Joe Anderson
ABOUT Joseph

As CEO and President, Joe Anderson has created a unique, ambitious business model utilizing advanced service, training, sales, and marketing strategies to grow Pure Financial Advisors into the trustworthy, client-focused company it is today. Pure Financial, a Registered Investment Advisor (RIA), was ranked 153 out of 715 RIA’s nationwide by total assets under management by [...]

Alan Clopine

Alan Clopine is the CFO & Chairman of the Board of Pure Financial Advisors. He has been an executive leader of the Company for over a decade. As CFO he is responsible for the financial operations of the company as well as investor relations. Alan joined the firm in 2008, about one year after it [...]

Published On
December 14, 2021

Should those in the 35% tax bracket contribute to traditional 401(k) or Roth 401(k)? Should a self-employed cryptocurrency investor do Roth conversions or tax gain harvesting? Also, a retirement spitball for a couple, age 35, wanting to retire with $5M at age 60. Plus, do the SECURE Act rules for required minimum distributions (RMDs) apply when inheriting an inherited IRA? Finally, comments on some of the proposals in the latest version of the Build Back Better Act, which is currently being considered by the Senate.

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Show Notes

  • (00:59) Contribute to Traditional 401(k) or Roth 401(k) for Retirement? (Shake ‘n’ Bake, TX)
  • (07:10) Retirement Spitball: Are We On Track to Retire with $5M at Age 60? (Alex)
  • (14:43) Do Roth Conversions or Crypto Long-Term Capital Gains to ACA Ledge for Self-Employed? (Johnny G, Iowa
  • (22:50) SECURE Act: Inheriting an Inherited IRA Explained (Eric)
  • (30:27) “A Sneaky Annuity Bill That Will Make Joe Mad” (John, Abilene, TX)
  • (37:41) Can I Make IRA Contributions and Not Convert Under the Current Build Back Better Act? (Frieda’s Boss, Mr Poon)

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Today on Your Money, Your Wealth® podcast 356, if you’re in the 35% tax bracket, should you contribute to a traditional 401(k) or Roth 401(k) for retirement? Should a self-employed investor in cryptocurrency do Roth conversions or tax gain harvest their crypto? Joe and Big Al also spitball a retirement plan for a 35 year old couple who wants to to know if they’re on track to retire with $5 million at age 60. Plus, do the SECURE Act rules for required minimum distributions apply when inheriting an inherited IRA? The fellas also comment on the latest version of the Build Back Better Act currently being considered by the Senate. Visit YourMoneyYourWealth.com and click Ask Joe & Al On Air to send your money questions via email or voice message. We told you voice messages get first priority and you sure did hear that, kicking it off with four voice messages todayl! I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

Contribute to Traditional 401(k) or Roth 401(k) for Retirement? (Shake ‘n’ Bake, TX)

“Hi, Joe, Big Al and Andi. This is Shake and Bake from Texas. So my question today is should I be contributing to the 401(k) or the Roth 401(k) portion of my employer-based plan? Here’s some of my numbers: I’m 49 years old claiming head of household because I’m divorced with two kids. They’re both in college, but colleges is already covered. I have two dogs, Lola, who’s a cavapoo, and Ryker, who is a rescue. He’s a boxer beagle mix. I drive a 2017 Hyundai Santa Fe Sport that’s paid for.

I have a steady job. I make $140,000 base, $20,000 in restricted stock units and $80,000 bonus. I have $120K sitting in cash, $30,000 in a sinking fund for my next car, I have no debts. The house and the car both paid for.

My 401k has $815,000 in it. The Roth 401K has $58,000 in it. I have a brokerage account with $85,000 and a Roth IRA, which I have been backdooring for about 10 years. It’s got a $86,000 in it. So I have 18 to 20 years left to work. I’m currently in the 35% tax bracket. These last couple of years, I’ve put all $19,500 into the Roth 401k portion of my employer plan.

Is this the best place or should I be taking tax advantage of the regular 401K to help reduce my tax burden now? I go back and forth between the tax advantage of the 401K versus the Roth 401K, where it can grow for the next 18 to 20 years and help even out the contributions between my various vehicles. I’ll be hitting 50 next year, where I can contribute $26,000. I just wanted to level set with you to make sure that I’m going about my investments correctly before I jump off of the deep end and do the $26,000 a year. Thank you very much. Again, Shake and Bake from Texas. Appreciate everything you guys do. I love listening to your podcast.”

