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
April 25, 2023

Gidget wants to find her very own Moon Doggie so she can get married and reap that sweet, sweet capital gain exclusion when she sells her house. What do Joe and Big Al think, and can they help her find a man? Plus, is real estate a good investment for retirement income? Is taking out a TSP (thrift savings plan) loan to pay off your mortgage a good idea? Also, the fellas spitball a tax and ACA (Affordable Care Act) strategy, a FIRE strategy – well, financial independence, but not necessarily retire early – and they discuss capital gains taxes on RSUs (restricted stock units.)

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Show Notes

  • (00:45) How’s My Marriage Strategy for Extra Capital Gain Exclusion on the Sale of My Primary Residence? (Gidget, San Diego)
  • (10:46) Is Real Estate a Good Investment for Retirement Income? (Doctor Jerry, Waco, TX)
  • (16:14) Should I Pay Off My Mortgage with a Thrift Savings Plan Loan? (Jake – voice message)
  • (19:35) Spitball Our Retirement, Tax Planning, and ACA Strategy? (John from LA – Lower Anderson, SC)
  • (26:31) Do I Need to Pay Quarterly Capital Gains Taxes When I Sell RSUs? (Jerry, Redmond, WA)
  • (31:43) FIRE Retirement Spitball Analysis: How to Structure Our Investments? (Jim, Washington State)

Free financial resources:

Alternative Retirement Income Sources: Real Estate and Beyond

Free Download: 10 Tips for Real Estate Investors

Real Estate Investing: What Are Cash-on-Cash and Cap Rate? - Your Money, Your Wealth® podcast 365

Free Financial Assessment

Listen to today’s podcast episode on YouTube:


Gidget wants to find her very own Moon Doggie so she can get married and reap that sweet, sweet capital gain exclusion when she sells her house. What do Joe and Big Al think, and can they help her find a man? That’s today on Your Money, Your Wealth® podcast 426. Plus, is real estate a good investment for retirement income? Is taking out a TSP loan to pay off your mortgage a good idea? Also, the fellas spitball a tax and Affordable Care Act strategy, a FIRE strategy – well, financial independence, but not necessarily retire early, and they discuss capital gains taxes on RSUs, or restricted stock units. I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

How’s My Marriage Strategy for Extra Capital Gain Exclusion on the Sale of My Primary Residence? (Gidget, San Diego)

Joe: I think this is the strangest name we’ve ever received here on this program.

Al: Gidget?

Joe: Gidget.

Al: Yeah, like the surfer Gidget, from the 60s.

Andi: Yeah. Joe, you are aware that was a TV show, right?

Joe: I have no idea.

Andi: Yeah. It’s from Al’s generation, so technically we wouldn’t know about it.

Al: Finally, I know something you don’t about entertainment.

Joe: Wow. Gidget, I gotta go back to the archives. “Dear Andi, please see the attached file for some questions for Joe and Big Al.” Oh. When the question starts out, look at the attached file-

Al: That’s too much.

Joe: You know, it’s gonna be a big one. “I watch Sunday am on TV and both 600 and 1360 am radio on Saturdays. Thank you’all for all your wonderful information. Please let me know if you have any trouble opening this.” Oh boy. “Hi all. I’m Gidget.”

Al: This must be the file. Is that right?

Andi: Yep.

Al: Okay.

Joe: “My preferred pronouns are Princess and hey y’all. My favorite drinks are strawberry margarita and Dos Equis beer in Mexican restaurants; scotch on the rocks in Chinese restaurants; vodka martini in a fancy hotel; frosty cold beers, Coors Lite, Bud Lite, or Miller Lite on a hot summer day; red wine on a cold winter evening; Tequila Sunrise outdoors at sunset; Southern Comfort when camping out; Long Island Ice Tea when someone else is paying; Ozu or-“

Andi: -Ouzo-

Joe: -Ouzo, that’s like, Sambuca.

Andi: Yes.

Joe: “- or Amaretto or Disaronno when I’m in the mood.”

Al: Wow. We get the whole discourse.

Joe: Oh my God. “Essentially my policy is if it’s flammable, I’ll drink it.” We should make t-shirts like that.

Al: That is good.

Joe: Oh my God. “Please note that I’m very strict about no more than one drink per minute.”

Andi: Per minute!

Joe: Well, hold on, what’d she say?

Al: Per day.

Joe: Oh, per day.

Al: That’d be-

Andi: That’s projection, Joe.

Joe. Got it. “No driving within two hours of drinking.”

Al: Cool. Well, so drinking responsibly, I like that, Gidget. I already like ya.

