Show Notes

• 00:00 – Intro: This Week on the YMYW Podcast
• 01:05 – After-Tax 401(k) Catch-Ups vs Taxable Investing (John Q Taxpayer)
• 06:16 – Forced Early Retirement: Social Security and Roth Conversion Timing? (Janine, Bothell, WA)
• 11:30 – Are 50-Year Mortgages Actually Affordable? (Semper Fi, Stevensville, MI)
• 17:59 – 401(k) Loan vs Mortgage Payoff (Pete, NC)
• 21:27 – Can You Manufacture a Step-Up in Basis? (Jonas Grumby, The Colony, TX)
• 25:03 – Inherited Gold Coins and Capital Gains Taxes (Dolly, 63, TN)
• 29:35 – Spitball for Young Investors Who Don’t Have Millions (Young Financial Nerds, Omaha, NE)
• 42:13 – Outro: Next Week on the YMYW Podcast

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Transcription

(NOTE: Transcriptions are an approximation and may not be entirely correct)

Intro: This Week on the YMYW Podcast

Andi: John Q. Taxpayer is in the home stretch of his career, looking for the best way to catch-up and build his tax-free bucket. Meanwhile, a pair of young financial nerds in Omaha are already strong savers, but they’re wondering if a simple “VOO for life” strategy is enough for them to reach multimillionaire status in retirement. Also, Janine retired unexpectedly. Can her remaining savings support a European retirement lifestyle? From Jonas Grumby’s “glitch in the matrix” tax strategy to the potential tax nightmare of Dolly’s literal sack of inherited gold coins, today on Your Money, Your Wealth podcast number 568, Joe and Big Al spitball on how folks from different generations with different situations can reach the same ultimate goal: positioning assets today to ensure the most tax-free wealth tomorrow. Plus, the fellas spitball on the “double taxation” trap of retirement plan loans for Pete in North Carolina, and the affordability of 50-year mortgage s for Semper Fi in Michigan. I’m Executive Producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

After-Tax 401(k) Catch-Ups vs Taxable Investing (John Q Taxpayer)

Joe: We go, Hey guys, love the show. Thank you for everything that you’re doing. I’m 52 years old, 32% nominal tax bracket, nominal.

Al: Yeah, I guess that’s the highest rate.

Joe: Isn’t that marginal?

Al: Yep. That would be what we usually call it.

Joe: Got it. Okay.

Al: Yep.

Joe: My question is regarding catch-up contributions to my 401(k) for 2026 and beyond. Due to my income, I would have to make after tax contributions for the catchup portion of my 401(k). What would you recommend what I go for or invest more in the brokerage account? being maxing 401(k) backdoor Roth IRAs investing here in there in the brokerage account. I do not expect my retirement income to be much lower than it is now. Any help is greatly appreciated. Thank you. God bless. Alright, John Q. Taxpayer writes in.

Al: Right.

Joe: He is, he’s missing the mega back door.

Al: Yeah, I think that’s probably the key. So you explain that?

Joe: Yeah. That, yeah. Do the after-tax all day, every day.

Al: now not every plan has it available, but a lot of them do.

Joe: If there’s after-tax, you’ll be able to take the after-tax out and probably do an in-plan conversion.

Al: Right.

Joe: So because you’re already paying tax on those dollars, you can convert those dollars. I don’t know if it’s once a year, once a quarter, right away. so you have to check with your plan document, or at the very least, when he retires, he’ll be able to take the after tax and convert it to a Roth.

Al: He might have to pay some tax depending on what the growth looks like, right?

Joe: But the after tax component of a Roth IRA plan is a really cool thing. So even though the catch up because of the secure act, or is it, one act made the catch up contributions if you’re,

Andi: I think it was SECURE 2, wasn’t it?

Joe: Was it SECURE 2? Yeah I think 2.0 is now Roth. And so yeah, if you can continue to contribute to the plan after tax, and then convert it to a Roth, that is better off than going into a brokerage account because all of the future growth is gonna be a hundred percent tax free for you. If you take your after tax contributions and invest it in the brokerage account, which is fine, it’s great you got some liquidity there, but all the growth is gonna be subject to a capital gains rate.

And if you sell it prior to a year, it’s ordinary income. So the more that you can get into the Roth, the better. Roth is more flexible, because yet it has fivefold tax treatment as well. You can, you know, take dollars out if the, contributions earnings, don’t. Yet qualify for tax free. so anytime I can get money into a Roth, no matter what tax bracket I’m in, if it’s after tax dollars, you, still definitely, in my opinion, wanna do it.

Al: Yeah, I, agree with you Joe, and I think a lot of people don’t really realize that many plans have this opportunity, so. The numbers for 20 26, 20 4,500 is your 401(k) max, and then you can do another $8,000 as a catch up. So 32,500 is the amount that you typically can think of putting into your 401(k), but the, for the plans that allow this, and a lot of ’em do now, they allow you to put more money in after tax money, you can actually go, and when you’re over 50, you can actually go all the way to $80,000.

