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
May 2, 2023

If you knew exactly when you were going to die, so many financial decisions would be simple. But generally, we don’t, so today Joe and Big Al spitball on death, taxes, and trust issues – of the estate planning variety. Fair warning, it’s “the dark show” today on YMYW, as the fellas discuss cancer trust funds, making your trust the beneficiary on your retirement accounts, when and how to take Social Security benefits and pension options, and a few different Roth conversion strategies taking into account the 5-year rules for withdrawals, and potentially donating required minimum distributions to charity rather than doing conversions.

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Show Notes

  • (00:49) Pension Plan Options Retirement Spitball: Lump Sum, Annuity, or Hybrid? (Dave, CO)
  • (07:37) Should We Have a Cancer Trust Fund? (Melinda, Milwaukee)
  • (12:02) Why Not Make Our Trust the Beneficiary on Retirement Accounts? (Ms. Merry, MD)
  • (21:40) Is There a 5-Year Rule on Taking Dividends from a Roth IRA After Age 59½? (Douglas, Bonita, CA)
  • (23:34) I’m 60, My Ex is 74. Am I Eligible for Spousal Social Security Benefits? (Salwa)
  • (24:39) How Much If Any Roth Conversion Should We Do? (Paul, NJ/SC)
  • (28:53) Why Do a Roth Conversion Instead of Donating to Charity? (Kevin, Raleigh)
  • (32:57) Why Separate and Never Add Money to a Profit-Sharing Plan Rolled to IRA? (Nancy, Foxboro, MA)
  • (35:46) Retirement Pension at 57 or 60? Social Security at 62 or 70? (midwestfabs)
  • (45:56) The Derails

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If you knew exactly when you were gonna die, so many financial decisions would be simple. But generally we don’t, so today on Your Money, Your Wealth® podcast 427, Joe and Big Al spitball on death, taxes, and trust issues – of the estate planning variety. Fair warning, it’s the dark show today on YMYW, as the fellas discuss cancer trust funds, making your trust the beneficiary on your retirement accounts, when and how to take Social Security benefits and pension options, and a few different Roth conversion strategies, taking into account the 5 year rules for withdrawals, and potentially donating required minimum distributions to charity rather than doing conversions. I’m producer Andi Last – see if you catch my spoonerism today – and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

Pension Plan Options Retirement Spitball: Lump Sum, Annuity, or Hybrid? (Dave, CO)

Joe: “Hello, Joe, Big Al, and the YMYW team. My name is Dave, 58, married, two children. I plan on retiring in 6 to 7 years. Live in Colorado. Drive a Jeep Wrangler Rubicon.” Okay, I can see that in Colorado.

Al: Me too.

Joe: “My preferred beverage is-“

Andi: -witbier.

Joe: “-witbier.” What’s witbier?

Al: Is that like, like orange whip?

Andi: “It translates to white beer, which is typically brewed with a pale marley balt (barley malt), unmalted wheat, and oats for a creamy mouth feel. A spiced beer with coriander and citrus notes and a small amount of lactic acidity.”

Al: Okay, there’s the citrus part.

Andi: So it’s similar to a hefeweizen or a wheat beer.

Joe: Got it.

Al: Got it. Okay.

Joe: But it’s translated to a white beer.

Andi: Yeah.

Al: Yeah.

Joe: Okay. He’s got longevity, he says. It’s that white beer.

Al: It’s light. Yep. It’s good.

Joe: Longevity equals good.

Al: Yeah, right.

Joe: “Expect to live it as old as my parents who are in their 80s. Lifestyle, enjoy travel in witbier money.” All right. Sounds good.

Al: The second time that word came up.

Joe: I know he likes that white beer.

Al: He does. He wants to emphasize- we’ll see if it comes up again.

Joe: Just wants to pound white beers all day. “Current assets include 401(k) current value $1,200,000, 1/3 Roth, max out contributions of $73,500 per year.” That’s a little rich contribution, isn’t it Big Al?

Al: Yeah, it’s very good.

Joe: What is the standard contribution for a 401(k)?

Al: It would be if you’re over 50, $30,000. So $30,000 times- lets see- is his wife working? or didn’t say-

Joe: I believe-

Andi: Well, they do have his and hers IRAs so-

Al: Well, anyway, he could do the pre-tax part- Or the post-tax part I mean.

Joe: You think he’s doing after-tax contributions?

Al: I’m guessing. Yep.

Joe: Is he gonna do the megatron?

Al: I think he already- I think that’s the plan.

Joe: I’m not seeing any mega back garage door barn door.

Al: He hasn’t said that yet.

Joe: Got it. “His and hers IRAs worth about $280,000. Roth and max out contributions of $15,000 until retirement. Other investments, stocks, bonds, and cash of $1,000,000, home’s worth $1,200,000, got $100,000 mortgage. Work pension plan has a couple of parts.”

Al: So here’s the question.

Joe: Got it. “He’s got one-time lump sum payment of $200,000 at retirement. And then he’s got a pension plan payment with a option of 3. First option is just take a lump sum, $1,600,000.” So you take the lump sum, you roll that into an  IRA, and then you take distributions, you invest it how you want. You’re no longer tied to the pension plan.

Al: Right.

Joe: “Second option, you can take an income stream $10,500 a month. It’s pretty rich.

Al: Yeah, it’s pretty good.

Joe: All right, so he could take $1,600,000 cash upfront or take $10,500 a month, or he can do a little hybrid.

Al: Yeah. Half and half, yeah.

Joe: Split it. “$800,000. And then $5,250 a month. Between the 3 pension plan options, which would be the best? Enjoy the podcast. Thanks” Okay.

Al: Yeah, great question.

Joe: We’re not gonna give advice here, Dave. We’re just gonna spitball this a little bit. Let’s see.