Joe: Yeah. “Eventually I will want to sell my primary residence in all the absolute minimum capital gains. I rule out renting 1031 exchange or a DST. I bought my house in 1975 for $50,000, made $300,000 of improvements to add to the basis. Can take the $250,000 single exemption and it will likely sell for about $1,000,000 bucks. Thus, it looks like I have $400,000 in taxable gain and put me in Biden’s rich people category. Gasp. No way. I do appreciate that this is a nice problem to have, but I just don’t think the government will spend my tax money in any better way than I would spend it. The only practical hope I know of for a way out of this humongous tax liability is to be married at the time of the sale to get another $250,000 exemption. I can live with paying capital gains tax of $150,000 gain. So what are the rules of marriage exemption in this case in particular? Am I being totally serious-“

Andi: “- and I’m being totally serious about this.”

Joe: And I’m being totally serious.”

Al: Well, why don’t we pause just one second. So essentially if she’s gonna- if Gidget is gonna sell her home for $1,000,000 and she bought the home for $50,000 but $350,000 of improvements. So that’s her cost basis, $350,000. The difference between those two, $1,000,000 and $350,000 is her gain, which is about $650,000. But when you’re a taxpayer, which you would be, cuz you’re paying tax, single, then you get a $250,000 exclusion, where you don’t pay tax. So you take the $650,000 minus $250,000 and then you end up with $400,000 tax- or gain- gain with which you pay tax on. Now if you’re married, you get a $500,000 exclusion. So we’ll start there.

Joe: All right. So she wants to marry- what was Gidget’s boyfriend in the TV show, whatever you were talking about?

Andi: Ooh, that’s a good question. I’ll check it out.

Al: I think whatever surfer was walking by.

Joe: Got it. “How long do I need to be married before the sale?” Two years.

Al: Yeah. Well, it, well, “And how long do I need to be married after the sale?” Well, let me tell you the rules, which is this. So to get the full $500,000 exclusion, both of you have to occupy the property for two years, and both of you have to be on title for two years. So, and as far as being married afterwards, there’s no specific timeframe. But the point is, it is, whenever you do something like this, it’s your intent to be married. If you got divorced the next day, for example, that would look kind of strange. Like you just did this for a tax play, which you did. So you might wanna not do the divorce right away, but anyway, two years before, and plus your husband has to be on title.

Joe: “The house for sale is titled in the name of my trust. To get the marriage exemption, what, if any, modifications to the homeownership titling must be made?” So he needs to be on title.

Al: He needs to be on title.

Joe: “I really don’t wanna amend my trust as that will open a giant can of administrative worms.

Al: Got it. Yeah. Oh boy.

Joe: “Is the marriage exemption still okay if I get an annulment instead of a divorce?”

Al: Uh, sure.

Joe: Ah, golly. “Can you direct me to where I can meet a single heterosexual adult male who will marry me after signing a legal binding prenuptial agreement?”

Al: No. I cannot do that.

Joe: I don’t know. Maybe I can.

Al: You can, huh?

Joe: I don’t know what’s the age. You know, you got some age specifications here, Gidget?

Al: Well maybe we’ll find out.

Joe: Yeah, I don’t know. She drinks anything that’s flammable, I’m sure I can find a couple buddies.

Andi: By the way, in the TV show, Gidget’s boyfriend’s name was Moon Doggie.

Al: Oh, Moon Doggie.

Joe: Yeah. Well, we can go down to Moon Doggies in PB. Oh boy.

Al: That’s where the name of that restaurant probably came from.

Joe: “That all being said. additional questions for house selling. In the 1970s, I briefly reported depreciation on my home for a home office. I think I heard I should subtract prior depreciation from the basis when I’m selling my home. That’ll increase my gain. Is that right?”

Al: Yes, that’s right.

Joe: “Will the IRS know about the two or 3 years, I depreciated my house in 1970 on my tax returns if I sell this century without accounting for depreciation, I took over 45 years ago?” Upon audit, yes. Probably.

Al: They could figure it out eventually, but it’s probably not at their fingertips.

Joe: “Is there a way to stretch out the house sale price over two years by maybe having the buyer pay me half on the last week of December, and the other half, on the first week of January or something like that, so that I only have to pay taxes on half the capital gains in each of those two years?”

Al: Why don’t you sell it in January and pay the tax the whole following year? Then you got a whole year deferral.

Joe: You could because you have until April the following year.

Al: Yeah. Right.

Joe: But she wants to split the gain into two years.

Al: Yeah, but I think I think you’re gonna get to her tax bracket. I don’t think it matters that much.

Joe: It’s still the same tax. You’re just gonna cut half of it one year and the other half-

Al: – that’s the same. I think she’s gonna be in the 15% bracket for the whole gain.

Joe: I believe you’re right. “Is there an exemption, single or married, for a second vacation home?”

Al: No.

Joe: Background data.” Here we go. “I live in San Diego. I’m single, retired, 72 years old, and approaching the top of the 22% tax bracket including RMDs. My pension and Social Security total $70,000 a year. It pays for most of my living expenses. I have no debt. And my little nest egg is about $1,500,000, which includes over $300,000 in Roth, $275,000 combined traditional IRA and 403(b), and the rest in a CD and cash. Bless you. Gidget.” All right, Gidget, we gotta hook up. I gotta find you a man. Have some cocktails. We’ll sign that prenup and-

Andi: She’s in San Diego, you could actually go to Moon Doggies for those drinks, the strategizing.