Now, that includes the employer. Part. So you have to be careful not to overdo it. But let’s say your employer is putting in 10,000 on your behalf, right? And so you could put another 35,000 ish into your plan after tax and then convert that to a Roth, and, you’re good to go. And I agree with you, Joe, that’s I’d much rather have money in a Roth than a brokerage account if given the choice.

Joe: Yeah. So, yeah, I think anyone that’s listening to this more and more plans are, have the after-tax component.

Al: I think so too.

Joe: If you work for a large employer, it’s, almost 90%.

Al: Yeah. Yeah.

Joe: So, but we see it missed quite often. Tell, because they don’t know it’s available or they’re like, maybe I don’t wanna, why would I wanna do after tax contributions into my 401(k) plan? Because it’s after tax and then the earnings are gonna be taxable.

Al: Yeah. What’s the point?

Joe: What’s the point?

Al: Yep.

Joe: But if you can do an inter plan conversion in most plans for larger companies allow an inter plan conversion. So you put the dollars in, maybe you wait, you do it once a quarter. So you put in $10,000 or $8,000 a quarter into the overall plan and wait. And then you just keep converting that $8,000 they. You put in after tax into the Roth, and then all future growth is 100% tax free. So, yeah, leveraging that, that pool of money is key.

Al: Yeah. And that $8,000, maybe it’s worth 8,500 or 9,000, you convert that whole amount, and then when you do that, then yeah, you’ll pay taxes on the difference. So 9,000. Versus 8,000, you’ll pay tax on a thousand dollars. ’cause that’s the growth. But you got $8,000 into the Roth. The Roth component of the 401(k). The sooner you can do the conversion, the better before it grows. So consider that as well.

Joe: Okay. good question Johnny Q.

Forced Early Retirement: Social Security and Roth Conversion Timing? (Janine, Bothell, WA)

Joe: but now we got Jeanie from brothel, Washington.

Al: Okay. Brothel. Yeah, brothel.

Andi: I think it’s Bothell. I’m not sure.

Joe: Oh, I don’t see an R in there.

Al: Oh, yeah. Why did we think it was brothel?

Joe: I don’t know. I have no idea What, is it called? Bothell?

Andi: I, think it’s Bothell.

Al: Yeah, you’re right.

Andi: Might be Bothell. I don’t know. But I don’t think there’s a brothel there.

Joe: Could be.

Al: That’s when you look at it quickly. That’s what it looks like.

Joe: Yeah. And your eyes are a little burning. all I was made retired. Unexpectedly. She’s a maid woman.

Al: She’s, apparently they told her you’re retired

Joe: Janie, from Brothel, WCO or Washington. You are now retired.

Al: Yeah.

Joe: That happened in May last year. You haven’t been living off my severance and stock payout until that ran out. My plan was to sell my house and move to Europe. Where my $3,000 a month budget, he covered my living expenses, healthcare and insurance, but having trouble selling the house in the current market.

So now I was forced to apply for Social Security this month earlier than I planned, and I’m netting about $2,600 a month and I am withdrawing that 4% out of my $179,000 IRA to make ends meet. Since I have no salary coming in at 2025, should I go ahead and convert the max to a Roth before year end? Yeah, a little late.

It’s just a bit outside on this one.

Al: Yep. Could do it for 2026.

Joe: Yeah. Let’s pretend this was 2026.

Al: Yep, yep,

Joe: sorry, Jeanie. Kind of missed that, but I’m not, since I have no salary coming in for the 20, should I go ahead and convert the max? the max would be $179,000, so no, you wouldn’t have wanted do that.

And I’m glad we didn’t get to this question until February of 2026.

Al: Right.

Joe: the max, there is no max in Roth. IRA conversions. You can convert as much as you want, just know that you’re subject to income tax on any dollar that you convert. So the dollars that you think about, that you should be thinking about from a conversion perspective is what tax bracket do you want to max out? So is it the 12%, is it the 22, the 24 and so on? That’s gonna determine the number of what is converted to the Roth. Not there, there is no Max Roth conversion.

Al: Yeah, and I do think a lot of people get confused about that because there’s Roth contributions, right? So you can contribute, what is it, 7,500 this year, 8,000, I can’t even remember right off the top of my head. But you can go ahead and contribute that if you have earned income. And there’s a limit. And then of course, if your income’s too high, then it gets phased out. But as far as a conversion, you can convert any amount that you want to. You just have to be smart about it, be careful about it. Convert as much as is appropriate in your situation. Now, Janie, we don’t really know your situation to tell you what’s the right bracket, but based upon what you did tell us, I probably wouldn’t go above the 12% bracket, which for a single taxpayer is $50,000. And then there’s the standard deduction of 16, so call it sixty five, sixty 6,000. That would be the total of all income. But here’s what gets a little tricky, and that is you’re receiving Social Security. So as you do a Roth conversion, more of your Social Security will be taxable. So just be really careful in this calculation.

Joe: Actually but she’s got a $3,000 a month, pension, doesn’t she?

Al: I think, no, I think,

Joe: or was that a 3000 a month budget?

Al: That’s a budget, I think. Yeah, for living expenses in healthcare.

