Joe and Big Al explain when and how to claim Social Security survivor benefits, and how earning income impacts your benefit if you collect Social Security before full retirement age. Plus, how much should you withdraw in retirement from tax-free, taxable, and tax-deferred accounts? Also, RMDs, deciding whether to keep a life insurance policy, and of course, Roth conversion strategies – is the backdoor Roth better for long-term portfolio growth?
- (00:44) Should I Claim Social Security Survivor Benefits Before I Retire? (Lan)
- (02:09) Not Sure If My Ex Has Passed. How Can I Claim Survivor Social Security Benefits? (J, Floral City)
- (05:53) Social Security Income Limits Explained (Ken)
- (08:27) How Much to Withdraw from Tax-Free, Taxable, and Tax-Deferred in Retirement? (Jo, Ventura, CA)
- (13:11) Would RMDs at Age 75 Be a Roth Conversion Game-Changer? (Sam, Los Angeles)
- (16:34) Can I Roll Inherited IRA to My IRA and Convert to Roth? (YMYW fan)
- (21:04) Can I Start a Roth IRA for My 12-Year-Old Kid? (Dave, Olympia, WA)
- (22:43) Wouldn’t the Backdoor Roth Be Better for Long-Term Portfolio Growth? (Steve in steaming hot Texas)
- (27:31) Should Mom Do Roth Conversions to Lower Her Taxes in Retirement? (John, CT)
- (31:41) Should We Cancel Our Life Insurance Policy? (Patrick & Jackie, East Islip, NY)
- (38:23) Does Your Perspective on a Financial Plan Vary By Location?
- (40:24) The Derails
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Today on Your Money, Your Wealth® podcast 399, Joe and Big Al explain when and how to claim Social Security survivor benefits and how earning income impacts your benefit if you collect Social Security before full retirement age. Plus, how much should you withdraw in retirement from tax-free, taxable, and tax-deferred accounts? Also, RMDs, deciding whether to keep a life insurance policy, and of course, Roth Conversion strategies – is the backdoor Roth better for long term portfolio growth? If you’ve got money questions, visit YourMoneyYourWealth.com and click Ask Joe & Big Al On Air. I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.
Should I Claim Social Security Survivor Benefits Before I Retire? (Lan)
Joe: Now we got Lan. Is that right?
Andi: Or Lan.
Joe: Lan? Lan? L A N? Lan?
Andi: Could be either.
Joe: All right. “Hi. I listen to your podcast in YouTube. I’m going to retire in 2024, and I’m 60. I’m eligible to claim at 60 because I’m a widow. I’m working still and in two years I want to retire but I don’t want to claim my Social Security first. I heard from your podcast analyzed that survivor benefits don’t accrue in time, but my own SSA accrued in times.
Andi: I think the general thing here is should Lan take Social Security survivor benefits before he retires?
Joe: Or she retires?
Andi: Well, yes, sorry, she said she’s a widow. So yes.
Al: Could be, yeah. Well, you don’t take it, if you’re going to have to pay it back, there’s no point. So in other words, what’s the amount? It’s close to $20,000. If you make, more than $20,000, you’re probably not going to be taking that benefit because you just have to pay it back anyway.
Al: So then you wait till you retire. If you’re making less than $20,000, maybe you could, potentially.
Joe: So you’re working for two years, then you want to retire. If you claim your survivor benefit and you still have earned income, they’re going to reduce the benefit.
Al: Right. And the earlier you claim survivor, the lower the benefits going to be for life. So wait till you retire. That’s kind of a no brainer. If that’s the question.
Not Sure If My Ex Has Passed. How Can I Claim Survivor Social Security Benefits? (J, Floral City)
Joe: J from Floral City.
Al: Ever been there?
Al: Me neither.
Joe: Little JBird.
Al: Not sure where it is.
Joe: “How can I find out- how can I find out if my ex-husband has passed away? His bro says he passed September 5th, but no info proving his accident. Bro said he had family, won’t tell me where, how, and no obit published.”
Al: Right. Talking code. Obituary.
Joe: Obituary. I like to call it obit. You read the obits?
Al: I don’t very often.
Joe: What age do people start reading the obits?
Al: I’m not there yet, so I’m not sure. Do you read them?
Joe: No. No. No, I don’t. “I wish to file to increase my Social Security if it’s true. I was married 32 years. He chose another path, so divorce was what he wanted. I’m thinking information may tell me I’m still on bank accounts as he was not one to update things and perhaps family feels I’ll steal from him. Thanks for-“
Andi: I think that’s supposed to be “-whatever you can help me with.”