Joe: I just need a small service fee of maybe a Coors Lite.

Al: You’re not very expensive.

Joe: No.

Al: Yeah, no, I think this is a difficult thing to pull off, Gidget. Just doing the quick math, looks like you’re gonna be 15% bracket plus some of this will be the net investment income tax of another 3.8%. So let’s just round that to 20% federal tax. It’ll be not that much, and we’ll say state will be roughly 9%, round to 10%. So 30% of $400,000 gain is $120,000. So that’s what it means to you. Now, you’re gonna pay less than that because the tax will be just slightly lower, first of all. And secondly, you’re gonna have closing costs, which then you get to deduct and net it against that. So maybe you’re gonna end up with $950,000 or $930,000- $930,000. So your gain might be $340,000 or $330,000 whatever it might be. So it’s a little bit less than you think. Would I go through something like this to save that money? That would be pretty difficult. Now, the thing that that screws this up is the two years that you have to be married and two years on title. So where are you gonna find someone that you’re gonna trust? I know you could potentially do this with a prenup, but this could get ugly.

Joe: Quickly.

Al: Yeah.

Joe: Very quickly.

Al: Yeah. Yeah. So I would just try to figure out how to- you know what I would do? If I had other investments, I might do tax loss harvesting, although it looks like you’re only invested in cash. So maybe that doesn’t work.

Joe: That’s it. Sorry Gidget.

We’ve got some free resources on real estate investing as a source of retirement income in the podcast show notes for a more in-depth exploration of the topic. Watch Big Al’s webinar on Alternative Retirement Income Sources: Real Estate and Beyond, listen to a previous episode that dives into the nitty gritty on things like cash-on-cash and cap rate, and download 10 Tips for Real Estate Investors. Just click the link in the description of today’s episode in your favorite podcast app to go to the show notes, access these free financial resources, and click ask Joe and Big Al On Air to send in your money questions as an email or a voice message, like this one.

Is Real Estate a Good Investment for Retirement Income? (Doctor Jerry, Waco, TX)

Joe: We got “Gentlemen and Gentle lady. I have some questions about the role of real estate and retirement portfolio. My wife and I live in Waco, Texas and we recently got a new grandbaby in Kentucky. I’m a retired doctor. I like IPA beers and I drive a modest Toyota Corolla, silver, so it never looks dirty.” All right. That’s wise. He is a doctor. A couple more years of education than me.

Al: Yeah. He is way smarter than we are.

Joe: Way smarter. “We have done well to save, so I know we’re set for retirement. I’m not interested in- but I am interested in tax savings. Because I feel that I paid my fair share so far. I’m 67 years old. I have $3,000,000 in a traditional IRA and $8,500,000 in a-” (coughing) excuse me, doctor- brokerage account.

Al: Doctor, get over here right away.

Joe: Doctor, you are a saver. “I’ve heard real estate is a good- is good for retirement income because it produces steady income, but you also have to either manage the properties or pay someone else to do it. And there’s no guarantees.”

Al: Wow. You started thinking about doctoring.

Joe: I know.

Al: Here it comes.

Joe: Here it comes. “So are there significant tax savings opportunities if I buy an investment property in either Texas or Kentucky? Google says I can deduct R and M expenses-“

Al: – repair and maintenance-

Joe: “- and depreciation, among other things. But is it deductible against only rental income or possibly against my total income, namely eventually my really high RMDs. I’d rather not have the hassle of trying to rent it out to anyone. I’m gonna have-“ the heck-

Al: What the heck is-

Joe: What the heck is a bonus depreciation?

Al: Oh, that is a good question. “And finally, in terms of tax-“ so he’s just doing research.

Al: Yeah. He’s got all these buzz terms.

Joe: He’s got the doc, you know, he’s like R and M expenses. Depreciation.

Al: That’s right.

Joe: Bonus depreciation.

A: Yeah, that’s right.

Joe: “I also thought about holding the properties in a trust so they’re not included in my future estate tax.” Well, what kind- he is gonna do a irrevocable trust.

Al: Yeah, he’s just again- just buzz words. Yeah.

Joe: Come on, doc. Come on, let’s go. “I look forward to the show each week and I tell all my friends about it. You’ll be primetime in no time. Thanks.”

Andi: While you were choked up, you missed the part that he asked “What unique aspects does real estate investing have over other capital assets?”

Joe: Nothing.

Andi: There you go.

