security Benefits, the 403(b) plan through your employer- sounds like he’s a teacher. I would not worry about the fees, all that much in a large employer plan. I would have to look at the plan document, of course. And they probably have a brokerage arm and it sounds like you’re investing in Vanguard funds. Which is probably not in the shell of a variable annuity. It could be. But do you have an annuity contract, is what I would look at. If there’s an annuity contract with your 403(b), then you would look at that contract to see is there surrender charges? What are the fees? What are the costs? What’s going on there? Can you just strictly go into the 403(b) versus the 457? Is that what he’s asking? Yeah, the 457 is a government plan. But no, the 457’s through InPower. The 403(b) is through Security Benefit. So if he wants to go the 457, yeah, you could fully fund the 457. The 457 doesn’t have age 59 and a half limitations. It’s a deferred comp plan. So there’s pros and cons. But if he wanted to go one plan or another, if as long as you make $20,000 and you want to contribute $20,000, go for it.

Andi: Would he actually be saddled with separation costs or surrender charges on his 403(b) just because it’s an insurance company that’s holding his 403(b)?

Joe: Highly doubt it.

Al: Yeah. I would doubt it too. I think that the term annuity gets such a bad rap because a lot of annuities have very high fees and people buy stuff that they don’t really understand and it’s complicated and it doesn’t necessarily perform how they thought it would. You know, annuity inside of a 403(b) is generally- generally a lot different. I mean, it’s-

Joe: TSAs was kind of the start, tax sheltered annuity. And then they changed them to 403(b)s and I don’t know if it’s a 403(b)7. If it’s a 403(b)7 then you can invest in mutual funds.

Al: Right.

Joe: So I would have to look at the plan, of course. We’re just kind of spit balling here. But I wouldn’t be overly- overly concerned. I would still say the fees are probably a lot higher than somewhere else, but it sounds like Bruce’s kind of on it. He’s picked good funds. It’s diversified. It’s easy to contribute to. I would not be overly concerned about getting killed in surrender charges out of that account. Unless this happened to Bruce, ’cause this is probably the only thing I could think of. He’s sitting in the lunchroom. And one of these annuity reps goes to Bruce in the lunchroom and says, hey, have you taken advantage of your retirement plan here at XYZ school? And he’ll be like, oh, what is that? He’s like, well, it’s a 403(b). And then Security Benefit could be a vendor for- and then there’s multiple vendors, let’s say, I’m guessing he’s a school teacher, but I think that’s what he said.

Al: Well, he says he’s when he leaves his teaching job.

Joe: Well, he could be a doctor, too. He’s teaching.

Al: Teaching medicine? Okay. Whatever, Joe.

Joe: But if that’s the case, then he has his own 403(b) and its under contract- right? So it’s a separate plan. The TSA 403(b) market was the wild, wild west, right? You would get all these insurance reps sitting in the lunchrooms, hanging out with the teachers and then the teachers were like, oh, well, you must be part of the school district. And so they’re signing up and contributing into these plans. And then they find out, oh, well, I could invest in Fidelity or Vanguard or all these other different companies versus selecting Security Benefit like Bruce did. So I would check, is there other vendors that you could contribute to or is Security Benefit the main vendor for his organization? If it’s the latter, then I would switch out of that and then he could go into something less expensive. But I don’t know, tell Bruce to send me- I don’t know, Bruce, send me what you got. And then- I’m flying blind here. I’m trying my best. So hopefully that helps.

I’m a Tight Ass. Should I Contribute to Pre-Tax 401(k) or Roth 401(k)? (Jack Frost)

Joe: Let’s go to Jack Frost.

Al: Nipping at your nose?

Joe: Oh God, I don’t even know- this is gonna be just something special. All right. “I drive a 2005 Honda Accord and my wife drives a 2013 Honda Odyssey.” 2005. That’s a few years ago.

Al: Yeah.

Joe: Honda Accords, they last forever.

Andi: As shown by Jack Frost here.

Joe: Yeah. “We’ll drive them both to their deaths.” Okay. “Drink of choice is any Porter beer I can find.” Porter beer. Anyone. Anyone?

Al: Yeah, it’s a darker- darker beer.

Joe: It’s like a port?

Al: No, I mean, it’s like, I think it’s kind of like a stout. I’m not sure what the difference is between Stout and Porter.

Andi: Yeah, that’s the impression I get too.

Joe: Andi, you big Porter beer?

Andi: No, I don’t like Porters at all.

Al: Since we don’t really know what it is, I guess we’re not big on it.

Andi: I mean, I’ve tried them and I think they’re popular in the UK, and I had some there.

Al: Yeah. But isn’t that right? It’s kind of like a stout?

Andi: I guess so, yeah.