Joe: “-whatever you can help me with.”
Al: it’s st’ever.
Joe: St’ever. Okay. “Signed JBird. Little JBird.
Al: Maybe Kansas City?
Joe: JBird. Right. So it’s like, all right, ex-husband passed, he went a different. Probably wanted to find someone that could formulate a sentence.
Al: That’s possible.
Andi: Floral City appears to be in Florida.
Al: Oh, Florida. Okay.
Joe: All right. So JBird’s talking to the bro. Bro is not giving JBird any information.
Al: It’s like we don’t want you to steal from the family, get more Social Security. So anyway, the rule is this, though. If you’ve been married 10 years or more to an ex-spouse, you can claim on his or her benefit if it’s better than your benefit. So that’s valid.
Joe: Right. Even if he hasn’t passed, she could still claim on his benefit.
Al: She can still claim, but now it’s based on Survivor, instead of Spousal, which is generally higher. But anyway, the Social Security Administration normally gets death certificates from the various counties and states that prepare them, so usually they know. So I would start with calling Social Security.
Joe: Show your certificate of marriage and then certificate of divorce.
Al: Exactly. You got to show both of those. And probably original copies, certified copies. But Social Security would probably already know.
Joe: Yeah, you could bypass the bro.
Al: You could. So just call Social Security, and I think they’ll tell you what to do.
Joe: It’s funny, sometimes with an ex-spouse claiming benefit on the ex-spouse’s record, they think that it’s like taking money away from them. It’s not. It’s not. It’s a number, basically, to formulate what the ex-spouse’s benefit is going to be. That’s all it is. It’s not like the ex-spouse loses benefit, he doesn’t share his benefit with the ex-spouse.
Al: Yeah, there’s no sharing. It just is what it is. So the family- the family of your ex-husband doesn’t- there’s no detriment. But sometimes we get people saying, when I die, I don’t want my ex-spouse getting the benefit. Sorry it’s not in your hands.
Joe: You mean my ex-spouse can claim on my benefit? What does that mean for me? Nothing.
Joe: Don’t worry about it.
Al: Plus, you’re dead anyway, so yeah, don’t lose sleep over it.
Social Security Income Limits Explained (Ken)
Joe: Ken, he writes “I just watched your webinar on Social Security and it was excellent and very informative.” For those of you taking score, we do webinars here at Pure Financial. Go to purefinancial.com. “My question is, if a person collects before his full retirement age and earns over $18,000 limit, I understand, about paying $1 back for every $2. But after the year, does one Social Security amount get recalculated higher based on the amount that was paid back? Thanks, Ken.” Yes, it’s calculated monthly, Ken. So let’s say if you claimed your benefit early and you make more than the limit that allows you- if you’re over the earnings threshold, I should say, that sounds a little bit more professional- so that’s $18,000. So every $1- or every $2 over that limit, they take $1 back from your Social Security benefit. The Social Security benefit- or the administration doesn’t know you’re making that income yet, though.
Al: They won’t know until you file your tax return.
Joe: Perfect. Right. So next April, when you file your tax return, Social Security gets notified and says, Ken, what the hell were you doing? Don’t you know the rules? You were making too much money, so we got to take some back. So let’s say you’re still claiming the benefit and so you’re expecting a paycheck from Social Security. You’re not going to receive one because they’re going to get paid back every dollar that they paid out that they shouldn’t have. But what they do is then they assume that you never claimed it to begin with. Once that procedure is done, then automatically gets recalculated to the higher amount.
Al: Yeah. So you end up in the same spot, essentially. You got the money, but then it goes back.
Joe: You pay it back and then you get it back. But you get it paid out over your lifetime.
Al: Right, but you don’t have to write a check.
Al: It’s just your benefits are reduced, and when it’s fully reduced, they recalculate all this. And actually calculate every month based upon what was paid back that month.
Joe: Okay. Hopefully that helps. Ken.
If you’d like to watch the Social Security webinar Ken was talking about, you can find the replay in the podcast show notes at YourMoneyYour Wealth.com, along with the companion Social Security Handbook. Also, sign up for Medicare Made Clear, a free webinar coming up on October 26, and you can download our brand new Medicare Checkup Guide for free. Click the link in the description of today’s episode in your favorite podcast app to access all the free financial resources, the episode transcript, and to share YMYW and the resources so you can help us grow the show.