Retirement Spitball: Are We On Track to Retire with $5M at Age 60? (Alex)

“Hey gang, my name’s Alex and my wife Jessica and I are both 35, and we’re looking for a general spitball and some advice. So to get right into it, the household breakdowns are as follows. Household income is about $180,000 a year gross. We’ve got $30,000 in our daughter’s 529, $26,000 in 401Ks, $100,000 in Roth IRA, $600,000 in brokerage account, comprised of total US market, world market, and S&P 500 tracking funds, and about $180,000 in cash. We both contribute 10% to our 401Ks and max out a Roth each year. I also invest about $500 a month into that brokerage account. Right now, we’re also putting additional $1500 a month to the mortgage, which we owe $280,000 on, and with the current loan and plan, we will have a paid off in 10 years.

So I wanted to know if we’re on track as far as retirement goes. We’re hoping to have $5 million in retirement by age 60. And also, if we should divert that extra mortgage money to the brokerage account, knowing the power of the market and seeing how we could pay the house off, still potentially within that 10 years or before, we still have money left over from the growth while understanding the risk and tax implications involved.

We have a 13 year old chocolate lab, 15 year old Italian greyhound, I drive a 2019 Dodge 2500 Mega-Cab diesel, the old lady’s got 2021 Tesla Model Y Performance, both are which paid off, and if you haven’t had one, go home and whip up a Paper Plane, it is the best drink ever. Thanks, guys.”

Far too often, retirement funds fall short of where they should be, and many of us have no idea how to catch up. Our new guide will empower you with Tips to Fast Track Your Retirement regardless of how much your account balance is today. Pour yourself a Paper Plane – or your drink of choice – and click the link in the description of today’s episode in your podcast app to download the guide. You’ll learn the steps to take to boost your retirement savings, stay on track, and keep more of what you make. And here’s a Christmas tip: print out our guides, they make great stocking stuffers! Sharing the YMYW podcast and all the free financial resources with your friends, family and colleagues gives them the gift of financial information and entertainment, and it’s the best gift you can give us, because it helps us grow the show. Happy Holidays, YMYW family!

Do Roth Conversions or Crypto Long-Term Capital Gains to ACA Ledge for Self-Employed? (Johnny G, Iowa)

“Hello YMYW team, Johnny G calling back in from somewhere in Iowa, still drive my 2016 Ford Fusion now that it’s too cold to drive my motorcycle, which is a Honda Shadow 1100 and drink of choice is tequila on the rocks these days, preferably some Casamigos.

Quick overview before getting into my questions, I’m 27 and single. I got $58,000 in my Roth, $40,000 in my simple IRA, $30,000 in my HSA, and $44,000 in my brokerage. I’m a couple of years into starting my small business, and due to depreciation and putting most of my income back into the business and living off of savings, I’ll be keeping myself in the 12% tax bracket this year, as well as 2022. But then from 2023 on, I see myself probably being in the 24% or higher. But this year, trying to keep myself at the top of the twelve actually a little lower than the top of the 12 after the standard deduction, because I see the ACA ledge appears to be at $51,500. So I want to stay below that. And so after my salary plus already locked-in capital gains and then maxing out my simple IRA and my HSA contributions, that leaves me with about $34,000 of space to that ACA ledge. So my question is, what do you see as a better use for that $34,000?

I could convert almost my entire simple IRA into my Roth IRA, paying the 12% on that $34,000 conversion. But then obviously that’s in there to grow tax free for the next four to five decades for me. Or, wondering if you think I should lock in some capital gains on my brokerage account and get the step-up in basis and pay 0% since I’m in the 12% bracket on those capital gains?

This is because that $44,000 in my brokerage account, it’s mainly cryptocurrency and it has a cost basis of about $9,000, seen some pretty good gains over the past couple of years, obviously. They are long term gains, so they would be a 0% capital gains while in the 12% bracket. I do like my crypto holdings for the long term. So I would be purchasing them right back after selling them and just taking the step-up in basis and not paying taxes on it, because based off of my reading, there is no wash sale rule for cryptocurrency yet. So just wondering what you guys think I should do? Like I said, I’ll have 2021 and 2022 in the 12% bracket before popping up. So probably the 20… straight past the 22 and into the 24% in the year… (then Andi’s voicemail cut him off)”

SECURE Act: Inheriting an Inherited IRA Explained (Eric)

“Hey Joe and Big Al, I got a fun question for you. The fact pattern is this: the dad has a revocable trust. It’s a pretty standard revocable trust where on his death it funds the family trust mom’s the bennie. And then on her death the trust distributes outright to the kids. Dad has a Roth IRA and he names as the designated beneficiary of that Roth IRA his revocable trust.