Joe: Got it.

Al: So, yeah, I think that’s, you know, to me the most important. Like if these are, if thi this is her only asset, Joe, I would be careful on converting. ’cause the RMD, it’s not gonna be that much. And if you convert too much, then you may end up having more of your Social Security tax. So just be careful of that.

Joe: do you, so where in Europe do you think she’s going?

Andi: Eastern?

Joe: Eastern Europe,

Andi: possibly.

Al: Where’s cheaper

Andi: if you’re gonna go if someplace, because $3,000 a month is gonna get you by it. It’s probably Eastern Europe, I would imagine.

Joe: Do you got like a spot that you’re thinking about?

Andi: Ask Aaron. He’s probably tell you all about Croatia.

Joe: Slovenia. Yeah. I’ve never heard of it. $3,000 a month can get you by in Slovenia, no problem. But the beer costs in Slovenia 85. No, there. Wow.

Al: I don’t think you’d get by on that.

Joe: all So what I wonder why the, she’s like in this market. Are we having a troubled housing market?

Andi: This was in October of last year. I don’t know if that makes a difference, but I don’t think that the market was significantly worse then in terms of being able to sell your house. I mean, it’s been a,

Joe: no,

Andi: it’s been an owner’s market for a while now, hasn’t it?

Joe: Yeah.

So, okay. I wonder if she’s moved to Slovenia. right back in. Let us know where you’re at.

Al: Yep.

Andi: The infamous boxer Mike Tyson once said, “Everyone has a plan until you get hit in the face.” Your Money, Your Wealth is all about planning for retirement. But what about when something unexpected happens, like it did for Janine? If you’re among the 49% of Americans punched in the face by an unplanned early retirement, trainers Joe Anderson, CFP® and Big Al Clopine, CPA will get you into shape this week on Your Money, Your Wealth® TV. They’ve got 15 defensive maneuvers that’ll help you bob and weave, slip, and duck the knockout of retiring earlier than you expected. Click or tap the links in the episode description to watch YMYW TV, and to calculate your free Financial Blueprint. Just input what you have now and what you want for the future, and the Financial Blueprint tool will output three scenarios illustrating what you’ll need to get there. It’s yours free, courtesy of Your Money, Your Wealth, and Pure Financial Advisors. Click or tap the links in the episode description to begin planning your financial future.

Are 50-Year Mortgages Actually Affordable? (Semper Fi, Stevensville, MI)

Joe: Hoorah.

Andi: Oorah.

Joe: Your Money, Your Wealth®. I served in the Marine Corps from 2015 to 2023, and now serve in the Michigan Army National Guard. thank you for your service. I do enjoy running a short, easy, six miles in the morning. I’m trying to keep up with Big Al six easy miles,

Al: six easy miles.

Joe: Okay. Yeah. That’s impressive.

Al: That is,

Joe: my question is, what is your opinion on President Trump plan on 50 year mortgages? Is doing a 50 year mortgage any better than a 10, 15, 30 mortgage? Is it really more affordable to do a 50 year mortgage? As always, Semper Fi, Stevensville Michigan. A 50 year mortgage, big Al. Would you ever do a 50 year mortgage?

Al: I wouldn’t. Now, because I don’t think you saved that much. I ran some numbers.

Joe: Oh, you did?

Al: So I will, give you my thoughts. Okay. So I just did $500,000, Joe, at a 6%, interest rate, which is roughly what it is currently.

15 year would be $4,200, 42, 19 30, year two nine nine eight, let’s call it $3,000 and a 50 year. 26 32. 2,632. So you, would save about $350. I’m not saying that’s not nothing, but for me, I’d rather have that thing paid off in 30 years rather than just extend this out. That, period.

Joe: What’s the, so you’re doing payment, is that what you’re doing?

Al: Yeah, P and I, principal and interest.

Joe: Okay. So. On a 15 year mortgage, you said $5,000 a month?

Al: 15 year four. Around 4,240

Joe: $200. Okay.

Al: 30 year 3000.

Joe: Okay, so that’s a $1,200 delta.

Al: Yep.

Joe: Of cash flow. Okay.

Al: Yep. And then a 50 year would be, call it twenty six fifty.

Joe: 26. 50 minus 42 is what? 2 6 5 0 4 2 0 0. It’s 1550.

Al: No, I agree, but I’m more concerned about 30 year to 50 year, which is only about 350 bucks.

Joe: Got it. Okay.

Al: would you do 50 year?

Joe: I don’t know. It depends. It’s like what they’re doing is they’re trying to lower the payment Sure. And still pay off the principle, Because you could do an interest only loan and sometimes that gets people into trouble ’cause you’re not paying any dollars

Al: Yes,

Joe: whatsoever to the principal.

So a 50 year just spreads that thing out. 50 years and it lowers the payment. But you’re right at 30 versus 50. If it’s only 300 bucks a month,

Al: I mean, you’re probably 40 years old when you get it. Maybe. So you’re gonna be 90.

Joe: I don’t know. If I was like 70, I would do it.

Al: then it doesn’t matter.

Joe: It doesn’t matter.