How Much to Withdraw from Tax-Free, Taxable, and Tax-Deferred in Retirement? (Jo, Ventura, CA)
Joe: Jo writes in from Ventura, California. “Hi, Joe, Al. I really enjoy your podcast, insights and humor and wanted to ask a spitball question.” All right, Jo. “First, to start off, I drive a 2017 Hyundai Elantra.” And then Aaron, you’re doing something with the screen there, bud? You multitasking?
Al: Yeah. He’s not paying attention. It’s okay, we got it.
Joe: Something keeps flashing on the TV.
Al: We lose Andi for a second.
Joe: “My favorite drink is Lagunitas IPA.” A lot of people like the Lagunitas.
Al: Yeah, big time.
Joe: A little popular choice. “I’m 50 and plan to retire in 12 years. When I estimate my accounts at my goal retirement age of 62, using an annual interest rate of 6% and yearly maximum contributions to the Roth, I have these numbers: Roth $1,500,000, traditional, $1,500,000, taxable savings, $200,000. Here’s the question: in what proportion do you usually recommend drawing down from these accounts once you hit retirement? Many traditional professionals I looked up recommend withdrawing first from taxable accounts, then tax-deferred accounts and finally, Roth accounts where withdrawals are tax-free. They write that the goal is to allow tax-deferred assets to grow longer and faster. However, a recent Fidelity post shared an example and data that if you draw from all 3 accounts, taxable savings, Roth, traditional, at the start of retirement, you will lower your overall tax amount over the life of the portfolio for net reduction in total taxes on paid income in retirement. What do you usually recommend doing when retirement hits? Do you agree withdrawing from all 3 accounts? I agree that the Roth is valuable, so I’d hesitate to lower the amount by taking withdrawals from it in my 60s. But it makes sense in the big picture. I can see the point. Thanks so much. I look forward to your podcast every week during my commute to work.” Has she ever listened to the podcast, I guess before this? Because yes, she’s right on track. You heard it from Fidelity versus us? That’s what we talk about every week.
Al: Fidelity is right. So here’s how to think about it, which is, you do this based upon your tax bracket and you look at your future- your current tax bracket, future tax brackets. What tax bracket are you going to be in? The last thing you want to do is pull it out of- well, first of all, so they recommend the taxable savings. You only have $200,000. That’s kind of more for emergency. But you would pull it and then in their order, you take it out of the traditional. Well, that’s not bad, except if it puts you in a lot higher bracket. You just need to consider this as you’re pulling money out. Now, when Social Security hits and other things that may change, or if you’re spending changes, you may change the allocation, but you got to think about your tax rates each and every year.
Joe: So at 62, it’s going to depend on how much money do you want to live off of, Jo. So if it’s $50,000 or $100,000, you’re probably going to have a different combination of what your distribution plan looks like. Let’s say it’s $50,000. You’re probably pulled from the retirement accounts first because it’s up in the 12% bracket.
Al: Yeah, exactly. So that keeps you in the low bracket. On the other hand, if you want $150,000, it might be totally different.
Joe: Yeah. Then you would want a combination of all 3. So it’s looking at your taxable income each year and then filling up your taxable income to the lowest bracket possible. And if you need more income, then that’s when you would grab from the taxable account or tax-free, because all of that is tax-free dollars. So instead of pulling- so the last thing you want to do is drain your liquidity. And this is what most advisors preach, right? It’s like, okay, keep deferring, deferring, deferring, deferring until you absolutely have to take the money out. Well, then you’re going to defer those dollars when you’re in very low tax brackets, when you either should be spending them or converting them. So if I’m deferring my retirement accounts and not taking any money because I don’t want to pay the tax, I’m just going to pay a hell of a lot more tax later. So it’s looking at the tax bracket each year, and it’s like, either take the money and spend it, or take the money and convert it into your Roth IRA and pay the tax at the 10% and 12% tax bracket.
Al: Yeah, completely agree. And if you want to take out a lot more, I mean, you’ll have a lot of savings, so you’ll be able to. But it’s just a matter of looking at the tax brackets and coming up with a sensible plan. So, Jo, in your particular case, you’ll have roughly equal between traditional and Roth. We don’t see that very often. Very good. That’s a really good allocation. So you basically will be able to minimize taxes over the rest of your life if you do this properly.
Would RMDs at Age 75 Be a Roth Conversion Game-Changer? (Sam, Los Angeles)
Joe: Alright. Sam from Los Angeles, little neighbor of Jo at Ventura. “Hi Joe and Al. Discovered your podcast. And it’s taught me so much.” Makes me feel so good, Al. What do you think we taught Sam? What are all these people just finally discovering us?