Al: It does. Well, let’s see. So Doc Jerry, so here’s what I would say, being a longtime rental property owner since the decade of the 1980s, how about that? And we’re close to the same age. I’m a little bit younger. But at any rate so yeah, rental properties are great because when you buy a rental property, not only do you to get income, but you get appreciation. So you can sort of double up and you don’t even have to use all your own money. You can borrow money from the bank. You make a cash flow, and you have appreciation. In some cases, you can make quite a bit of money if you pick the property right, and you manage it successfully and so forth. But it’s a lot of work. It’s like running a business. Now if you just buy one rental property, maybe it’s not that big a deal, but it’s still a lot of work. There’s a lot to learn here on being a landlord and getting tenants. I would highly recommend you get a property manager, even though they’re probably gonna charge you 8% to 10% of the rent. I think that’s wholly worthwhile. You do get to deduct your expenses against rental income. But there’s something called a passive loss rule, which states that if your income is over $100,000, then it starts phasing out your ability to take losses against other income. And once your income is over $150,000, you cannot take any current losses. That loss just keeps- it just- it’s a passive loss and it carries forward.

Joe: His RMD is probably gonna be over that limit.

Al: Probably way over. Plus, I don’t know, what kind of income you have on the other big pile of money you have in your brokerage account. But I’m guessing your income’s over $150,000, so you wouldn’t get any current tax deduction. You could only net it against rental income. And by the way, you can’t take any of these deductions if you’re not gonna rent it. That’s called a second home, right? That’s a personal asset. So if you wanna at least take any kind of deductions, you’re gonna have to rent it out. Hire a property manager. I will say this, if you go to Kentucky, you have a property in Kentucky, you might be able to write off at least a portion of your trip, when you go to visit your grandbaby, ‘cuz you got a property there. There’s a lot of complex rules there, but yeah it’s a great asset, but it’s probably a lot harder than you would think.

Joe: Yeah. Jerry’s not doing it. Guaranteed.

Al: I wouldn’t necessarily recommend it unless you’ve done it and are really into it.

Joe: All right. Thanks Doc.

Should I Pay Off My Mortgage with a Thrift Savings Plan Loan? (Jake – voice message)

Joe: Alright, who do we got? We got Jake.

Jake: “Joe and Big Al. First, I wanna say thanks for all you do to both educate and entertain us every week. I’m considering taking a TSP loan to pay off my existing mortgage. The current loan balance is $45,000, and I intend to take the loan for 48 months, which I would be paying myself 4.125%. I understand I could possibly be losing additional gains for the amount borrowed, but the savings of my current loan of 3.5% plus the 4.125% saves me a lot over the term of the loan. Am I missing something that should be considered?”

Joe: Okay, Jake. Thank you. All right, so he’s got a balance of $45,000.

Al: Correct. We don’t know really what his payment stream is right now. He wants to take a TSP loan, which you can do for up to $50,000.

Joe: So he is gonna take a loan out of his retirement account to pay off his mortgage.

Al: And then he is gonna pay back his retirement account, which is allowable, in essence, pay himself interest for that.

Joe: Which I’d be paying myself 4.12% because that’s- that’s the rate on the-

Al: Right. In essence, you’re loaning yourself money from the TSP, so you pay yourself 4% and you save 3.5%. I personally wouldn’t do it.

Joe: I wouldn’t do it either.

Al: And the reason-

Joe: You’re tripping over, I mean, there’s-

Al: Just go ahead and make more payments on the 3.5%. Get paid off quicker. That’s a lower interest rate. Plus you lose potential market upside when the market’s down. It’s not like you wanna take money out right now while the market’s down, cuz there’s more chance of recovery. Furthermore, what if you get laid off? All of a sudden this loan is fully taxable. If you can’t pay it off in a lump sum.

Joe: It’s a TSP. He’s not getting laid off. He works for the government.

Al: But what if he did?

Joe: Yeah, I suppose.

Al: Why would you not do it?

Joe: I don’t know. Because-

Al: It’s not worth it?

Joe: It’s not worth it. It seems like a lot of paperwork, a lot of hassle, for a couple of bucks. So you’re taking $45,000 out that I had pre-tax going in. So I take a loan that I have after-tax dollars, paying off the loan, but I am paying myself when I’m paying taxes on those dollars. I mean, I don’t know what the true- I mean, there’s an arbitrage here of some sort, but I don’t think it’s worth the headache.

Al: I would totally agree with that.

Joe: But Jake, go for it. I don’t know. It’s an interesting question.

Al: It is. I mean, you can do that. There’s not a problem technically. I don’t think I would do it just for the reasons I said. But the one you said is a perfectly good reason too, Joe, which is, what’s the benefit? Not that much. Really.

Joe: Yeah. You gotta get my HP out at the end of it. I don’t know.

Al: Little bank arbitrage?

Joe: You’re up $600 bucks? I don’t know.

Al: If you’re taking money out of the TSP that could have earned a higher rate of return should the market recover. I mean, we don’t know when-

Joe: Everything could just net out even;

Al: It could. Yeah. Right.

Joe: Alright, well, interesting question. Thanks Jake.

Spitball Our Retirement, Tax Planning, and ACA Strategy? (John from LA – Lower Anderson, SC)

Joe: We got, “Hey YMYW team. It’s John from LA, Lower Anderson, South Carolina.”