Al: Well, if you knew when you were gonna pass, then it would easy.

Joe: Longevity. Good.

Al: I know. But it’s not-

Joe: He’s got good longevity, he says. It’s the white beer.

Al: But it’s not equals guarantee. That’s just good.

Joe: So let’s say he lives 20 years. Alright, so here’s the assumption that he has to run. He has to look at what is the, you’ve got to discount- or take a present value look at the cash flow. So let’s say he’s got $10,500 per month for life, and he’s 57 or 58 years old. He’s gonna retire, let’s say at 65. So if he lives until age 85, I’m guessing is probably- if you use a standard, let’s say a 5%, it’s 20 years.

Al: Yeah, yeah. It’s actually 20 years did come out to 4.9%.

Joe: Okay, well look at that. Yeah. First time I’ve ever done this.

Al: And 30 years comes out to 6.9%. Okay. If you live past 20 years, the annuity’s probably gonna be a little bit better.

Al: Agreed.

Joe: If you have a 20-year life expectancy or less, then it probably makes more sense to take the lump sum. With that being said, if I had a hybrid option, I’m taking the hybrid. Because I get a little bit of both.

Al: Hedging your bet.

Joe: Hedging- because at- if you take it at 65, 85, I mean, you’re not gonna be spending a ton- well, Big Al’s gonna be spending a ton at 85 because the guy lives on green juice.

Al: That’s very expensive.

Joe: He’s gonna live until 155.

Al: I got a good rate of return for taking the annuity.

Joe: Oh, for sure. Yeah. But that, I mean, it’s a longevity play.

Al: It is.

Joe: If you wanna take a little bit more control, do you think you could get, let’s say more than 6%, or 5%? That’s what I kind of estimated as a discount rate. That’s what most of these companies use. So if you’re like, I’m gonna take the money and I’m a really good investor and I’m gonna get 8%, well, yeah, they didn’t make sense to manage your money, but guess what? If you’re gonna try to get 8%, the likelihood of you getting 3% is probably higher than you getting 8%.

Al: True. Let’s see, what would I do? I would prob- so I already got, I already have about-

Joe: Well, Big Dave’s got a big wallet like you.

Al: He’s got- he’s already got $2,500,000, right? Plus another $200,000. So approaching $3,000,000, he’s adding, he’s gonna have over $3,000,000 by the time he retires. I’m with you. I mean, it just depends upon your willingness to accept the risk of a short life expectancy. And, you would want a survivor. I hope there’s a survivor.

Joe: Yeah. I don’t know if it’s a single life or joint.

Al: So I’m gonna assume it’s survivor because then you have a much better chance. In fact, if you retire David, at 62 and your wife- it doesn’t say how old she is- but anyway, probably at least one of you is gonna live to 92. That’s what the stats are right now. So that’s a 30-year period. So that would be almost a 7% rate of return. I like that. But I understand what you’re saying too, Joe, which is maybe you go half and half just to hedge your bets.

Joe: Right. I mean, then you get a little bit of a floor of an income. We don’t know what he’s spending.

Al: No, no, we don’t. And so we don’t have those facts.

Joe: We don’t know Social Security.

Al: We’re just going off these numbers in a vacuum. But the other- see, you have to think about this, like what if you and your wife get in a car accident.

Joe: Wow. Here we go.

Al: Hate to say it, but let’s- and so 7 years after you retire, and then the kids will lose out on some what would otherwise be inheritance. So, that’s, but you have to think about that.

Joe: Stay outta that Rubicon. Don’t be drinking that white beer.

Al: Don’t- stay on paved roads, drive 55.

Joe: All right. Good luck, Dave. Congrats.

Should We Have a Cancer Trust Fund? (Melinda, Milwaukee)

Joe: Melinda from Milwaukee writes in. She goes, “Some members of our family have a genetic syndrome that makes us highly susceptible to developing cancer.”

Al: That’s too bad.

Joe: Oh boy. “My mom is 72 and currently fighting terminal cancer. She has planned to divide up her estate, however modest, among 3 children. I suggest putting amount, maybe 10%, about $10,000 in a trust earmarked for the kids or the grandkids should they need financial assistance in future related to cancer diagnosis of their own, whether it be loss of income or medical bills. The poor gal has been through a lot and it’s amazing she even has any nest egg to give. It’d be nice to protect others, but I’m not sure the unaffected kids would not feel happy if too much money went to the cancer fund. Any suggestions?” A little cancer fund- that’s a first.

Al: Yeah. Yeah. For future- just in case.

Joe: Got it.

Al: Yeah, it is the first, and so she’s saying 10% or $10,000, so I assume that means mom has about $100,000.

Joe: $100,000.

Al: Yep.

Joe: So you put $10,000 into a trust. Yep. Okay. And then-

Al: And earmarked for-

Joe: – some sort of medical need in the future.

Al: So I wouldn’t do this because a trust itself is gonna cost $2000 or more just to set up, so that that’s gonna take 20% of the principle. Melinda, it’s just too small of a number, I think. I wouldn’t go the trust route. I mean, you could have a special letter of instructions for the kids if the-

Joe: You could just set up a separate brokerage account.

Al: Well, sure you could do that, but- or a separate letter to the kids, separate letter of instructions to the kids saying, I want you to set aside 10% for future cancer needs, or however she wants to say it. That’s what I would do. I mean she would have a will or a living trust to distribute the assets, but then she can have a special letter of instructions to go along with that. Or you could even put it the will if you wanted to. It’s more of a suggestion though, than a requirement. Suggestion for the kids to set aside some for future medical needs.

Joe: But I think what Melinda’s asking is that no one knows if any of the kids or grandchildren are going to get cancer.

Al: Yeah. Especially with modern medical advances.