Andi: That’s a good question. I was wondering about that. I would like it if the people that email us if you would tell us how you discovered the show, so that we can actually do more of that.
Al: It’s finally- after 15 years, it’s finally catching up.
Joe: It’s like, yeah, I just discovered this, and now I’m binging.
Andi: I’m making the effort to keyword all of our information so that people can find the things that they’re looking for. So maybe that’s helping.
Al: Maybe so.
Joe: Is that when you’re on Google Maps and then you’re looking at people to find email addresses-?
Andi: No, way more sophisticated than that. I’ve moved way beyond email addresses in Google Maps.
Joe: Got it. All right, Sam. All right. Just discovered the podcast. Taught me so much. Okay. “I would like to get both of your opinion on the hypothetical outcome of a bill headed to Senate which will move the age of RMDs back to age 75 starting in 2033. I’m 45 years old.” Sam. You’re 45 years old and you’re thinking about RMDs.?
Al: Never too early to prepare. 30 years out- I’m really worried about this.
Joe: I’m keeping my eye on this bill heading to the Senate.
Al: It’s a good point.
Joe: “I’m 45 years old. I currently have $120,000 in my Roth and $400,000 in my tax-deferred account. If this bill passes, will this be a game changer for those like me, retiring after this time, if I don’t have until age 79 to pay RMDs-?”
Joe: Did I say that wrong?
Al: -75. You said 79.
Joe: “If I don’t have until age 75 to pay RMD, will I need to worry less about growing tax-deferred traditional IRA? Will this change your recommendation on converting or contributing to Roth accounts? Or is this a small detail in the overall life of a portfolio?” All right, Sam. So he thinks this is a game changer.
Al: Yeah. To go from 72 to 75 for a required minimum distribution. Does that completely change your Roth strategy?
Al: No, not even slightly.
Joe: Not even a little bit.
Al: I don’t care if it’s 95 RMD. You want to get more money into the Roth so you get the tax-free growth not only for yourself, but maybe your spouse, if you outlive your spouse or your children, or if you don’t have kids, other beneficiaries, the Roth is the best asset to pass to the next generation. It’s also the best asset for you because all that growth is tax-free.
Joe: But I want to go back to Jo’s question, too. It’s like the reason why you want to have Roth is diversification from a tax perspective.
Al: And you can control your taxes later.
Joe: Control is the key component here. Right. It’s not about RMDs. It’s not about any of that BS. It’s about control your taxes when you need the money. And when do you need the money the most? When you’re older, because you’re not working and you have to live off the savings that you have. And if you can reduce your tax bill from those savings, the money lasts that much longer.
Can I Roll Inherited IRA to My IRA and Convert to Roth? (YMYW fan)
Joe: We got “Hello, Joe, Big Al and Andi. First of all, congratulations to Lauren, Amazon winner.”
Andi: That was from the podcast survey.
Joe: Okay. “So first of all, congratulations to Lauren, Amazon winner. Thanks to her for bringing up the concern to suggest Your Money, Your Wealth® to put back the transcript.”
Al: Did we take it away the transcript?
Andi: For a little while there, my mother was out of action because she was nursing a broken arm-
Al: Oh, I remember that.
Andi: – and so we did not have transcripts for a little while, but now they are all back. And so Lauren had actually emailed us and said, hey, I missed the transcripts. She said that in the podcast survey, and I let her know transcripts are back.
Al: Very cool.
Joe: All right. “Because English is my second language, it is easier for me to read than to listen.”
Andi: Or read and listen.
Joe: Oh, to read and- okay, got it.
Andi: Read along. Because you guys are hard to follow at times.
Al: Yeah. It goes kind of fast. I was just in Italy trying to follow- because I’ve studied a little bit Italian. And I could do like a word at a time in a very simple sentence. But when you get the whole thing, it sounds like one word. And actually to be able to read along with it, because we did a couple of movies for about 10 minutes, so we got bored with subtitles, and I could understand that a little bit better.
Joe: Got it. “Love the show. I’ve been a loyal listener for many years.
Learn new information regarding inherited IRA. My husband passed 6 years ago before his 50th birthday. My agent didn’t offer me to roll over his 401(k) to my IRA but created an inherited IRA. Now I have to take RMDs every year. I’m 57.” If it’s your husband, there’s still time to put it in your own IRA.
Al: Yes, right. So that’s a good point. So he passed away 6 years ago.
If you don’t do anything, it’s an inherited- it’s a Beneficiary IRA is what it is. But you can change anytime. You don’t have to do this in the first year, you can do it 20 years later, put it in your own IRA account. Then you don’t have to take any RMDs until age 72.