Al: You’re not gonna pay it off

Joe: anyway. Yeah. You’re not gonna pay it off anyway. So you stretch that thing out as far as you can, if you’re not gonna pay it off.

Al: Yeah.

Joe: So I think that makes sense. that extra 350 bucks, that’s a case. Couple cases of PBR.

Al: it would be like the way you think.

Joe: Yeah. Some chips.

Oh, not Slovania though.

Andi: Slovenia.

Joe: Got it. Yeah. But I think a lot of times it’s. When people approach retirement, they wanna be debt free.

Al: Yes.

Joe: Except for our boy that we met today.

Al: Yeah. he doesn’t mind debt.

Joe: He doesn’t mind debt.

Al: Bring it on.

Joe: But if I reach my retirement age and I still have a fairly large mortgage and I know that I’ll probably never pay this thing off before I die.

Does a 50 year mortgage make sense? Maybe it does. That just reduces my overall payment if I can get a lower interest rate. but at the end of the day, you’re probably gonna pay more interest over 50 years than you would at 50, 34.

Al: You pay a lot, and I don’t, you know, from a 15 year mortgage is usually cheaper rate than a 30.

A 50 year could be even more. I don’t know.

Joe: Yeah, you there, there’s a lot of variables in place, but if you’re just looking at dollar, you know, cashflow wise, You’re gonna have more cash flow if you go longer, but financially, does it make sense? Probably not. I,

Al: I could see cases where it would, but I think in most cases probably not.

Andi: Can I ask a follow on question that just came to me as we were talking about this? Is if you die while you’re still in the midst of paying your mortgage, how’s that dealt with?

Joe: So let’s say you inherit a house, it’s worth $500,000, but there’s a $300,000 mortgage on it, right? And so if you wanna stay in the home, You would probably, it depends on how the mortgage is set up. You can assume the mortgage or you would have to sell the house and pay off the mortgage, or you refinance and get your own mortgage of 300,000 on the home if you wanted to keep the house. If you’re selling the house, you sell the house and you net 200,000 minus brokerage fees and things like that.

Andi: Got it.

Al: Yeah, it’s the estate’s responsibility and if the estate has no money whatsoever, then the bank will be interested in, maybe a foreclosure.

Andi: Yeah.

Joe: Wow. Somber.

Al: I’m just telling it like it is.

Joe: Yeah. Just a visualization of the big bad banks knocking on the door to, you know, put a little pink notice on the door.

Al: Right.

401(k) Loan vs Mortgage Payoff (Pete, NC)

Joe: We got Pete from North Carolina. My wife and I are both 42, bought a home in June of 2025 and used a $50,000 loan from our retirement account. For the down payment, we’re gonna be selling our old house and shouldn’t add $200,000. The mortgage on the new house is a 30 year fixed at 6.5, while the four three B loan is 5% over three years, but the interest is paid to myself.

I’ve read about double taxation. Since I’ll be paying it back with after tax dollars and then we’ll pay on the money when it comes out of the 403(b). I can’t wrap my head around which debt I should throw the money at. Is there a way to calculate what the effective interest rate is on the 403(b), 401(k) loan?

Obviously the 5% interest is less than what I’d like, what I’d likely get in the market, but I certainly better than paying it to the mortgage company. Or because they’ll be paying tax on the interest. Does it really make sense just to wipe out the loan? We’ve been going to, we’re going to be making around 350,000 this year.

Married, finally jointly. Thanks for all you do, Pete. Alright. These 401(k) loans in this case. 403(b) loans. Took $50,000 out. He’s paying himself back, but he took the 50 grand out to do, a down payment for the home.

He’s selling his. Old home, he’s gonna net 200,000.

Al: Yeah.

Joe: He’s like, do I throw the 200,000 or.

Whatever dollars to the 50,000 403(b) loan, or does he continue to pay down the mortgage?

Al: Right.

Joe: What would you do?

Al: I would pay off the 403(b).

Joe: Absolutely.

Al: I hate those loans every chance I get.

Joe: Yeah,

Al: because the of the double taxation factor and the fact that you know that if you’ve got the money in the 403(b), chances are in a typical market, you’re gonna make more than the interest rate, right?

So you’re kind of cheating yourself outta that money. But I think, Joe, just not having the 403(b) loan in case you need it in an emergency is just a little peace of mind.

Joe: Yep. I do not like taking loans out of the retirement accounts. I did it myself years ago. Then paying that thing back, it was painful.

Al: I did it once too. I didn’t like it.

Joe: I hated it. It was like, okay.

Andi: So both of you know better. What was the reason that you decided that it made sense in your circumstances to take a retirement loan?

Joe: this was like 20 years ago.

Andi: Oh, okay. Got it.

Joe: But yesterday, big Al’s got the big ass wallet. He doesn’t need to take a 401(k) loan.

Al: Yeah, that’s

Joe: maybe I do.

Al: That’s before I had a big wallet.

Joe: Yeah. but. Yeah, I remember doing that and then paying, it’s like after tax dollars to go into the retirement account to pay the pre-tax dollars. That, and then I’m like, I’m never doing this again.