Al: You know where that is?

Joe: Hell no. I would love to go though.

Al: Was it named after your family?

Joe: It could be. “Regular listener from 2019.”

Al: That is a long time listener. That’s not just a repeat, one time.

Joe: That’s not like hey, let you guys go and came back. “Great financial info and always hilarious. I listen to you guys, including Andi, on my earbuds and my wife gives me the funny look when I just break out in gut busting laughter.” Oh.

Al: Yes. That’s, I like to provide laughter if we can.

Joe: Yeah. “Drive a 2006 Hyundai Sonata-“

Andi: Sonata.

Joe: “Sonata with $250,000- 250,000 miles. And my drink of choice is Natty Lite.” Now look at John, Lower Anderson. Of course he likes Natty Lite. “I’m 60, make $100,000 a year. My wife, 62, retired making $27,000 combined Social Security and a pension. Contribute $20,000 to my 401(k), $7000 to the Roth, $7000 to the HSA. Currently have about $870,000 in the 401(k), $200,000 in the Roth, and $140,000 in the brokerage account. My plan, retire at 63, wife will then be eligible for Medicare, use $60,000 from our brokerage cash accounts, plus my wife’s $27,000 of income to fund our annual income need. I calculate this would reduce our income tax in ACA by $12,000 a year. If I use approximately $120,000 from our brokerage cash accounts over two years and save $24,000 in income tax and ACA premiums, that’s roughly a 20% return. Then I’ll claim Social Security at 65 for my benefit of $32,000 combined with my wife’s at $59,000 total, then switch to Roth conversions up to the 12% tax bracket, probably 15%. I understand that supercharging the Roth early for growth is the goal, but seems for me to just keep feeding up to the 12% or 15% future tax bracket with Roth is my best option. Retirement spit ball thoughts on my plan. Cheers, John.” So he’s looking at a couple year strategy to get the Affordable Care Act, the ACA.

Al: And it’s a credit on your health insurance premiums from the government if your income is low enough and poverty level is what they talk about. And right now for 2023, it’s about $20,000 for a family of two.

Joe: So he’s trying to keep his income low enough, still maintain $100,000 of income, but he’s gonna take it from his brokerage account. Or cash. Bleed that out. Let his IRA continue to grow.

Al: And so therefore, his income on his tax return will be low. So he’ll qualify for the full ACA credit for health insurance, which he’s computing to be about $12,000, which could be, that plus other taxes.

Joe: So the question is, should he do that or should he pump money into Roth early and kind of do a-

Al: Well it, so, John, what you’re suggesting does work. However, here’s what you may not be thinking about. So if you do your Roth conversions when you’re taking Social Security, your Social Security, which would be otherwise mostly tax-free. Now, when you do a Roth conversion, you’re gonna make the majority of your Social Security payments taxable, which means it’s not really a 12% bracket. Because you add $1 Roth conversion, you’re adding up to another $.85 of Social Security that is now taxed that wasn’t previously taxed, which actually, if you do the math, puts you in-

Joe: 27% or something.

Al: Yeah, it was, yeah, probably used to be, it’s probably like 25%, 24%, 25%. 24%, 25%. So it’s a higher- it’s a higher effective rate. And if you don’t believe me, put it on TurboTax and try with, and without, with your Social Security numbers, you’ll see you actually end up paying a lot higher tax doing those Roth conversions than you think. So I’m not sure. And this, you know, I get what you’re doing and you’re trying to save taxes and that’s completely acceptable, but I’m not sure you’re gonna get the best answer. I think your better answer probably is to just do some Roth conversions. Not so many that you’re never gonna be in the 12% bracket but just kind of do a little, do some analysis to figure out how much to convert between now and RMD age to figure this out.

Joe: Because he is not gonna do any now. Then he is gonna claim Social Security at 65. Then he is gonna do the conversions, but he doesn’t have any other income because now they’re just living off of their Social Security basically.

Al: I know. So Social Security- if all you have is Social Security-

Joe: It’s tax-free. Well it depends on the amount. It’s provisional income.

Al: It’s provisional income. Some of it will be taxed, but then they have the standard deduction, which will clear that out. But once you start adding Roth conversions, you’re gonna be paying more tax than you thought.

Joe: Right. You’re not gonna be in the 12% tax bracket.

Al: No, it’s gonna be effective rate much higher because of the fact that you’re- yes, you’re in the 12% bracket, but you’re adding extra income to that.

Joe: $1 of income is adding $1.85 of income.

Al: That’s right.

Joe: And people are always looking at us. It’s like, what the hell are you talking about? That doesn’t make any sense.

Al: Yeah. Yeah. And actually it’s like- the 27% that I used to say, that’s when the tax rate was 15%, so it’s probably like 20% to 22% tax rate, something like that.

Joe: All right, bud. 19. Since 2019. Well, thanks for your listenership. Awesome. Hopefully that helped. Clear as mud.