Joe: But I don’t know why you would be taking an RMD. “I’m 57. I’m in the 24% tax bracket. Is there any way I can roll over this inherited IRA to my IRA now and do the Roth conversions? Thank you, best regards. Your Money, Your Wealth® fan.” Yes. Okay, a couple of things here. First of all, congratulations to Lauren, Amazon winner. Appreciate you winning that $25 gift card.
Andi: We appreciate her giving us her feedback on the podcast.
Joe: As a spouse, again, if a spouse dies and you keep it in the spouse’s name- so there is no RMD. There is an RMD that you would have to take when the deceased spouse would have turned age 72. He died at 50.
Al: 6 years ago.
Joe: 6 years ago. So she kept it in the husband’s name, and she thought that she had to, because her agent, insurance agent or whatever, said that she’s got to take an RMD. No, you do not have to take an RMD. So you could keep it in the husband’s name as you the beneficial owner, and not take any money from the account. But you can’t convert an inherited IRA. So you would have to move it into your own and do the conversion there. But you don’t have to take the RMD until he would have turned age 72.
Al: And in this case, you keep it in your husband’s IRA and husband’s name if you need access to the funds, because you’re not yet 59 and a half.
Joe: Yeah, but I don’t think she does. She’s in the 24% tax bracket. She’s killing it.
Al: Exactly. So the point is, you don’t need the money, so just put it in your own name.
Joe: Yeah. And then do conversions if you wanted to.
Al: And you can do that anytime. 6 years ago. You could do it then. You can do it now. Whatever.
Joe: All right. I’m glad you wrote in. You should have wrote in a couple of years ago when he died. But she’s been a loyal listener for quite some time. We probably didn’t talk about inherited IRAs for a while. It seems like everyone wants to talk about Roths. Not today. Everyone wants to talk about death.
Al: We’ve gotten a lot of that. Haven’t we?
Can I Start a Roth IRA for My 12-Year-Old Kid? (Dave, Olympia, WA)
Joe: We got Dave writes in from Olympia, Washington. “At what age can I start Roth IRA for my daughter? What type, aggressive, mod, etc., do you suggest?” We don’t suggest anything here, David.
Al: We spitball.
Joe: Yeah, we’ll spit on it, but we won’t advise anything. “She’s 12. I’m a much older parent and want to share and I want to start her in the right direction. College is probably already, since I’m retired military and 100% disabled. Thank you, Dave.”
Andi: College is provided already.
Joe” Oh, provided. What did I say?
Andi: College is probably already.
Joe: I didn’t think that sounded right. I knew something was off there. Provided already. All right, so he’s a little older parent, wants to start in the right direction. She’s 12 years old.
Al: I like the thinking.
Joe: Okay. Your daughter, Dave, needs to have earned income. So 12-year old. Do you think she’s working?
Al: I don’t think so.
Joe: I don’t think so either.
Andi: She could cut the grass. Would that count?
Joe: Not really.
Al: Well, not really because she’d have to record it on schedule C, and she’s not going to probably do that.
Joe: Start a business-
Al: -at age 12?
Joe: Yeah, daughter lawnmowing service? So if she’s working, then you can start a Roth IRA for her.
Al: Let’s say she turns 16, for example, and she earns a couple of $2000 in her job. Then she can do a $2000 Roth IRA. So that’s the point where you can start funding this. And you can find it with your own money. It doesn’t have to be with her money, she just has to have earned income.
Joe: All right, hope that helps, Dave. Good luck with that.
Wouldn’t the Backdoor Roth Be Better for Long-Term Portfolio Growth? (Steve in steaming hot Texas)
Joe: “YMYW gents-“ this one starts out as “-thank you for covering my question in today’s episode.” Okay, well, it’s not today’s episode, but-
Al: When he wrote it was. He’d just heard it.
Joe: “I have a different perspective to offer which might influence your spitball. In your spitball today, you guys spoke a lot about how the tax I would pay doing a Roth conversion is equal to the tax I’ve already paid on the dollars I would have used on the backdoor Roth. I understand that completely. But my motivation for pondering a backdoor Roth is not about taxes. My motivation for doing a backdoor Roth is to introduce new dollars into my retirement portfolio to see compounding growth until I reach retirement in 20 plus years rather than those dollars sitting in the savings account. I think the notion that a Roth conversion and a backdoor Roth are same same makes sense from a tax perspective, but not from a long-term growth perspective.”