Joe: So, but maybe let’s say one out of the 3 kids draws the-

Al: Right.

Joe: And so there’s this pot of money that’s set aside from the gross estate, that’s not earmarked towards any of the kids unless it triggers- if someone needs a medical event. Is that how you read that, Andi?

Andi: Yeah, I think that’s basically the idea.

Joe: Versus saying 33%, or a third, a third, a third of $10,000. And then you compound growth upon that. I think that makes some sense. But you’re right, just setting up a legal document like that is pretty expensive.

Al: Yeah. I suppose if you wanna have a separate account, but then someone has to kind of oversee it and, and be in charge of it, I guess. So that can be a little tricky with siblings. But at any rate, it’s a great concept. But a trust to me is way too expensive to do this.

Joe: There’s gotta be some sort of- I don’t know, nothing’s coming at the top of my head.

Andi: So how would a special letter of instruction be set up? Is that done by the attorney that sets up the living will or the trust?

Al: It could be yeah, it could be, or it could be like Joe suggesting, which is basically maybe mom sets up $10,000 into separate account right now.  And basically the letter of instruction said this $10,000 is to stay in perpetuity for whoever needs it for future medical issues.

Joe: Yes.

Al: That’s what I would do.

Joe: Yeah. Yeah. All right. Look at that. We came up with a solution. All right. Good luck with that, Melinda. Thanks for the email.

Make things as easy and straightforward as possible for your beneficiaries. Give your loved ones a document that contains everything they need to know about your life, your accounts, and your estate before you pass. Download our Estate Plan Organizer from the podcast show notes at YourMoneyYourWealth.com. It’s organized into helpful blank sections so you can simply fill out everything from your financial account details and insurance policies to your contacts and your final wishes. Then put it in a safe place, and give a copy to your family – and don’t forget to update it regularly. To get your free Estate Plan Organizer, just click the link in the description of today’s episode in your podcast app and you’ll see it right there under “Free Resources,” right before the episode transcript.

Why Not Make Our Trust the Beneficiary on Retirement Accounts? (Ms. Merry, MD)

Joe: “Hey Andi, Joe, Big Al. This is Miss Merry from Maryland. I love your show. I learned about it earlier this year from a post in one of my Facebook retirement groups.”

Al: How about that?

Joe:  We made it big time.

Al: Yeah. We’re in Facebook.

Joe: Facebook Retirement group. Perfect. I’ll be a guest speaker. “Your show is a perfect combination of information and humor. You’re like the car talk guys of retirement finance. I listen to your podcast whenever I go to the gym, and it makes me wanna work out even more.”

Al: Oh, I like it.

Joe: Oh yeah.

Al: That’s, that’s our thing.

Joe: “I’m 60 and my husband’s 64. I’ve been retired for 4 years, and he has been retired for 6. I drive a 2023 Toyota RAV4 hybrid plug-in. My drink of choice is a coconut pineapple bubbly sparkling water.” Of course, you’re grinding out at the gym at 60. You’re getting in some more reps listening to this awful show. She probably looks like she’s 40.

Al: I’m sure she does.

Joe: “We have no kids, and our pets are the birds that come to our bird feeder and the goldfish in our pond.”

Al: Okay. Yeah. Low maintenance.

Joe: Yeah, she’s got a pond. Oh. Probably big backyard or something there.

Al: Yeah, I think so.

Joe: “My question is about making our joint revocable trust the successor beneficiary of all our retirement accounts. The surviving spouse is the main beneficiary. You recommended against doing this, but why?” Oh boy. You wanna get into this Big Al?

Al: Well, I do wanna see your answer now that the stretch IRA is gone. It’s a little less important I think.

Joe: “We hope to spend most of our retirement funds before we die in our 90s. But should a car accident-“ man? What is up with death and car accidents today?

Al: Well, we’re- this is the dark show.

Joe: “But should a car accident or some other misfortune take us out sooner, like tomorrow, we want our funds distributed somewhat unequally between our 5 siblings, 4 nieces and nephews, a friend and 3 charities. We have no mortgage on our house and we want to bequeath it to a friend with enough money from the retirement accounts to pay the Maryland inheritance tax.” Okay, couple things here, Miss Merry. “Currently I have $1,200,000 in a traditional IRA, $475,000 in a Roth, and my husband has $654,000 in a traditional IRA and $970,000 in a Roth. We have $214,000 in a joint brokerage account. These accounts will change over the years due to growth and withdrawals, so we can’t just designate some people as beneficiaries on certain accounts. In our scenario, does making the trust the successor beneficiary make sense? Or do I need to list 13 separate beneficiaries on each retirement account? We had the trust set up 6 years ago. Appreciate your spit ball.”

Al: Okay. I’m all ears. What’s your answer?

Joe: Yeah. I would do 13 separate beneficiaries.

Al: Why?

Joe: Alright, so let’s talk about a couple of different things. So she wants to give money to A) some charities. Which is a non-designated beneficiary. So that kind of blows you up.

Al: Yeah. So that means you have to distribute in 5 years or what does that mean?

Joe: Correct. Look at you. You’ve been studying up or just from memory.

Al: Well, no, that’s just from memory hearing you say this 100 times. But see, I guess what I’m saying is now you have to get it out in 10 anyway, so it’s not as big a deal.

Joe: Right, right. Because it- what is the purpose of the trust is really the main goal of the trust would be, let’s say if you have minor children that you’re giving the money to, if you have maybe, let’s say a special needs individual. If you want asset protection and you wanna control the money from the grave. You don’t trust your nieces, siblings and things like that, so you’re like, okay, well, you know, we got millions of dollars here. They’re gonna blow this, so I wanna give little Johnny a couple of bucks a month until he turns 80. I mean all of that stuff you can’t really do in retirement accounts anymore because this stretch IRA is no longer. So once you pass, there is no more inherited IRA. So it depends on the beneficiary, and I’m not gonna get into all those rules, but it sounds to me like the living people would be non-designated beneficiaries, that the money has to come out within 10 years of the retirement account.