Now it’s your turn: click the link in the description of today’s episode in your favorite podcast app to go to the show notes, then click Ask Joe & Al On Air to get a retirement spitball analysis of your own. tell the fellas the relevant details like your name, age(s), and location. The name can be whatever you like; the ages and location should be real, in case state taxes play a role in your spitball. Also let Joe and Al know when you (and your spouse, if you have one) want to retire, how much you think you’ll need to spend annually in retirement, how much you make and save now, what you have saved, and in what types of accounts (401(k), Roth, brokerage, etc), Any other relevant financial details. Irrelevant details (to help Joe better visualize the situation!): Where or how you listen to YMYW, Your drink of choice, Your pet(s), What you drive, anything else you want to share – because the show would not be a show without you. At the moment 14% of the folks who listen to YMYW aren’t actually following the show, so if that’s you, follow Your Money Your Wealth in your favorite podcast app so you’ll know when Joe and Big Al answer your question. 

Do I Need to Pay Quarterly Capital Gains Taxes When I Sell RSUs? (Jerry, Redmond, WA)

Joe: “Hey Al, Joe and Andi. I discovered your podcast in 2022. Have been your faithful listener since. I really like the tax aspect of investing in retirement in your podcast. I’m still in the process of learning to enjoy drinking beer and wine.” He’s in the process.

Al: Yeah, you don’t have to. It’s an optional thing.

Joe: I think it’s a requirement.

Al: No, it isn’t. It’s probably healthier to stay away from.

Joe: “Oolong-“ What? “Oolong and green tea are my favorite bev-” What’s Oolong?

Andi: It’s a type of tea?

Al: Yeah. I actually was curious ‘cuz I like tea also. It’s from Taiwan.

Joe: Oo. Oolong. I don’t- the only tea I have is a little Long Island.

Al: That I’d guess.

Joe: “As you’ve guessed, I drive a 2017 Honda Civic. My question is around the tax penalty from capital gains. Here’s the situation. I have received RSUs, restricted share units, quarterly with my current W2 income in the last 3 years. When I sell my RSU with long-term capital gains, I would owe the tax interest and penalties. Later, I realized I was supposed to pay the tax quarterly on the capital gain, but I have questions on the following individual scenarios. Do I need to pay the quarterly capital gain?”

Al: Maybe. I’ll just start with that.

Joe: Okay. He’s got one scenario here, “Assuming my taxable income is about 12% sales stocks in January with long-term capital gains of $1000 in sales stocks in February with long-term capital loss of $1000.” That’s-

Andi: And then the next one is same except selling in July instead.

Al: Okay, well first of all, by year end, it’s same same.

Joe: It’s a wash.

Al: It doesn’t matter.

Joe: There’s no- there’s no gain. The gain and the loss equals zero. Right?

Al: I guess if we’re getting to semantics, you would have a higher estimated payment in the second scenario for Q1 because you didn’t have that loss, I suppose.

Joe: But you would get a- would you get a refund back?

Al: Well, you would just have a lower estimated payment the next quarter and make up for it. So, you know, it’s not a very big deal.

Joe: “Assuming my taxable income is above 12% sales stocks in January with long-term capital gains of $1000 and sales stocks in July with a long-term capital loss of $1000.” So now he’s just extending it. Because he had a gain for 6 months and then the loss happened 6 months later. So does he have to pay the quarterly estimate on the $1000 gain in that 6 months?

Al: Well, so we should just talk about how this works in the first place. So the- how many more scenarios does he have?

Joe: He’s got 15 more scenarios. But there’s 12 months outta the year.

Al: Well, then there’s another 12 because what if he sells $1500 of loss, $1000 of gain? What if he does it mid-month? That might change. It’s like, it’s just like the Social Security strategies. There’s 8900 approaches depending upon what day you do.

Joe: If I sell on January 1st, or the July 1st, and then I’m on January 2nd– Oh God. Yeah.

Al: So here’s the rule. The rule is this. So, most of us- we have a salary. And you have withholding on your salary and that covers your taxes, hopefully, and you get a little refund at year end. That’s the most common case. Now, when you have other income besides salary, then you may not have enough withholding and you might have to pay your taxes quarterly. That’s called estimated taxes. And it’s, that’s now gets to be common for retirees ‘cuz they don’t have salary. And you pay those estimated taxes 4 times a year, Q1, Q2, Q3, and Q4 at odd dates. Three of ’em are after the quarter, one’s before the- that’s a whole ‘nother story. But anyway, you gotta pay 4 payments. So, and oftentimes your income is similar, so you just pay the estimated payment the same time if you have to. And sometimes your income is higher in one quarter. So in other words, if you have a high income, like selling an RSU potentially for the gain in the first quarter, you might have a higher estimated payment the first quarter. And then, you know, probably similar payment the rest of the year. On the other hand, if you pay- if you sell it in December, you’d have lower estimated payments for the first 3 quarters, but then you’d have a bigger one to make up for the lower payments in the last quarter. So it’s just a timing thing. If you’re trying to do a capital loss to net against the gain. Yeah, theoretically it’d be best in the same quarter, but at the end of the day, who cares. Because after the year’s over those losses net with the gains, whether you paid too much here or too little here, it nets together. You’re in the same spot. So I wouldn’t get too worried about that. One more thing too is, if last year’s tax-  if your withholding this year’s greater than last year’s tax, you don’t have to make any estimated payments, even if you do owe. So that we could go through that whole can of worms for the other 65 scenarios. So that’s my answer.