Joe: Okay. I agree with- 1000%. “After doing a Roth conversion, there would be no increase to my overall retirement portfolio balance like there would be after doing a backdoor Roth and introducing new dollars into the portfolio. Surely it’s better to look at a strategy that would make my overall portfolio balance higher, right? Does this change your spitball? Steven”
Andi: So Steven in Steaming Hot Texas, by the way.
Joe: I think he missed my point.
Al: I think so, too. So try to make it again.
Joe: Steven, I went on a tangent, I think is what happened when we were answering your question. Because we get so many damn backdoor Roth questions and it was probably the fifth one that I had to answer that afternoon.
Al: We did have an episode where it was one after another, same question.
Joe: And so I might have- and I’m sorry if you took it that I was combining this rant into the spitball. I agree 100% with what he’s saying. Yes, I would much rather have money into a Roth than a non-qualified brokerage account.
Joe: 100%. And I get what he’s saying there, too. Is that okay well, I’m taking my money from the non-qualified brokerage account and I’m putting it into an IRA and I’m converting it and I’m not paying any tax.
And now that money is going to compound for me tax-free forever. Love it. Absolutely. 100,000% agree. My point was, is that a backdoor Roth that everyone gets so souped up and hyped up about, it’s kind of the same as if I had an IRA that I never paid tax on and I converted it and now I have compound tax-free growth. Some people don’t do conversions, is what I think my point was trying to be if I can remember when we did this. But I’ve ranted about this a million times. So if it wasn’t his, it was probably someone else’s, is that someone has money to convert. They won’t convert, but they will do a backdoor Roth conversion. To me, that makes no sense.
Al: Yeah. Because tax-wise, it’s same same.
Al: As long as you’re in the same bracket, like we talked about in episode, whatever it was.
Al: And every other episode.
Joe: Yes. I think we’re all on the same page and we’re on the same perspective, that tax-free growth is a lot better than taxable growth.
Al: So I may have made this point, I don’t remember. But this is how I would think about it also, which is if you have a lot of money in an IRA, for example, and when you convert that and let’s just say you’re in a 25% tax bracket, just to make it super simple. Right.
Joe: Even though there’s no 25% tax bracket.
Al: Correct. Because I want simple math. Right. So a $6000 conversion- I mean a $24,000 conversion is going to cost you $6000 to pay for the tax. So then to me, the question is, would I rather put $6000 into an IRA and convert it and get an extra $6000 in my overall retirement? Or would I rather invest that $6000 and get $24,000 from my IRA into a Roth? I think I’d rather do the latter, but I think I probably made that point, too.
Joe: So if I understand you correctly, is that if you converted $24,000, it’s going to cost me $6000 tax.
Al: That’s right.
Joe: So does it make more sense to convert $24,000, have that $24,000 compound tax-free into a Roth, but then take the $6000 that I was going to put into the Roth IRA and send that check to the IRS to do the conversion?
Al: That’s what I would do.
Joe: I would do that, too, because that’s called leverage.
Al: Right? Because now it’s four to one.
Joe: Yes. Love it.
Should Mom Do Roth Conversions to Lower Her Taxes in Retirement? (John, CT)
Joe: John writes in from Connecticut. “Hey, Joe, Big Al, Andi, found your amazing podcast a few months ago, and I listen every day on my way to dental school.” Every day? John.
Al: Well, we got- 400 episodes?
Joe: Oh, it’s awful.
Andi: Well, and dental school might only be like 2 miles down the road, so he’s got to be listening little bits at a time.
Joe: Would you rather listen to this show or go to the dentist?
Andi: Hey, he’s doing both.
Joe: He’s doing both.
Al: Right. How about you?
Al: That’s a tough call.
Joe: Yeah, I’m going to the dentist tomorrow.
Al: Well, after you’re done, you can tell me which is worse.
Joe: Yeah, I won’t be listening to the show.
Al: You should listen to the show on the way there and on the way back, and then you tell me which was worse.
Joe: Got it. “My question is on behalf of my mom. She’s 66, recently widowed, and I’m worried about her tax liabilities going into retirement. She makes about $165,000 a year and plans on working to age 70. I had her start collecting my father’s Social Security Survivor benefit now that she is at full retirement age. She maxes out her traditional 401(k), a backdoor Roth IRA, and contributes some of the mega backdoor Roth, as I suggested.” Look at John. Look at the big brain on John. Instead of going to dental school, why don’t you get your-?
Al: He’s been listening to our show.
Joe: Got the big backdoor Survivor benefits-
Al: – and the Mega?
Al: We haven’t really talked about that for awhile.