Dad passes in 2013. Now, since his trust is named as the beneficiary, mom cannot treat the Roth as her own. However, since the trust is considered a look-through or see-through trust, she is able to elect to receive distributions from the Roth in accordance with her life expectancy.

And so she continues to take payments out from the Roth, you know, 2013 following dad’s death. Now in 2020, mom passes. So now in accordance with the trust, the family trust is then ultimately assets are distributed outright to the two children. And they’re adults, they’re healthy. And so they’re able to kind of take it outright.

Now, the question becomes whether or not they need to follow the pre-SECURE Act rules or the post-SECURE Act rules. So now it’s my understanding that in the pre-SECURE Act world, when you inherit an already inherited IRA or Roth IRA, you continue to take the payments based on the prior owner’s life expectancy.

So in this case, when Mom passed in 2020, she had about 3.8 years left in her life expectancy. And so the IRA administrator is saying that the Roth IRA has to be paid out within that 3.8 years with her passing in 2020. Now my question is well under the SECURE Act rules, in this case, the non-eligible beneficiaries have the 10 year window in which to withdraw assets.

And so because in the trust, the kids are named individually and are identifiable, my question is, wouldn’t they be subject to the SECURE Act rules and then the payment schedule would reset to 10 years, so they would have to clear out the Roth IRA towards the end of 2030 in 10 years. So that was my question and just kind of kind of wanted to get your two cents on this, guys.

Appreciate the show. And then, Joe, maybe just kind of curious if you ever had had anyone tell you that you kind of sound like the actor James Woods. Thought that was always kind of funny. So thanks again for all you do, guys, and take care.”

For a refresher on the SECURE Act of 2019 and how it changed retirement contributions, required minimum distributions, the stretch IRA, and more for both individuals and businesses, download our free SECURE Act guide from the podcast show notes at YourMoneyYourWealth.com. And of course, keep listening to YMYW for the latest tax law updates while you’re drinking your Paper Planes or walking your dog or hanging out with your wife. And hey, ICYMI, you can now watch Joe and Big Al answer your podcast questions on our YouTube channel. Click the link in the description of today’s episode in your podcast app to go to the show notes, download the SECURE Act Guide, and click the YouTube icon to subscribe to us on YouTube.

“A Sneaky Annuity Bill That Will Make Joe Mad” (John, Abilene, TX)

“Hi Joe, Grande Al, and Andi, John from Abilene, TX. I found an article on CNBC that will get Joe mad. The headline is “Workers will soon find out how much guaranteed income their 401(k) could deliver in retirement”. The article goes on to say. As mandated in the 2019 Secure Act 401(k) administrators will start providing illustrations on quarterly or annual statements showing an estimate of how much guaranteed lifetime income you could potentially get if the balance were annuitized. The article later gives an example of an account balance of $125,000 and the interest rate used is 1.83%. The illustration would show that if the participant purchased a single annuity with that amount they’d get $645 per month for life. For a joint annuity , the person would get $533 monthly until death and then that amount would go to the surviving spouse. Could you spitball a better option of informing people how much they could have in retirement instead of the annuity?”

Can I Make IRA Contributions and Not Convert Under the Current Build Back Better Act? (Frieda’s Boss, Mr Poon)

“Hello again Joe, Andi, and Al. All of my retirement is either in a 401k or Roth IRA. I have $0 in Traditional IRAs. I realize that the new house bill has to go through Senate approval and there may still be some changes but as it stands now, the backdoor Roth conversion is being eliminated. That being said, I cannot find any information on whether this new bill will allow me to make non-deductible Traditional contributions and just don’t convert them. Since my basis is zero, I wouldn’t have to worry about any future pro-rata distributions so, in essence, this would still be a “Roth” IRA just disguised under the “Traditional” name. Am I missing anything? Thanks for all of your spitballing over the years. Best regards, Mr. Poon”

On the Al, the Paper Plane, “old lady”, Fletch and The Godfather, and being in a wind tunnel with Shake n Bake in the plentiful Derails at the end of the episode today, so stick around.

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Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this broadcast and does not represent that the securities or services discussed are suitable for any investor. Investors are advised not to rely on any information contained in the broadcast in the process of making a full and informed investment decision.