Joe: Oh Jerry, thank you. From Redmond, Washington.

Al: Yeah, Redmond.

FIRE Retirement Spitball Analysis: How to Structure Our Investments? (Jim, Washington State)

Joe: We got Jim, he writes in from Washington State. He goes, “Hey Joe, Al, Andi, got a spitball for you. Background, 31 yo, single, but in a serious relationship with marriage in the plans.” Ooh, ooh, I don’t know, Jim, careful. “Partner’s 33. Currently rent, but looking to buy in the next couple of years. No kids now or in the future.” That’s what I thought too, Jim. Thought that exact same thing. The next thing you know, you hit your 40s.

Al: At that age that was true. But now-

Joe: And then little nasty pandemic happens. Then you’re just with this person all the time.

Al: Yep. Now you’ve got little kids and you got a cold all the time.

Joe: Then you get the sniffles and you get a little cough that never goes away.

Al: Because it’s a different bug every week.

Joe: Yes. And then you just load up your garage fridge with cocktails and you say you have to go work on your car for a little bit. You just hang out in your garage.

Al: I got it. And then you take it to the mechanic later during lunchtime at work. I got it. I’m onto you.

Joe: “My current income $200,000 base with $120,000 RSUs per year, depending on the stock price for total compensation of $330,000. Partner makes about $150,000 base, $70,000 RSUs for total comp of $230,000, household income, $560,000. We spend- current household spending is $98,437.46 cents per year.” What the hell is wrong with you, Jim?

Al: Give us- just say $100,000.

Joe: Shame on you.

Al: Good enough.

Joe: He can’t be serious, giving us a number like that.

Al: Well, that’s what his Quicken said from last year.

Joe: Oh my gosh. “Savings. I’m saving $22,500 in a pre-tax 401(k), $36,900 in my megatron garage door Roth.” I know you are a listener, Jim. “$6500 in a small backdoor Roth, maxing HSA, and the rest in cash.”

Al: Okay. Like it.

Joe: Okay. “Girlfriend is saving in the same order with her excess. Current balances. Current household balances are $40,000 in cash, $287,000 pre-tax 401(k), $270,000 in Roth, $470,000 in a brokerage, for a total of $1,000,000.” But he says $1,063,835.90.

Al: That was as of yesterday.

Joe: That was- yeah. Can you timestamp this thing?

Al: It’s, well hold everything that’s before market closed today.

Joe: He’s gonna be pissed when he listens to this because it’s gonna be 3 weeks after he wrote this thing and he is like, wait a minute, my balances are nothing like that. “Question. We are a couple of those FIRE kids you hear about-” FIRE.

Al: Oh. Financial Independence Retire Early.

Joe: All right. “-with the goal of being FI-“ Oh God.

Al: Financially Independent.

Joe: Oh, I don’t know if I can finish this.

Al: I like FI.

Joe: “Not looking for fully RE.”

Andi: Retire Early. He wants to FI by 35.

Joe: Oh, he wants to FI by 35. “Not looking to fully RE-“ oh, I’m gonna gag. I need a cocktail right now.

Al: Lemme guess. He’s gonna do blogs and how to FI, early.

Joe: Oh God. “But looking to distress or-“

Andi: de-stress-

Joe: “- a little in a different field. Wondering how we can look to generate income from the portfolio to allow us to make that jump to a lower salary or hourly positions. Do we need to start diversifying into real estate to get some rent payments? How do you two feel about real estate crowdfunding sites to diversify and generate some income? Looking at ways to get some cash monthly without selling investments at our young age. Love to hear any ideas you have on how we can structure our investments to support the FI goal.”

Al: Okay.

Joe: But not the fully RE.

Al: Right. I understand. So they’re gonna make some income. Just wanna de-stress a bit.

Joe: “Drink of choice is an Epic Day IPA from Eddie Line Brewery or Coors Latte if it’s before 5:00.”

Al: Oh, that’s the day drink, the Coors Lite.

Joe: Before 5:00. How about what you drink before 9:00? I don’t think Big Jim touches anything like that. “Have two dogs, a 9-year-old Catahoula-” Is that right? Catahoula?

Al: I guess so.

Joe: “-and a 10-year-old Australian cattle dog.” Drive a 2017 Toyota Tacoma and the GF’s 2016 Mazda CX3. Love listening to the pod on the long dog walks through the misty rain-soaked mountains of the Olympic peninsula out in Washington.”