Joe: The megatron. “There’s $600,000 in traditional 401(k)s, another $350,000 in brokerage, with an unsubstantial amount in Roth. Between Social Security and two private pensions, her starting retirement expenses of $95,000 at 70 will be completely covered by them, and some. I know it’s your favorite topic, but what do you think about doing some Roth conversions now to fill out her now much smaller 24% tax bracket? Retiring at 70 does not leave a lot of room before RMDs kick in, and I’m worried about IRMA and high tax rates later in life for her. Thank you all for all you do. My mom drives 2015 GMC Yukon-”
She’s kind of like a badass.
Andi: Look at what she drinks.
Joe: “-and has been known to drink an espresso martini-” All right. “-or two while at the book club.”
Andi: Espresso and martini. So you’re doing coffee and martini? Wow.
Al: Yeah. Espresso martini. It’s a coffee liqueur and vodka, I think.
Joe: Okay. Yeah. So she’s got $600,000 in a 401(k) plan. She’s 66 years old. She’s fully funding it. She doesn’t need any of it. She’s going to retire at age 70. RMD is going to happen at 72. So her RMDs are probably going to be around $40,000. And if her pension- two pensions and Social Security are already going to put her in a 24% tax bracket, then yeah, you convert to the top of the 24%, for sure.
Al: You do, because that will become 25% or even 28%. So, yeah, that’s what you do. She’s got plenty of money to pay the tax in the brokerage account. So that’s exactly what I would do. In 2026, we get the old tax rates, which are higher. So I think now is the time to act probably.
Joe: John is going to be a dentist when he inherits this, and he’s gonna be megabucks. So he wants the Roth.
Al: He wants the Roth, yeah.
Joe: He wants the Roth. He’s no dummy.
Al: But that’s going to be a while. She’s only 70.
Joe: Yeah. She’s still a little young, she’s 66.
Al: Oh, 66, you’re right.
Joe: Yes. All right.
Should We Cancel Our Life Insurance Policy? (Patrick & Jackie, East Islip, NY)
Joe: All right, we’re going to go to Patrick and Jackie from-
Al: Oh, you want a question that’s not about death?
Andi: East Islip. Let’s get that over-
Joe: This is from our friends from East Islip. Is lip. Is lipo.
Al: So apparently it’s I slip.
Joe: I slip. East Islip. “Dear Andi, Joe and Al. Yo, what up?” What’s up? I slip. “First you helped us during the episode 291 with an inherited IRA, but butchered the names of our town. When I step on ice, I slip. We live in East Islip, New York.”
Al: There ya go.
Joe: “I still drive that black Honda Civic and my better half still drives the suburb Subaru outback. We enjoy good beers from our local breweries. And this week we’re going to- we’re going with little Southern Tier pumpkin beer mixed with a stout. And you get a pumpkin stout.”
Al: Ever had pumpkin stout?
Andi: ‘Tis the season.
Joe: “If not, a good Old Fashioned will do. Secondly, and to the point, we need you to settle a conversation we’re having. Should we cancel our life insurance? I’m 55 and retired. I have a pension of $80,000 a year, which is fully transferable to my wife upon my passing. We have no debt, no mortgage or car payments, et cetera. Two of our 3 kids are done with college while the third is a senior, and we have all her remaining college funds sitting in cash. My wife is 53, still working and plans to do so until age 62. She makes $30,000 a year, and we have a small pension. We plan to collect Social Security at age 62 and use those monies to feed our travel addiction, Hawaii and Italy.” Sounds like Big Al.
Al: That’s exactly where I’ve been recently.
Andi: Traveling with Patrick and Jackie.
Joe: “Furthermore, we have about $800,000 in various 403(b)s, Roth IRAs, brokerage accounts, I bonds, et cetera. I have a $750,000 term policy for $1400 a year, which is about to go up as I’m turning 56 soon. My wife has a term policy of $250,000 at $400 a year. We can hold these until age 80. Should we a) cancel all life insurance policies, b) cancel mine and continue paying for my wife’s, c) continue paying for both? During episode 291-“ God, that was a good one, Al.
Andi: Long time ago.
Al: Barely remember that one.
Joe: Oh, man, you were- God, I just remembered 291. You was so good. “-Big Al came down on my wife’s side, and that’s the way we went. I never heard the end of it. Peace, love, and Jerry Garcia. Pat, frickin Jackie.” So you were on Jackie’s side.
Al: I remember don’t the question though.
Joe: Islip though, you remember Islip.
Al: I remember East Islip.