Al: Yeah. I did it quite a while ago and I did it for real estate, I think, maybe the condo I bought in Hawaii.

Over 20 years ago.

Joe: Okay.

Al: And, it helped me buy it. Sure. So I like that. But I wanted to get that thing paid off as soon as I could because it just, you take the money out, there’s no taxation, but then you kind of forget when you put the money back in. It’s with after tax dollars. So that’s the double taxation part.

Joe: All right. there you go, Pete. Congratulations on the new home. All right.

Can You Manufacture a Step-Up in Basis? (Jonas Grumby, The Colony, TX)

Joe: We got Jonas Grumby. The Colonial, is this a fake name? Jonas Grumby?

Andi: It probably is. I have not actually looked it up yet.

Joe: Okay. Lives in Texas. Hello gentlemen. Enjoy the shell. I drive a 2018 Honda HRV and the wife drives a 2023 Hyundai Tucson.

Andi: Guess what? Jonas Grumby is the name of The Skipper from Gilligan’s Island.

Al: Oh, okay.

Joe: The Skipper.

Andi: Skipper,

Al: yeah.

Joe: Okay. You seem really excited about that Andi.

Andi: I’m just shocked. It never occurred to me that of course The Skipper has an actual name.

Al: Yeah.

Joe: you know, Gilligan’s name was John Denver.

Al: Yes, I do know that.

Joe: Choice of drink, both. It’s Diet Coke, but don’t turn down a frozen margarita when offered. Identified a glitch in the matrix.

Al: Oh boy. Here we go.

Joe: All right. Hypothetical situation. In a brokerage account, I have securities with the total purchase price of a hundred thousand dollars. The current value today is 600,000.

I would like to sell the security, but obviously in current mass of capital gains tax is the following allowed. Gift my terminally Ill father the entire security fill out the proper forms for the government. This gift would count for my overall $13 million exclusion but is exempt from taxes at this time.

My father passes, I inherit the money. I would then get a step up in basis and able to sell pay. No tax. Does this theory fly? What do you think, Al? I don’t know if you give it to dad, and Dad passes away, and then you’re the beneficiary of that account and it gets a full step up in basis. Now you’re back, to square one.

Al: Yep. Paying, no tax. yes. It does work, but be a little careful because the IRS has the ability to claw these kinds of arrangements back when it’s only done for tax reasons. So if you’re gonna, if you’re gonna do this,

Joe: is that five years? God, I forget those rules.

Andi: I was gonna say, does it depend, if, dad is terminally ill and lasts five, seven years?

Al: No, I, think it’s, I don’t think it’s a timeframe. I think it’s more like the purpose. Like maybe dad needs additional money for his care. So that would be a reason to give him some stock and he sells the stock and pays no tax, but then he dies with extra money. Then I, you know, if you’re just doing this for tax Dodge, the iris could, unravel it.

and will they unravel it? the Iris doesn’t have a ton of resources, so it’s probably something that would go under the radar, but they could, and so just be aware of that.

Joe: Yeah, I, for some reason something’s, I remember a claw back. Three or five years from,

Al: I think you’re thinking estate tax, there’s a cloud back when you’re giving,

Joe: right?

Al: Yeah. When you’re

Joe: Oh, that’s on the other side. Yeah. If dad was giving

Al: Yeah.

Joe: His asset to the kids.

Al: I think that’s what you’re thinking.

Joe: And he and I, yes. Yes. that is what,

Al: yeah.

Joe: I’m thinking about, so claw back in the dad’s estate for aig tax purpose is

Al: Uhhuh. Uhhuh.

Joe: Yeah. but this is, the other.

He’s giving the money to dad that dies and then he gets to step up.

Al: Yeah.

but technically it does work.

Joe: Yeah. That’s morbid.

Al: Yeah, true.

Inherited Gold Coins and Capital Gains Taxes (Dolly, TN)

Joe: so yeah, I guess so let’s go to Dolly.

Al: Okay.

Joe: in Tennessee. Tennessee, Dolly Parton.

Al: Okay.

Joe: Call me Dolly. You know, Dolly Parton’s still like, she looks great and she’s 80 something years old.

Al: I, she does look great. I agree. Yeah.

Andi: She’s becoming quite popular in social media.

Joe: She is that right? I don’t. Okay.

Al: all right.

Joe: Don’t what, like on the Facebook or

Andi: Facebook, Instagram. Yeah.

Joe: Yeah.

Andi: She might be on TikTok. I’m not sure.

Joe: Not at, don’t follow lot of part of that?

Al: Not really. No.

Jow: Never had a Facebook or Twitter or I have an Instagram account.

Andi: But you haven’t used it in like 10 years.

Joe: Yeah, probably. There’s a lot. Yeah. That rots your mind.

Al: That’s right. Yeah. That’s why you don’t wanna do it.

Joe: Yeah. call me Dolly. Okay. My husband and I are 63 and retired. We’re set financially bearing an event of cat. I know. Cataclysmic portions.

Andi: Wow. Good try.