Al: Yeah, that’s a pretty area moment.

Joe: Nice.

Al: Been there. Hiked there.

Joe: Okay. We got a little FIRE on our hands here, Big Al.

Al: Yeah, we do.

Joe: He’s got $1,000,000. Congratulations. That’s hell of a saver.

Al: That’s amazing.

Joe: Ton of income. You’re 31 years old. He wants to retire at- FI by 35.

Al: Got it.

Joe: You could go bananas.

Al: What do you mean? How do you retire at 35? I mean, even if you had all the money in the world, you know what happens with trust fund babies that retire at 35? They turn into a-holes.

Al: Yeah. But, well, first of all he’s made his own money, so it’s not- he didn’t- wasn’t given- So that there’s a little different category there. And secondly, he doesn’t want a completely RE.

Joe: Got it.

Al: So he is gonna make some income.

Joe: So how much money does he need? He wants a-

Al: Well, he needs, he just wants to spend $100,000 or $99,000–what’s your-

Joe: He’s got $99,832.32.

Al: Okay. Let’s say $100,000. Okay, so at 35, if you’re gonna use your portfolio, what would you say? 2%? 2.5% max in terms of a distribution rate?

Joe: He needs $3,000.000. $3,500,000.

Al: Yeah. $3,500,000. Even $4,000,000.

Joe: Right. Unless, well, well, he’s not gonna fully RE, AI.

Al: Well, I know that’s-

Joe: So let’s see if he, well, so him and the GF? Maybe they do something and they get a little part-time work making $50,000. So now he-

Al: So they need another $50,000. And even to be generous, divided by 3%.

Joe: $1,700,000.

Al: Yeah. $1,700,000. $2,000,000. $1,500,000 to $2,000,000.

Joe: I would say $2,000,000. He needs another $1,000,000 to-

Al: Me too. To really kind of-

Joe: He wants to de-stress. So what is that?

Al: So I would say you’re halfway there to your goal. But what they’re making and saving, I don’t know, maybe you get there by then. Or close. Right.

Joe: Well, let’s do the math.

Al: I mean, but you get- there’s taxes, right? So you gotta factor all that in.

Joe: But what are they saving? like $100,000 a year?

Al: Well, let’s do it the other way. $560,000 of income, and then let’s not even worry about savings. Let’s- well, some of that’s pre-tax tax savings, but let’s just say taxes are on that. I don’t know. Call it. Well say $160,000. So $400,000 left over to save, potentially.

Joe: Well, then they’re spending $100,000. So it’s $300,000.

Al: $300,000. $300,000 to save. So you could theoretically, and let’s say you need $2,000,000. You could theoretically be there by your goal of age 35. If you’re able to make $50,000 a year on your- on your other job. Your other profession.

Joe: Yep. I agree with that.

Al: But here’s the other thing though. I would tell you as an older person when you can make this kind of money, I might just do this for a while to bank more resources so you have more options in the future. I might go past age 35 and end up with more than $2,000,000 just because it just gives you a lot more options. That’s just me, an older person. This is your father speaking to you.

Joe: Oh, Jesus. Oh, you’re so sentimental nowadays, Big Al.

Al: Because I have a son who’s 30 and a son who’s 32, so I sort of get the age group. But anyway, you’ve done great. You’ve done fantastic. I highly- the profession that you and your girlfriend are in has really paid off and you’ve saved a lot. So congratulations to you. I do think you are a great candidate for retiring early or FI, financial independence, and so I think that’s great. I just- I would just hate to give up this opportunity. You may never find it again.

Joe: Right. And if they can just gut it out, 10 more years.

Al: Yeah. Or even to age 40.

Joe: Right. Just keep banking because you’re making a ton of- I mean, they’re the top half 1% of know of wage earners.

Al: So I think you would make your dad happier and your mom, if you did that.

Joe: Aww. You’d make Big Al happy.

Al: And me too.

Joe: But I think you’re close, Jim. You know, congrats on all your success there. But the guy’s in the gnat’s ass on his spending, savings and everything else. I’m sure he’s run the numbers. But it depends. I mean-

Al: But the thing is, when you retire at 35, you can’t use a 4% distribution.

Joe: You gotta use a 2%.

Al: And the reason is because the 4% came about retiring at 65 and maybe living to 90 max. So it’s 25 years. Not for your timeframe. Too many things can go wrong.

Joe: Yeah. Thanks Jim. Show’s called Your Money, Your Wealth®.

Andi: Your Money, Your Wealth® is presented by Pure Financial Advisors. Click the “Get An Assessment” button in the podcast show notes at YourMoneyYourWealth.com or call 888-994-6257 to schedule your free financial assessment, in person at one of our seven offices around the country or online, a time and date convenient for you, no matter where you are. Chances are, one of the experienced financial professionals at Pure will be able to identify strategies to help you create a more successful retirement.

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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.

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