Marc Levinson

Marc Levinson is an independent historian, economist, and journalist. He was formerly finance and economics editor of The Economist in London and spent a decade working with institutional investors as an economist for J.P. Morgan Chase in New York. His book The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger [...]


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 [...]

Published On
July 31, 2018
Why Do You Need to Understand Financial Markets?Why Do You Need to Understand Financial Markets?

Marc Levinson, author of The Economist Guide to Financial Markets: Why They Exist and How They Work explains how understanding financial markets can help you make fewer investing mistakes and improve everything from your home to your job to your portfolio. Plus, what does Tax Reform 2.0 have in store for us? What to do with a few extra bucks before they burn a hole in your bank account? Can you reduce taxes on an inheritance? Do SEP IRA’s have ERISA protection from creditors, “like the OJ stuff?”

Show Notes

  • (01:21) Marc Levinson: How Have Financial Markets Changed and Why Do They Matter?
  • (15:06) Tax Reform 2.0 Features
  • (23:42) What Should I Do With Extra Money?
  • (26:51) Can I Avoid Taxes on an Inherited Annuity?
  • (32:05) Does a SEP-IRA Have ERISA Protection Against “OJ Stuff”?
  • (36:55) Where Can I Find a 2018 Online Tax Calculator?


“The stock market is now dominated by computers trading massive volumes of securities based on some equation, basically – an algorithm. So it has nothing to do, necessarily, with this morning’s news in the paper. And so you need to think about the investment decisions you’re making in the context of markets that are now extremely large, very much computer driven, and very volatile. There may be risks there that were not there a few years ago because of the way the market is structured.” Marc Levinson, economist

It’s not our parents’ stock market any longer. That’s economist Marc Levinson, author of The Economist Guide to Financial Markets. Today on Your Money, Your Wealth, Marc explains how understanding all the financial markets and how they’ve changed over the years can help us make fewer investing mistakes and can improve everything from our homes to our jobs to our portfolios. Plus, what does Tax Reform 2.0 have in store for us? What should you do with a few extra bucks, before they burn a hole in your bank account? How can you reduce taxes owed on an inheritance, and how do you protect your retirement savings from creditors, “like the OJ stuff?” Here with the answers are Joe Anderson, CFP and Big Al Clopine, CPA.

01:21 – Marc Levinson: How Have Financial Markets Changed and Why Do They Matter?

JA: It’s that time of the show, where we get someone that is extremely more educated than I could ever dream of. Marc Levinson’s on the line here. He’s an independent historian, economist, and journalist. He was formerly finance and economics editor for The Economist in London and spent a decade working with institutional investors as an economist for J.P. Morgan Chase in New York. His latest book is The Economist’s Guide to Financial Markets, which has been issued in its seventh edition this week. It has become a basic resource for individual investors around the world. His website is MarcLevinson.net.  Marc welcome to the show, thank you so much for joining us.

ML: Thanks for having me, Joe.

JA: Talk to me about your recent book. It’s the seventh edition. It’s all about markets. The first edition was done in 1999. So let’s talk – I’ve got a twofold question. First, what made you write the book, and then second of all, let’s talk about the changes that have happened since 1999 to 2018.

ML: Sure, when I left The Economist, I was asked if I would want to write this book for The Economist Books. They publish a series of books that are meant to be of use to people in business, so it’s sort of a reference books/introduction for people who are interested in investing but frankly may just not feel comfortable with what goes on in the financial markets. There’s a lot they don’t understand. And so the idea here is to make this simple and sensible to people in an interesting way. That’s what I’ve been trying to do. And the book gets revised every couple of years because frankly, there are a lot of things that change in the financial markets. So in the seventh edition, there is a lot that’s changed from a sixth edition. And if you go back to 1999 it’s almost unrecognizable.

JA: Wow. When people hear the word “market” they might have a certain vision in their head. And I think you explain that there are several different markets, and what market are you referring to if you hear that word?

ML: That’s right. Although, even in what you’re describing, there’s actually been a significant change since the first edition. When I first wrote this book, there was a chapter on stocks, and a chapter on bonds, a chapter on futures, and a chapter on options. One reason for that sort of structure is that stocks were traded on entirely different exchanges from bonds, or from options, or from futures. And that’s no longer the case anymore. Financial markets in the form of exchanges, the places where a lot of the trading goes on, actually now trade all of these sorts of different instruments. And so these markets have begun to merge, in certain ways. A lot of things that used to be traded on an exchange are now traded off exchanges and trading directly among banks or among banks and their customers. So there have been a lot of changes in the structure of markets over the years. Before I worked at The Economist, I worked at Newsweek magazine for a while. Of course, Newsweek had great pictures. And when we ran a story about stocks, we usually ran a photograph of somebody on the floor of the New York Stock Exchange – this is what a trader is. Well, today, you won’t find too many people on the floor of the New York Stock Exchange – that’s not what traders do.

JA: Right. When I think of a trader, or even the stock exchange or commodities exchange, or any market, I think of the movie Trading Places. When they’re in the pit and everyone’s throwing paper and yelling and screaming and it’s just chaos. Well today, it’s nothing like that.

ML: Well that’s right. There are few places where there are still live, face-to-face financial markets, but that’s not where the real business is done. Most of the markets today operate by computer. Some of them have telephones involved, but places where traders are actually standing face-to-face and one says, “I’ll give you ten and the other one says I want ten and a half,” those days are done. We’re not there anymore.