Al: Right. Unless they’re within the 10 years of the age of the-

Joe: Correct.

Al: They are siblings, I think some would qualify.

Joe: Maybe. So the issue is that before you would be able to kind of control it. You would only distribute a small amount of the IRA and it would be distributed out. Because the distribution was based on the life expectancy of the person that inherited it. It doesn’t necessarily matter today, it’s gonna come out in 10 years, roughly. And so what’s the purpose of the trust? Just to hold it in trust for 10 years?

Al:  Just to make it simpler so you don’t have 13 beneficiary statements on 4 different retirement accounts.

Joe: But you have 13 beneficiaries on the trust document.

Al: I know, but that’s already done.

Joe: You still gotta put the beneficiaries on there. What’s the difference? You gotta-

Al: I know what you’re saying.

Joe: So then there’s two different types of trust, right? You got a conduit trust and a discretionary trust. So if it’s a conduit trust and it has to be a look-through, see-through trust-

Al: Oh wait, here we go.

Joe: Right? It has to do all of this crap. There’s so many errors that can happen if you name your beneficiary part of the trust as the beneficiary, right?

Al: Yeah. So I have-

Joe: Look-through, see-through trust. It has to- the trust document needs to be to the custodian. All beneficiaries have to be identifiable. She’s got 3 charities, so it’s gonna blow up anyway.

Joe: Yes. Which basically means that all the money has to come out 5 years- instead of 10 years, so you have to pull the money out 5 years earlier. And then I guess your second point is the money’s in the trust, so how do you figure out how to distribute it?

Joe: Exactly. So as long as it’s a look-through, see-through trust, you would be taxed at the beneficiaries’ rates. But you’ve got all of these different beneficiaries and if it gets held in trust, then it’s gonna get taxed at the trust rates. And the trust rates are a lot higher than-

Al: But you can set it up to distribute when people are entitled or when they earn the income.

Joe: But there’s no RMD. There is no RMD.

Al: Well, you have to- but let’s talk about that. So if there’s a charity, the money has to be distributed in 5 years. Is it 1/5 each year or can you decide when to have it- pull it out?

Joe: Well, you wouldn’t name the charity- I think you would name whatever part of the retirement account. Just have that as a beneficiary on the account. I wouldn’t even put that in the trust.

Al: Yeah. So I guess if you’re can do the trust, then you do the- which you’re not recommending, but you do the trust and then you have the 3 charities. So you don’t have-

Joe: You have the IRA trust and you’re keeping it. That’s why you’re for this.

Al: I’m not keeping it. I don’t see the point anymore.

Joe: It doesn’t make any sense. They have an IRA trust.

Al: But I’m just saying there’s- yes, unless you wanna control the spending.

Joe: Exactly.

Al: That’s the reason you have a trust.

Joe: To protect it from creditors.

Al: Right. I’m just suggesting it’s less critical now that there’s not a stretch IRA. That’s all I’m suggesting.

Joe: Yeah, because everything has to get distributed out. I would have-

Al: – 13 beneficiaries – actually better yet, is maybe you pick and choose, like the Roth accounts are gonna be more valuable. So maybe you want those assets to go to different beneficiaries than the non-Roth accounts.

Joe: Well, she’s got the house going to the friend. But then here’s one thing that she said is that ‘I’m gonna use the retirement account to pay the taxes for the estate tax of Maryland’. I don’t know if you wanna do that, because then you gotta pay tax to pay tax.

Al: You do. Right.

Joe: You might want to use your cash or brokerage account. I don’t know. What is the estate laws in Maryland? I’m not an expert on that.

Al: We don’t know.

Joe: And we are not attorneys. By any stretch.

Al: No, I would even guess. But I will say different states do have an inheritance tax.

Joe: But your retirement account is the last place you want to go. Because you have to pay the tax to pay the tax to pay the tax.

Al: Because you pay federal and estate tax-

Joe: – to get the money out.

Al: – and then whatever’s left over, then you pay the estate tax. Correct. Yeah. Not a great plan.

Joe: No. But yeah, I get it. You know, I think you can map this thing out. You could say, well here’s what our spending is, because here’s where it gets a little bit confusing. And I understand what she’s thinking is that the trust would be a lot easier because, we’re gonna live into our 90s. We’re gonna invest this money and it’s gonna grow, and we don’t know what accounts are gonna grow, at what rate. And we’re gonna take distributions and life is gonna happen. But we wanna make sure that, and it’s gonna be totally un- people are gonna get different dollar amounts. It’s not gonna be a straight line across. You know, the nephews are gonna get a lot less, the nieces are gonna get a lot more, her best friend’s gonna get the house. And so she’s like, how do I all of this?

Al: Yeah, no, I understand what she’s saying.

So, with what you’re suggesting, which is the right answer by the way- I’m not disagreeing. I think it’s less important than it used to be. However, like let’s say a sibling passes away, so now we’re going dark again. This is the dark show. So, now you’ve gotta change beneficiary statements on 4 different retirement accounts instead of just change your trust. That does make it simpler in some ways, Joe.

Joe: No, I agree. I mean, if you’re just on top of it, then it by all means do that. But the likelihood of the successor trustee to understand-

Al: – knowing what to do-

Joe: – the laws and know what to do and how to take distributions and not make a mistake. Because IRA plans are different than any other assets because they’re just infested in taxes. And they’re, it is like, oh, you got a million dollars in here. Alright, Johnny, you get $200,000, boom, we’re gonna distribute $200,000. And guess what? Boom, it’s not $200,000, it’s all taxable. You’ve gotta change the title of the retirement account to the trust and I mean, so it gets complicated.