Joe: Man. Just listening to myself makes me, my views just dropped significantly. We enjoy old fashioned in mojitos, we drive a 20 18 4 runner. I drive a 2025 Tacoma. We used to use a 2017 Maxima for the road trips going on 130,000 miles now, right? I listen to your podcast while on the road and have learned plenty while getting a good laugh, but also regret I didn’t find any sooner regarding those Roth conversions working on this.

Andi: Notice it actually says Roth conversations.

Joe: Roth conversations. Thank you, Andi.

Andi: Yeah.

Joe: Alright. Here’s my question. My mother handed me a large sack of gold coins before she passed away recently. Oh my God. She got a sack of gold coins.

Al: Yeah. And so, here you go, son.

Joe: My daughter or my parents collected these in the seventies and eighties when they were a few hundred dollars a piece. But kept no records of the actual basis, and as of today, one ounce is worth 4,600. I have heard you say many times that you don’t prefer collecting these, but the cows are out of the barn. Is there any way to cash these in with a minimal tax hit, or maybe I should hold onto them? Hold onto them while we are able to use the barter for tobacco, alcohol in gold and silver makes a bunch.

Al: Yeah,

Andi: can you can just imagine Dolly Parton out there handing out gold coins to get alcohol and tobacco. Just doesn’t seem right.

Al: Yeah, it doesn’t, does it? I would say, did she really give them to you?

Joe: Or did she pass away?

Al: did she say, hold these for me son ’cause I don’t wanna lose them.

And then she passed away and you inherited them with a full step up in basis.

Joe: Look at you Big Al. Look at the big brain on Big Al.

Al: I think she might have just given it to you.

Joe: Yeah. The bag of gold coins was, Hey, just make sure, I, this is not yours yet.

Al: I’m, kind of, I’m starting to fail. you know, and

Joe: getting weaker

Al: cognitive decline. Yeah. And I want you to watch over this gold. And then, you know, when, When I do pass away, then of course you’ll get it as an inheritance.

Joe: Yeah. Because there’s no record of ownership at that point. It’s not like a stock certificate where the gifted stock,

Al: I think it’s just semantics on what really happened.

Joe: Yes. Yeah. I think you got a full step of the basis and you could sell ’em tomorrow and pay very little in tax.

Al: Yep.

Joe: Dolly, look at that. We’re just making money for you.

Al: all right.

Joe: That’s a huge win. Big deal.

Al: Yeah, that’s a good one.

Andi: Dolly’s sack of gold is a good reminder that it’s not just what you own, but where you own it that can make a big difference in your tax bill. Download our free guide on Why Asset Location Matters. It explains how owning assets with higher expected returns in your your Roth accounts, lower-returning assets in your your 401(k)s and IRAs, and NOT holding income-producing assets in your brokerage accounts, for example, may reduce your taxes and provide better long-term returns on those investments. Just click or tap the links in the episode description to download our guide on Why Asset Location Matters, to listen to our previous asset location discussions, and watch a refresher video that explains the difference between asset location and asset allocation. courtesy of Your Money, Your Wealth and Pure Financial Advisors. Tell ‘em you heard about it on the podcast.

Spitball for Young Investors Who Don’t Have Millions (Young Financial Nerds, Omaha, NE)

Joe: Okay. We got some young financial nerds out of Omaha, Nebraska. Hey, team, love the show. Thanks for all you do. I’ll try to keep this short, clear and simple so y’all don’t have to read too much. I am a financial information nerd. I love listening to your podcast and many others reading, listening and learning as much as possible. He writes like a young financial nerd too. Yours, as you could guess, is my favorite, and I love Tuesdays when the podcast comes out so I can listen while I walk my five-year-old goldendoodle. I’ve been listening for over three years now. I think time flies when you’re having fun. When I’m walking, driving or working, I’m just looking for a general financial spitball. what I believe is a simple financial situation, but here’s the basics. Drink a choice. Who’s latte when the mountains are blue, or if I’m feeling fancy than an old fashioned bottom shelf. Of course. we got bottom shelf, we got mid shelf, we got top shelf.

Al: Yeah.

Joe: Wife’s, any margarita will do our high noon seltzer cars. Wife drives 2021 Honda SUV, and I drive a work that is paid by my company. We’re both 28 and we have a young one, with one dependent, and hopefully more soon. Here’s the breakdown of our finances. All right, combined income 144 taxes and bonuses. Generally $10,000 of bonuses a year. Combined, though we never count them. Never count on them assets. 401(k), his 50 grand, 8%, contributions with a 4% match. Hers 22,000, 3% contribution with a 3% match. Roth ix his 75,000, hers 42,000 maxing out each year’s. The goal joint brokerage, five grand.

Throwing a couple hundred dollars a month just to have this as a bridge account pension. $10,000. Current value states, couple hundred bucks a month in retirement. Company puts 4% regardless of what we do. Increases 1% contribution per year until max is down at 7%. HSA is 13,000 5, 29. Plan 5,200, ideally.

Ideally $5,000 a year per child. About half of the state benefit in our state of Nebraska. Should I increase this? For reference, our daughter just turned one. Cash and other assets, $30,000 in a high yield savings account. Debt home loan. 330,000 Worth around six 380,000. Ideal retirement age, guessing 65 to 67.