Joe: I’m guessing it tastes nothing like Coors Light.

Andi: Ah, no.

Al: I would agree with that assessment.

Joe: All right. “My question is, how should I fund my 24% into my 401(k) this year? So I have 8% that he’s contributing- he gets 16% matched through his employer.”

Al: Oh my, that’s super generous.

Joe: Wow. Jack Frost. “Pre-tax or Roth 401(k). Here’s why I’m asking. I’m a tight ass. Keep daily logs of expenses. And a budget.” Daily.

Al: Daily. Do you do that?

Joe: Is that what you and Annie do?

Al: No.

Joe: Financial summit?

Al: We don’t do that, Joe. We stopped doing the Clopine Financial Summit.

Andi: Oh, wow.

Joe: Oh wow. The Clopine Financial Summit is extinct, huh?

Al: Yeah, it stopped about a decade ago, maybe.

Joe: That’s when you started making the real bucks.

Al: Yeah, that’s when the wallet got big. So we didn’t need a summit. Didn’t need a daily expense budget.

Joe: Wow. Could you imagine? Honey, what’d you spend today? What?

Al: You went out to lunch?

Joe: What is this?

Al: You got the double cheeseburger? Come on.

Al: Oh my gosh. “Carry 13 credit cards with various rewards that I pay off monthly. Fix all my own issues with cars, house, et cetera. Family wants to go in at least one big vacation a year.” I wonder what that is. It’s like $15 to go to the drive-through?

Al: Yeah, well, we don’t know where he lives. But somewhere close, I’m sure.

Joe: Okay. “New hardwood floors in the house. I feel that I have front loaded my savings and can start spending more on my family now. I’m 46, my wife is 47. We have two kids around 10 and 15 and make around a $100,000 a year. My wife makes $80,000. Our net is about $1,300,000 right now. $1,000,000 in 401(k)s, $300,000 in Roths. $100,000 will eventually be for the kids’ education when they need it. Our combined pension should be anywhere between $75,000 and $85,000. I also plan on taking Social Security at age 62. Wife is a teacher, does not pay into Social Security, only debt we have as our house. It’s $90,000 and it’s worth $300,000.”

Al: Okay. So let’s see. The question was where to put-

Andi: How to pre-tax the Roth 401(k).

Al: How to fund the Roth. Pre-tax a Roth.

Joe: Okay, hold on. Jack Frost is- his numbers are jacked.

Andi: It actually says $1,000,000 in 401(k) pre-tax, Roths, HSA , K1 and I bonds. $300,000 of that- of that is Roth.

Joe: I understand. But what I’m confused about here is, where- they make a $180,000, Al. He saves 8%. So he’s saving $8000 a year.

Al: Right.

Joe: I don’t see- his wife’s a teacher. I don’t see a 403(b) anywhere. And the company matches 16%. I don’t know how big of a tight ass he is.

Al: Well, but remember, he’s only in his 40s. So maybe-

Joe: He’s my age.

Al: I know, but maybe he didn’t, they haven’t had these jobs for long term. Who knows? I get where you’re going. You’re thinking, wouldn’t there be more if you’re saving that much?

Joe: Yeah, if he’s a tight ass and only spends like this daily budget-

Al: Right, and you’re making- what are they making?

Joe: Almost $200,000 a year.

Al: $180,000, where is it? I guess that’s your question.

Joe: Right. I’m saving all this money and I don’t spend anything. And I’m looking at my expenses, but he’s got two kids, I don’t know what I mean.

Al: Yeah, yeah. Right?

Joe: I would go Roth. That’s my answer.

Al: Yeah, because they’re going to be in what is now the 24% bracket, which is a good low bracket, probably will be higher later with their pensions and other stuff. And assuming they work for, you know, a while and save more? Yeah, they’re probably going to be a higher bracket. Yeah, I would too. I go a 100% Roth.

Joe: Yeah, they’re going to have big pensions, you know?
And he’s going to have Social Security. Yeah, they’ve done a great job. Don’t get me wrong. You got your $1,400,000. So congratulations, Jack Frost, you tight ass. But is he- I mean, I was thinking it’s going to be something – am I over saving? I don’t think you’re oversaving. I think you’re doing a great job. I would- But you know what? Live your life. Spoil your kids. Have fun. You know? You have a couple more Porters. Relax.

Al: Right. I’m with ya.

Joe: Well, that’s it for us. Thank you all. Keep your questions coming. Go to YourMoneyYourWealth.com and Ask Joe and Al. Thank you all. Andi, great job. Big Al, have fun in Hawaii buddy. We’ll see you in a couple of weeks though, huh?

Al: That’s correct.

Joe: All right, we’ll see you next time, folks.



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