Al: It does. I agree.

Is There a 5-Year Rule on Taking Dividends from a Roth IRA After Age 59½? (Douglas, Bonita, CA)

Joe: We got Douglas from Bonita, California. “Hey, I’m 39 years old. Teach Middle School. Recently started contributing to a Roth 403(b) (post-tax)-“ What’s in parentheses? (post-tax).

Al: Post-tax.

Joe: Post-tax. Thanks.

Andi: Just so you know.

Al: Okay, good. We didn’t have to look that up, huh? Is a Roth post-tax or pre?

Joe: You are writing into a financial-

Al: Yeah. Yeah.

Joe: “once I learned that I could contribute up to $22,500 annually if I did not contribute any of my pre-tax 403(b) account. When I roll over my Roth 403(b) to Roth IRA after 59 and a half, is there a 5-year rule that limits my ability to take dividends outta my Roth IRA? I also currently contribute to my Roth IRA. Thanks.” So he’s got a Roth 403(b). He’s gonna continue to con- he’s 39. So he’s looking at 20 years out.

Al: Yep.

Joe: He’s gonna roll his 403(b) into his Roth IRA.

Al: Yep.

Joe: And since he’s over 59 and a half and he’s already had a Roth IRA established for over 5 years, he’s curious now because he is rolling these 403(b) dollars into his existing Roth IRA, does the 5-year rule apply?

Al: Yeah, I’m not sure if he has an existing, does it say that?

Joe: Yeah, ‘I roll my Roth 403(b) to Roth IRA after 59 and a half.’

Al: He said when I roll, that’s in 20 years from now.

Andi: His last sentence is, ‘I also currently contribute to my Roth IRA.’

Al: Oh, okay. Check, check, check. Got it, got it, got it.

Joe: Yeah, you’re all good, Douglas.

Al: Yeah. Yeah. Once you start any kinda Roth IRA, the 5-year clock starts for purposes of dividends, income, growth, after age 59 and a half. So yeah, there’s no limitations with your plan.

Joe: So when you roll the 403(b) into the Roth IRA, the Roth IRA is already- you’re over 59 and a half, it’s already cleared the 5-year rule.

Al: Yep. Yep. Okay.

Joe: So all good there. Congrats. All right. Moving on.

I’m 60, My Ex is 74. Am I Eligible for Spousal Social Security Benefits? (Salwa)

Joe: Let’s see, what do we got here. Swala. Salawa.

Andi: Salwa.

Joe: Salwa.

Al: Salwa?

Joe: Salwa? That’s interesting.

Al: S A L W A.

Joe: “I’m 60 years old. My ex is 74. He’s collecting Social Security. I work. Make $100,000 a year. Am I eligible to collect his Social Security until I reach my retirement age? If so, how much am I eligible for?” No, you’re not eligible.

Al: I agree. First of all, you have to be 62. Secondly, if your income’s over $20,000, you’re basically gonna give back the Social Security anyway. So don’t even think about it.

Joe: Yep. You gotta wait 7 years. 6 years and 6 months.

Al: You, yeah. You- well, yeah.

Joe: It’s their full retirement. Probably 6 years, 6 months.

Al: I’d say 67 probably at that. So yeah, at age 67. Yeah, you can collect on – if you wanna collect at that point and not without regards to your income, or if you retire early, sure. Then you could collect it, but not while you have other earned income.

How Much If Any Roth Conversion Should We Do? (Paul, NJ/SC)

Joe: “Hi Andi, Big Al, Joe, the all-knowing.”

Al: Oh, you’re the all-knowing.

Joe: Wow.

Al: They know- people know how to butter you up.

Andi: That’s exactly what I was gonna say.

Joe: Oh, that’s badass. “Looking for some guidance on how much Roth conversion makes sense to do, if at all. 61 years old, spouse 58. Both retired, probably spend about $85,000 per year, including taxes and have no debt. We have a combined about $1,100,000 in deferred retirement account. Have a small inherited IRA that I take yearly RMDs from the old stretch way, have $34,000 in pensions, which is for life and has a partial adjustment for inflation, $90,000 in cash. We also have $230,000 in a Roth IRA. Selling our house, relocating to another state, which has a 7% state tax, South Carolina. Our current state tax is a bit lower, but not much. We will have an additional $60,000 left over from the sale, which combined with our current cash, will be used to pay for taxes on the conversions, which I plan to start later this year and continue ‘till I’m 65. Looking to determine if a Roth conversion makes sense and how much we should convert. What do you think? Up to the 12%? Not worried about IRMAA at 65 as any increase due to the conversion will be short-lived.” Oh, I like Paul.

Al: Yeah, that’s- man that-

Andi: Especially ‘cuz he buttered you up.

Joe: “But not draw on deferred accounts yet, which with the market being down. Living frugally on pensions and cash will start to take around 3.25% draw from the main deferred account in 2024. Best regards and love your show, Paul from New Jersey. Alright, $85,000-

Al: – is the, is the spend. $35,000 is the pension. Okay. And so-

Joe: So what- He needs $50,000 a year. He’s got $1,100,000 plus two 1.3, $1,400,00. Yep. Roughly.

Al: Yeah. Call it $1,400,000.

Joe: And then he’s gonna get another $60,000.

Al: Yep. Yep.

Joe: 34. He’s got room in the 12%. $1,100,000. He’s already got, he needs $50,000 regardless to live off of. Yeah. I like the 12% tax bracket.

Al: I do too. And so $34,000 and the standard deduction’s about $27,000. We’ll say $20,000- we’ll say $25,000. He’s- we’ll say there’s $10,000, taxable income just to make it simple.

Joe: Sure.