Although we are both early in our career, we love working and having something to do. May retire to a new, less stressful career later in life. Working at a doggy daycare. We love dogs. Annual spending. Who freaking knows. We both love saving and hate spending. Is that you Big Al?

Al: no, that’s not me.

Joe: But would assume we wouldn’t have daycare costs formula for children costs or a mortgage in retirement. Ideally current spend around $5,000 a month. What would think would be reasonable for someone 40 plus out in retirement if we. Even make it that far fixed income played out my pension using AI assistance stayed around six to $8,000 depending on how I’ve invested and assume a stagnant 3% increase income.

Would love to know how you all look at pensions in social insecurity for someone my age, spitball. Unlike many of your listeners, my wife and I are very early in our working career, in beginning stages of our retirement savings. Want to know what would you recommend for someone in our shoes? Do we just VOO for life? VOO. That’s VOO.

Al: Yep.

Joe: We got it. VOO it. VOO it for life.

Al: It for life.

Joe: All right. or would it make more sense a hire professional Maxalt Roth Options. Is that, is it that simple? If you, every caller or writer, writer into the show has complex solutions to amass large amounts of money, though I would love to end up with millions.

Yes. Plural. I feel we are not doing enough. What is the general spitball for folks younger who haven’t amassed millions? Thanks for all you do. All right. Young financial nerds in Omaha, Nebraska.

Al: Okay.

Joe: 28 years old

Al: and they’ve got, about 225,000 already.

Joe: I think that is really good for a 28-year-old.

Al: It’s almost unheard of. So I think congrats, you’re doing well. Great start.

Joe: Yep. I think if you could save 20% after taxes is probably

Al: Yeah.

Joe: 50% more than most.

Al: Yeah. Yeah. 90% more than most,

Joe: right?

Al: Yeah. No, I think that’s right. I think if you can work up, maybe you’re already there, I don’t know. But, if you can save 20% of your income, then you’re gonna be in great shape.

Considering you’re gonna be doing this for 40 years. If you wanna retire earlier, since you don’t, you hate to. To spend money, maybe get up to 25, 30%, 40%, then you can retire even earlier if you want to, and live the life that you wanna live. something that comes to mind, Joe, to me, is that 401(k)II, I’d wanna do a Roth option.

If available because you’re in, I think, in a low enough tax bracket, to, where the tax deduction is less important now, and chances are your income will go up in the future. So getting more money in a Roth IRA is something I think you’ll be very grateful in the future. It looks like, from what you told us, you’ve got more, you got, you’ve got, in the 401(k), it’s all regular. It’s not Roth. So that’s something I would think of maybe, emergency fund, three to six months. That would be something I would do. And as far as VOO for life, that’s Vanguard, s and p 500 ETF. That’s a good fund. I might, add an international fund and, a bond fund may, maybe not even a bond fund at this point, at this age, just let it go.

Joe: If he keeps doing what he is doing, he is gonna have probably at 7%. Yeah. Over the next 30 years, he’s gonna have five, 6 million bucks.

Al: Yeah. Yeah. a lot of money,

Joe: right?

Al: Yep.

Joe: So here’s what I do. Here’s my suggestion to the young financial nerds.

Al: Okay.

Joe: You start, you got $150,000 combined income. So you’re in the 50 or the 12% tax bracket. So Roth for sure, given the $30,000, deduction or, your, standard deduction.

Al: Yep. Yep.

Joe: And you’re putting at least $10,000 in the retirement account. So he’s in the 12.

Al: Yep.

Joe: A hundred thousand dollars is the top of the 12% tax bracket. Or married finally jointly. So, I would max out Roth IRAs first, then I would go to the 401(k) and go to the match. And then if you have more dollars after that, then I would continue with the 401(k)s, but then I would absolutely go Roth in the 401(k)s because you, at least I would put $10,000 pre-tax.  And I would do that every single year. Start with the Roth. Go to the 401(k) with the match. If you have extra dollars, you might wanna throw a couple dollars into the brokerage account like you’re doing. That sounds good too. For a bridge account, you want to be tax diversified as you continue to build your wealth. or if it’s sim, if it’s more simple, then you can just continue with the retirement accounts as your income will increase over the years.

You know, then that’s where you’re gonna spread out your dollars and savings a little bit more because you’re gonna max out your 401(k) plan. Given the young nerds here, they’re gonna be like, Hey, we have more dollars. Or your income is gonna get high enough where you can’t qualify for the Roth IRA, so then you gotta do back to Roth IRAs.

The more dollars that you start making and the more dollars that you have invested in the wealth continues to create, you know, then that’s where more complex. Planning comes into play. But the reason why I think that, a lot of our listeners and writers and callers is that we have to come up with more complex strategies is because they didn’t start at age 28 and write into a podcast that can help, you know, direct on how to be thinking about this.

The investment, of course, is one thing. If you just stay VOO for life, I think I’m totally good with that until you probably have a million dollars and you need to start thinking about maybe a more. Complex and sophisticated investment strategy, but if you keep doing what you’re doing, but what I would be thinking about is now when I retire, where’s all my money?