Joe: Yep, me too. All right, so 56, 52. He’s paying $1400, $750,000 term policy, $250,000, $400 a year there. I’m guessing, if I were a betting man, is that Jackie does not want our friend Patrick here to cancel his life insurance.
Al: That could be.
Joe: I’m just guessing. And I’m thinking he’s like, yeah, I think we should cancel.
Al: Yeah, we don’t-
Joe: We don’t need it.
Al: We’re getting more travel money $1400 a year. Plus it’s about to go up.
Joe: It’s going to be more expensive. We got the kids paid for, we got no debt, we’re living the life in East Islip.
Al: And Hawaii and Italy.
Joe And we can use- this is beer money. This is a couple more little Old Fashioneds. And she’s like, you know what? No, I don’t think so. I’m guessing.
Al: That could be.
Joe: $750,000 is a lot of money. That could make a big difference. And I think Pat’s like, you know what, if I die and she gets that, she’s going to have a lot more fun without me.
Joe: I say it’s cheap, it’s good death benefits. I’m for keeping the insurance at least until the kid’s totally out of school, that you have a couple of extra bucks in savings as you get closer to retirement. You’re too young. And if something were to happen prematurely, that would leave Jackie or you, Patrick- think about it. God forbid, right? If someone dies, 55, the surviving spouse has another 40 years of retirement.
Al: Yeah. And that would make a difference.
Joe: And then all of a sudden, it’s like, okay, are they going to continue to- I mean, I’m voting keep the term policies. Where are you at?
Al: I would probably do the same. I still have a term policy on myself, and I got a 15-year policy when I was 53, so it goes to 68.
Joe: Next year.
Al: Coming up sooner than I think. Not next year, but it’s not far. Anyway, I still have it, and when I got it, I really needed it. I really did. I don’t necessarily need it anymore, but it’s not that expensive. I’m in great health and still in good health, and hopefully we’ll never need it. But, I think for what you’re paying, and it’s a term policy, which we like better than permanent policies, I think that gives you just a little more insurance until you get a little bit older.
Joe: Yeah, right? He’s turning 56 soon. If it recast at 56 and it goes like, to $5000-
Al: Well that’s different.
Joe: – but $1400, $100 a month or a little bit more than that, for $750,000 of death benefit.
Al: If you think about it, let’s say it doesn’t change just because it’s easy math, right? So $1400 a year. So 10 years, it’s $14,000 for a $750,000 benefit, if you need it. That’s pretty cheap.
Joe: Yeah, dirt cheap. And the family will need it. Wait till the kids get out of school, because when they get out of school, right, they come back home.
Al: You’re not done yet.
Joe: Oh, dad, mum. Can I get this? Like, what do I know, though?
Al: You will.
What is quantitative tightening and what does it mean for investors? What’s going on with bonds in this unusual year? Both of these are our latest blog posts, and they’re linked in the podcast show notes, so to read them just click the link in the description of today’s episode in your podcast app to go to the show notes. And don’t forget to subscribe to our YouTube channel, also linked in the podcast show notes. We post daily videos of Joe and Big Al answering your money questions from the podcast. Wherever you want to watch or listen, YMYW is there!
Does Your Perspective on a Financial Plan Vary By Location?
Joe: What’s the difference between East Coast, Midwest and West Coast perspective on one’s financial plan?”
Al: Yeah. What is the difference?
Joe: Well, one’s on the East, one is on the West, one’s in the middle.
Al: It’s the same idea. Financial planning is the same no matter what. I think the only difference, I would say is the Midwest tends to be less expensive than East Coast and West Coast. So maybe your dollars can stretch a little bit further because you got lower cost of living. But outside of that, there’s really no difference in the planning.
Joe: This is the oddest question I think we’ve got. What’s the difference between-
Andi: I was interested to see how you guys were going to answer this one.
Joe: What’s the difference between the East Coast and West Coast?
Andi: Maybe it’s a state of mind kind of thing. I mean, New Yorkers and Californians kinda have a different kind of-
Joe: Yeah, I don’t know if you got-
Andi: But how does that change your financial plan? Not sure.
Joe: Tupac and Biggie? vs. Snoop Dogg?
Al: West Coast plans are more laid back- East Coast a little more hyper?
Joe: I don’t know. Yeah. All right, that’s it for us. We got to go. Thanks for joining. Go to YourMoneyYourWealth.com. Click on Ask Joe and Al, we’ll answer your questions. We’ll see you again next week.
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Joe’s drink machine, and life as a mid 40’s father of a one year old in the Derails at the end of the episode, so stick around.
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