Al: Okay. And so the top of the-

Joe: He’s got $70,000 roughly. Yep.

Al: Top of the 12%. It’s actually, it’s like even $90,000, I think. Let’s see here. $89,450. Yeah. So $90,000. So in other words, you can convert about $80,000 and still stay in the 12% bracket. That I believe is gonna be the right bracket for you to stay in. Because with the pension- of course you’ll have Social Security, I’m assuming, but the- you’re gonna be withdrawing from your retirement accounts. You’re probably not gonna get to the next bracket. So that’s why we think the 12% makes sense.

Joe: Yeah, because you could pull out $80,000 now and stay in the 12%. He needs $50,000 to draw from. With taxes included there. So pull out $80,000 top of the 12%. If tax brackets change, then just go to the top of the 15%, try to get as much out. And then until you need the cash which will be in a couple of years.

Al: And then with less RMDs, chances are less of your Social Security would be taxable. So I like that.

Hey, we’ve got new free financial resources for you in today’s podcast show notes: watch the replay of our latest webinar on the financial markets, inflation, interest rates and the chance of a recession, plus, this week’s episode of Your Money, Your Wealth TV is called Going Solo: Navigating Your Financial Future Single. Check it out and download the companion guide just by clicking the link in the description of today’s episode in your favorite podcast app to go to the show notes, then look for the Financial Resources section just above the episode transcript. And hey, remember how Ms Merry from Maryland said she learned about YMYW in a Facebook group? If you tap that “share” button in the podcast show notes, you can help spread the word about YMYW too!

Why Do a Roth Conversion Instead of Donating to Charity? (Kevin, Raleigh)

Joe: We’ve got Kevin from Raleigh writes in. He goes, “Hey, last week or so you had a question from Kelly and Shotgun Whiskey-“ That was-

Andi: You actually said Shotgun Shelly because he used the money for shotgun shells. But, Shotgun Whiskey, I think they also drank whiskey, so it works.

Joe: Shotgun Shelly. It was my favorite. “- in Idaho about converting of their traditional IRA. They said they did not need the money because they live frugally. Curious as to why they should convert at all. No kids to pass it to. Why not just leave as is and donate to charity the part of the RMD that would kick you above IRMAA or the 24% tax bracket? They would completely avoid the tax while supporting their local gun club or dog rescue.” Wow. That’s quite the observation there, Kevin.

Al: We’re now getting comments on our spitballs.

Joe: Yeah. He’s like, yeah, your spitballs sucks.

Al: Yeah, that’s what he said.

Andi: I will say that Kelly’s email actually did say we are planning to start Roth conversions this year. So that is what Kelly wanted to do. So I think you guys went on that track.

Joe: Gives them a little bit more control.

Al: I think so too.

Joe: I think people say they live frugally and then all of a sudden- Frug- frugally. Does that, does that sound? that sounds like off. That doesn’t even sound right.

Andi: It only sounds wrong from you, Joe.

Joe: Okay. But right, people say that all the time-

Al: And things change.

Joe: But they end up spending like $150,000 a year.

Al: Yeah, no, that, that’s right. And, and so let’s say what- so you don’t need it now, but you go into some kind of senior living and the first level is just senior living. It’s not-

Joe: You doing some shopping?

Al: For my mother.  Anyway, the first, there’s like 3 different levels, right? And the first is just you’re living there, there’s really no deduction. And you-

Joe: I think Shotgun Shelly was like 58 years old.

Al: I know.

Joe: You’re already talking about like nursing homes.

Al: I’m trying to expound on your topic, why things could change.

Joe: Got it, got it.

Andi: Actually, husband was 67 and wife was 63. So Shotgun Shelly was 67 years old.

Joe: Here’s- I think it gives him more control.

Al: It does. That’s what I’m saying.

Joe: We wanna go on more vacations.

Al:  Let’s not use the senior center. Okay. More, more vacation. Oh, I wanna get a better car. Or I, you know what? We’re retired. Let’s get a second home.

Joe: Right. I wanna drink higher end- I want Oban, Macallan 18.

Al: I don’t wanna worry about which whiskey I’m picking.

Joe: Yeah, I’m not- I’m getting rid of the Jim Beam and I’m gonna go highbrow.

Al: And here’s the problem. It’s, if people don’t think about this, is like, why should I do it when I’m in my 60s? It’s too late. Well, you’re probably gonna live into your 90s. It’s not too late at all.

Joe: Right? Yeah. But Jake or Kevin also has a point too, right? Yeah. They wanna give their money to charity. They never said they were charitably inclined. But they could do that. So they have, they could do a CRD or-

Al: QCD.

Joe: QCD. Yeah.

Al: Qualified charitable distribution.

Joe: Thank you, sir. Up to $10,000.

Al: That’s right.

Joe: Part of their RMD so they could keep themselves in a lower tax bracket that way.

Al: I will say though, that a lot of people are charitably inclined, but not everybody is. And we have seen people that have more money than they will ever spend. We tell ’em, you can spend more. Can’t spend more. Okay. You can give money to your kids. I don’t have any kids. How about your nieces and nephews? Nope. Don’t want to. Okay. Well then you give it a charity. No, I’m not charitably inclined. And then it’s like, well, what are you gonna do? I’m gonna spend it. You’re not gonna spend it.

Joe: You just said it. You’re not- yeah.

Al: Anyway, I get it. Actually, Kevin, this is a perfect observation. You are correct. Yeah. If you really don’t need the money, there’s no reason to convert. You can give it to charity if that’s part of your plan. Not, not everyone wants to do that.

Joe: Kevin, you got a podcast?

Al: Probably.

Joe: Maybe we could forward some of these questions your way.

Al:  Yeah, let’s get your take on it before we answer.