If it’s all in my 401(k) plan, like most people have, I’m just subject to a hundred percent ordinary income rates. I’m not looking at the tax in my savings combined, but if I can start at 28 in understanding the tax code of where you fall and either go Roth or pre-tax. In brokerage, you’re gonna be much more diversified from a tax perspective.

You’re gonna have that much more flexibility and you will have full control over the amount of money that you pay in tax, which is. In some cases, you know, a several percent rate of return, you know, on your investment, right? So you don’t have to like, have this crystal ball to figure out what’s the best investment, be totally diversified in a low cost.

And if I’m smart on the planning and tax side, it’s, it, I think you’ll work yourself out way more, than someone that is. It has a more sophisticated maybe investment strategy.

Al: Yeah. what’s great is they’re thinking about this at age 28. I mean, so few people think about this at age 28. So, so good for you. Now, the only thing I might add is, you got a young one. So think about life insurance, right? That would be important. If something happens to one of you and you’re both working and you lose some income, just make sure you’re covered with whatever your needs are there. But, yeah, Joe, I think we, got it. I still would do a foreign ETF.

Andi: In the sequence of savings, they mentioned the fact that they’ve got a 1-year-old and that they’re putting, they want to put, $5,000 per year into 529 for the kids per child, and they wanna have a bunch more. So where does saving to the 529 go into that sequence of savings?

Joe: Fully fund retirement, and then you go to 529s. In my opinion, you could take loans for college. You can’t take loans for retirement. You need to do, you know, $5,000 a year. I don’t know. It’s you map it out. I think they’re doing really well for retirement, but that’s why you want to make sure that you have a, balance sheet and income statement that you’re modeling out over the next 10, 15, 20, 30 years.

Like, all right, now my 1-year-old is gonna be in college in 18 years from now. What, do you think college costs are gonna be? Is it free or is it eight times the amount that it is today? And then that can tell you how much money that you should be saving into the overall 529 plans. What target rate of return that you should be thinking about if you did save the $5,000 per kid and that you want, you know, more kids, and you switch your savings there versus your retirement.

What does that do to your overall retirement and how much longer? I mean, all of this is pretty easy to figure out once you. Kind of start with a foundation of, you know, you, you just kind of fill out the, you just gotta do the work to do the planning a little bit.

Al: Yeah. I do like that they’re thinking about it though. Ind I like that they’re funding it while their kid is 1-year-old.

Joe: Sure.

Al: But, but yeah, I agree with that. I think you gotta make sure that you’re okay first. Make sure your retirement is where it needs to be. You know, we told you. try to save 20%. and if you’re there already and have extra great, you can throw some more may, you know? But that,

Joe: I don’t know, let’s say in 20 years from now, he’s done saving for retirement and he could just cash flow college.

Al: Could, yeah. Yep.

Joe: So, there’s lots of different options.

Al: Yeah, that’s true.

Joe: But I don’t know. That’s all I got. I dunno if that’s good or bad.

Al: I think that’s a few things.

Joe: Okay. All right. That’s it for us, Andi. Wonderful job.

Andi: Thank you very much.

Joe: As always. Thank you for, putting this together. Alan came very prepared today.

Al: Yeah, I looked at these before.

Joe: Yes, you did. I can tell Aaron. Thank you for, just hanging out and looking at Instagram.

Andi: Hey, he helped you. He told you about Slovenia.

Joe: Slovenia, yes.

Al: Slovenia.

Joe: So. All right. That’s it for us. We’ll see you next time. Show’s called Your Money, Your Wealth®.

Outro: Next Week on the YMYW Podcast

Andi: Next week, YMYW is all about the “when”: should Fine and Dandy sell his business now at age 42 or wait? BB and Shell have just one more year to save for retirement – should they save pretax or post tax? Joel wonders when to take the first required minimum distribution from retirement accounts for the most tax benefit, David asks for pointers on protecting his assets before experiencing any potential cognitive decline, and Brian wonders when it makes sense for retirees to have an emergency fund – and how much. Don’t miss it. Make sure you’re following us in your favorite podcast app, and subscribe and turn on notifications in YouTube so you can watch as soon as the new episode drops. And do us a favor and tell a friend we’re over here making fun of finance on Your Money, Your Wealth.

Now, be honest: do you have your own retirement plan figured out, or are you relying on the spitball you just got from YMYW? If it’s the latter, then it’s time to schedule a one-on-one financial assessment with Joe and Big Al’s team of experienced professionals at Pure Financial Advisors. It is also free, just like a spitball, but it’s tailored specifically for you and your needs in retirement, not generalized for everybody watching or listening today. You can meet in person at one of our many offices around the country, or meet online via Zoom. The Pure team can help you build a retirement income plan, cut your taxes now and in retirement, and give you confidence about your financial future. Click or tap the free assessment link in the episode description to book yours, or call 888-994-6257. There is no obligation, and it might just be the smartest step you take toward a stress-free retirement.

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

_______

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