Why Separate and Never Add Money to a Profit-Sharing Plan Rolled to IRA? (Nancy, Foxboro, MA)

Joe: We’re gonna go to Nancy from Foxboro, Massachusetts. “Joe, Al, Andi. I’ll try to be brief.”

Al: Okay.

Joe: Thank you.

Al: Like it.

Joe: “2015 Toyota Corolla. 19 Crimes Hard Chard wine.” All right. Okay.  “My question, my husband and I have a profit-sharing plan completely company funded that he rolled over in its entirety to an IRA at Vanguard. Someone long ago told us never to add money to that account. It could be- should be kept separate. I don’t know why, but we never did add any money to it. But now I’d like to roll it over- I’d like to roll over his 401(k) from a different employer over to that account just to consolidate the accounts. You think that’s fine? Would it require that funds from employer, from a former account somehow be kept separate within that account? It’d be a headache.”

Joe: I think the hard-

Andi: The hard chard?

Joe: The night with the hard chard will probably give you more of a headache. “Thanks for all the advice you give about so many confusing financial matters. Enjoy listening to your podcast each week.” Well, thanks Nancy from Foxborough.

Al: Well, remember there used to- this is a while back-

Joe: It’s a ton

Al: -awhile back, I wanna say at least 20 years, where you were supposed to keep your rollover IRAs separate from your regular IRAs, and I think that had to do with rolling back in. I think that was the rule, but nowadays, it doesn’t matter.

Joe: If you have it in an IRA at Vanguard. Just who cares?

Al: Yeah. So, what you’re referring to, and you do say that someone told you a long time ago, and I’m gonna say that at least 20 years ago, you, there was reasons to keep it separate if you wanted to roll it back into 401(k), but that’s not true anymore.

Joe: Yeah. You had a rollover IRA and then you had a standard IRA, and if you, but I also remember why you would want to keep that separate, But I, off the top of my head, I-there’s no logical reason to.

Al:  No. Well, because the IRA rules have been, they’ve been simplified. They’re all the same. A rollover IRA is the same as a regular IRA. It doesn’t matter.

Joe: Profit sharing plan. Do you think there was ever basis in the profit sharing plan?

Al: Well, maybe. But it would still, it would still show up in the IRA, right? Yeah.

Joe: I mean, if they filed 8606, yeah.

Al: Correct. Anyway, I can’t think of a reason to separate it anymore.

Joe: Yeah. Me neither. But I do remember- have this vague memory. It may have been 30 years ago.

Joe: I think it was the same person that told us too.

Al: Probably. I read an article 30 years ago-

Joe: – a long time ago-

Al: – from that guy.

Joe: You have a profit-sharing plan, never co-mingle.

Al: I remember that early in my career.

Joe: Yeah. Just combine and cross your fingers.

Al: Don’t have to cross your fingers. It’s fine.

Joe: Alright.

Retirement Pension at 57 or 60? Social Security at 62 or 70? (midwestfabs)

Andi: You got that a new one that you guys printed off right before you came in. Can you do that one?

Joe: Sure, no problem.

Al: That’s a long one.

Joe: Wow. Here we go. “Hello again. From the banks of the now thawed-out Mighty Mississippi. I didn’t think I’d be calling you again so soon for your wonderful spitballing. But I would love to hear your thoughts on a potential life-changing work situation.”

Al: Oh, okay.

Joe: The plot thickens. “Recently my employer made some changes to the retirement eligibility requirements for its employees. There are two retirement options being offered to me by my employer. One, the year I turn 57, I’ll be eligible to retire with a small pension that will be around $15,000 a year. It has a potential COLA. It will be maxed out at 2% per year, but has been 0% in the past. I’ll also be able to stay on the company’s health insurance at a discounted rate for around $2500 a year. Number two, the year I turn 60, the pension will be around $18,000 a year with the same COLA and health insurance premiums as above. I’m still 53, still single. Still a renter with no debt. Make about $100,000 a year. I’ve always maxed out my employer in self-directed retirement accounts. Plus $50,000 plus catchup contributions. Currently, all retirement contributions are my 401(k) Roth at self-directed Roth. I also have approximately $5000 into my brokerage account give or take per year. After savings and taxes, I live a very comfortable non penny-pinching lifestyle on my take home pay. My view- And use whatever dividends and potential gains for my brokerage account -spits out every year as an added bonus to boost up the fun meter.”

Al: That’s, that’s where the fun is. See the dividends of fun meter.

Joe: Wonder what her fun meter looks like.

Al: She hasn’t said.

Joe: “This includes traveling, staying active, outdoors, going, hanging out, drinking yummy local brews.” All right. Okay. “My plan was to retire at 60, but the new option on 57 is very exciting. I would like my retirement paycheck to be sufficient to maintain my current lifestyle or increase it so I can potentially boost the fun factor since I will have more fun time on my hands.”  Gosh, she just seems like a fun person.

Al: She does, right?

Joe: “I’ll probably travel a little bit more and have some spending creep with some time on my off my plate. But I’m sure I don’t see it being a huge increase. After using an algorithm of-“

Andi: amalgamation-

Joe: This print is very small.

Al: I like algorithm. That’s a good word.

Joe: An alation-

Al: -amalgamation-

Joe: “- of online retirement hardware.” Oh, I gotta get Hooked on Phonics, man.

Andi: You can get glasses, Joe.

Joe: I need those too. I did get my little eye exam.

Al: You did? Are you okay?

Joe: Oh, perfect.

Al: Perfect?

Joe: Yeah, perfect.

Andi: Perfect, really, so this is all you?

Joe: Yeah, just when you got like tiny baby print here. So “an algamoration of online retirement calculators while plugging in a conservative rate of return of 6%-8% range and a 3.5% inflation rate, they all say I should be okay. My current overall portfolio sits at approximately 70/30 stock/bond, low cost index funds. 401(k) is $600,000 401(k) Roth is $50,000. Self-directed Roth $100,000, Brokerage account, $250,000, total million bucks. Social Security per annual statement will be about $1800 a month, at 70 $3500 a month. My questions are, do you see a feasible option to call it quits at 57 versus 60? Given I’m single, have no debt and no heirs, would I fall into the rare group where it might make sense to best to collect Social Security at 62 vs 70? As an update, Jake from State Farm is ecstatic.

Andi: That’s Jake from State Farm.

Midwestfabs' dog Jake From State Farm, ready for winter

Joe: Oh, okay. Spring is around the corner. He does not have to wear his winter getup while prancing around the banks of the Mississippi. see the pic.” Ah, very cute.

Al: Does he have slippers on?

Andi: Yes. Ya gotta do that when it’s snowing.

Joe: “Currently working on emptying out the basement fridge from the plethora of variety leftover beers from March Madness, NBA playoffs and the Twinkies aka- I know what the Twinkies are.” A little home opener. Yeah, she’s got parties in the basement. Full of little brews and cocktails.

Al: Right, right. Like it.

Joe: “Million thanks for the bounty full of laughs and knowledge you spitball out every week. Keep rocking it, Boss lady.” Okay.

Al: Boss lady.

Joe: Okay, so 57-

Andi: That was a reference to me being the boss lady. This email was sent to me. Yeah.

Al: Oh, got it. Okay. Got it.

Joe: Okay. She’s got $1,000,000 bucks. She spends-

Al: Where’s – did she, what does she spend?

Joe: She spends, well, she makes $100,000. She saves $30,000.

Al: A lot. Yeah, saves $30,000.

Joe: She probably spend- then 10 in tax- 40- she spends $60,000.

Al: Yeah. Okay. Let’s go with that. That, that’s a good, that’d be a good number to know.

Joe: So if she spends $60,000 a year, she’s gonna get a pension. Right? At 57 she’s like $15,000. So she needs $45,000. She’s got $1,000,000. Right. And then she’s got Social Security coming at 62 or 70.

Al: Yeah. Right.

Joe: So she pulls 4.5% out of the portfolio at age 57. And then she pulls her Social Security at 62 or 70. That distribution rate’s gonna probably go to 3%.

Al: Yeah, it’ll go down. Yep, for sure.

Joe: And she’s single.

Al: Yep.

Joe: I say go for it, boss lady. Or go for it girlfriend or who? Who’s this?

Andi: This is Midwest Fabs.

Joe: Midwest Fabs.

Al: Midwest Fabs. Yeah, I don’t see a problem with that either. I say you’ve done a great job saving and if you wanna retire at 57, go for it. Looks like this works, right? Because you got the $15,000, you’re short about $45,000, you got $1,000,000. You’re right. That’s about a 4.5% distribution rate. That would be a little high if you didn’t have Social Security. But you do.

Joe: She’s got a minimum of $20,000 a year in Social Security. So let’s say you got $40,000 covered out of the $60,000. So you need $20,000 on the million.

Al: And so by the- at age 62, $1800 a month. Let’s call that $20,000. It’s a little over $20,000. We’ll call it $20,000, right? So you got $20,000 plus $15,000, $35,000. So you need $25,000. That’s a 2.5% distribution for life. That’s a great distribution, although you might even wanna push it out. Just run some math here. Because this works at 62, it might even work better at 64 or 67 or 70 in terms of when you take Social Security. But yeah, no, this works. I would encourage anyone that can retire that wants to retire. If it works financially, go for it.

Joe: Yeah. Okay. So I’m gonna retire it.

Al: It doesn’t work for you.

Joe: I got it. But, I believe that Midwest Fabs here is pretty active.

Al: Yeah, me too.

Joe: And so she’s gonna retire at 57 and she might get a little bit bored. So she could find something that, part-time, pick something up.

Al: Totally agree with that.

Joe: And, and maybe you make $20,000 a year. Now your distribution rate is almost nothing. And that money just continues to grow. So, Congrats on the life-changing event of your pension and the retirement buyout and retire at 57.  That’s a pretty good accomplishment.

Al: Yeah, and I would say you don’t even necessarily need to work part-time, you’re right, you may get bored and the, if you do make a little bit of money, it only makes this better.

Joe: Got it. Is that it? Or we got another segment.

Andi: That’s it.

Joe: All right. Awesome. Thank you all for your questions. Keep ’em coming in. Andi, great job again today.

Andi: Thank you so much.

Joe: Big Al, that was half-assed at most.

Al: Well, yeah, this was a, this was a D minus show, right?

Joe: It was dark. We’re talking death and like retirement facilities.

Al: But when, when you’re-

Joe: It’s like, you know, when you’re like, he’s 60, he’s just looking for the second phase of his life. But you’re like, oh, just wait to start shopping for these homes. They start out, you know, you can eat by yourself and then someone’s gonna feed you. Then someone’s gonna wipe you.

Al: That guy’s only 57. It’s a little early. Nevertheless, when you’re making these kinds of decisions, pay out or lump sum, you gotta think about it.

Joe: I can see what’s going on in your life right now.

Al: You’re not in your 60s, so you don’t know how this just works.

Joe: It’s reflecting. All right, thank you all. We’ll see you next week. The show’s called Your Money, Your Wealth®.

Andi: Check out the latest photo of midwestfabs’ cute dog Jake from State Farm dressed for the snow in the podcast show notes. Oh, and that spoonerism I mentioned at the top of the episode? It was Marley Balt instead of barley malt, right in the first segment. I didn’t even notice it until after we recorded! And in the Derails we’ve got listening to YMYW at the gym, using a fake name, and the story of 19 Crimes Hard Chard, so stick around.

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The Derails



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