JA: Let’s take it a little bit of a step back, and get maybe a little bit more elementary in starting out with how you organize the book. You started out of why markets matter. What is a market? Let’s start there. Just kind of explain, big picture, of why it’s so important for people to actually understand this.

ML: Sure. Obviously, a lot of people invest in their own right. And so they need to know how to manage their 401(k)s, or whatever it is. But beyond that, markets affect a lot of the things we do in our day to day lives. Do you want to buy a house? Will you need to make a decision about whether you want to take out a mortgage, and if so, what kind? Do you think interest rates are going to go up over the next couple of years? Do you think they’re going to be flat? Do you think they’re going to go down? And if you’re not willing to talk about the financial markets, where those interest rates are determined, then you can’t sensibly make a decision about whether you want a fixed rate mortgage or a floating rate mortgage. How do you feel about your job security? You think things are pretty good, or do you think you’re going to be in danger of losing your job? Well, in part, that depends on the condition of the economy. If you think interest rates are likely to go up a lot, well, the economy is probably going to slow down we’re probably going to have more unemployment. And so you need to think pretty explicitly about that before you make a decision about quitting your job or changing your job. So in many decisions in our day to day lives, the financial markets are important. Even if we don’t think of the term “financial markets,” they play a role.

JA: You know, I think most investors understand what a bond is, and of course, hopefully, they understand what a stock is. But where do you think some shortcomings are in an individual investor without understanding, maybe, the entire markets?

ML: Well, I think there is a great deal of evidence that most individual investors misunderstand risk. And you see this because the very large number of people who take the money in their IRAs or their 401(k) and say, “I want to put this into Treasury bill because I want it to be absolutely safe.” People don’t understand that every investment of any sort involves risk. It’s a question of which risk you want to take. For example, if you’re buying Treasury bills and suddenly inflation goes up, your Treasury bills are going to earn you less than the rate of inflation. So they’re going to lose value in real terms. That’s a risk. And I think one of the reasons it’s important to understand some of these different instruments so you can understand that each one is associated with some different combination of risks. I’ve just heard from too many people they are risk-averse. And the data support that. We’ve actually changed regulations in the United States so that employers don’t automatically put workers, by default, into the no-risk option in their 401(k)s, because too many people were just saying “put me in this no-risk option” and of course this no-risk option is paying 1% interest, and the people are choosing that option are not going to have enough money to retire on. So we’ve actually had to tell people, effectively, you need to be able to take risk and you need to think about which risks you’re prepared to handle because there is no risk-free answer.

JA: We’re talking to Marc Levinson here, he wrote The Economist Guide to Financial Markets, it’s the seventh edition. I would imagine someone will read this and they will have a very good understanding of how all markets work, but the tendency is for them to still lose money. And I think probably in the eighth edition, you might have to add some behavioral finance to this, just because we could be the smartest people in the room, but we still make some mistakes, just because we’re human.

ML: Well I think that that’s true. There is a lot of evidence that a lot of investors make mistakes. We buy at the wrong time, we sell at the wrong time. We own too much stock in our employers. We own too many Treasury bills and CDs and other things that we think are low-risk. So there are a lot of behavioral mistakes that we make. One of the big mistakes that people do make when they’re investing on their own is that they’re afraid of saying, “I don’t understand.” And so they buy stuff that somebody tells them about but they don’t really understand what they’re buying. They don’t understand what risks they’re taking on. And again, the fact they’re taking on risks isn’t necessarily a bad thing – as an investor you need to be able to take out some risk, but you need to understand exactly what risks you’re getting involved with. And so part of the purpose of a book like this is just to help people understand what the trade-offs are as they contemplate one type of investment or another. I think that a lot of the old investing rules are pretty good, you know? If it sounds too good to be true, it probably is. And you don’t really need an investment guide to tell you that. But these markets function in a very different way from the way they used to. And it’s important for you, as an investor, to understand that because that has implications for what you do. In the stock market for example, on the one hand as an investor, you probably need to be in the stock market. On the other hand, the stock market is now dominated by computers trading massive volumes of securities based on some equation, basically – an algorithm. So it has nothing to do necessarily with this morning’s news in the paper. It may be just because something in this algorithm was triggered to trade today. And so you need to think about the investment decisions you’re making in the context of markets that are now extremely large, very much computer driven, and very volatile. For a lot of investors that means that, while there’s a place for investing in individual stocks and bonds and even options, if you want to play in that market, there may be risks there that were not there a few years ago because of the way the market is structured, and you should think about that in putting your portfolio together, and how deeply you want to get into these markets. I think that financial markets are essential and people need to participate in them, but they need to think about what they’re doing and understand what choices they’re making.

JA: I read somewhere, I think this is prior to World War One, that most equity investors or individual stock investors were individuals, that they held the certificates in the institutions were a small percentage. And of course today that’s flip-flopped – about 90% of direct stock ownership are owned by institutions, or maybe it’s 80%, and 10 or 20% are owned by individuals. And within that, the markets are completely different, in a sense of that there are so many billions of dollars that trade hands on a day by day basis, is that it’s pretty hard to find the inefficiencies within the market, or mispricings within the market – not saying that there are not mispricings, but to capitalize on those mispricing today, I think, is probably a little bit more challenging there maybe when you wrote the first edition.

ML: Oh absolutely. Absolutely. You’ve got, now, thousands of computers out there that are running equations all the time trying to identify mispricings. And if there is one, it’s only going to last a second or two and somebody will discover it and they’ll buy or sell based on some algorithm. And as an individual, you can’t hope to compete in that market. Yeah, I know there are a few folks who do day trading, and it’s fun if you enjoy that kind of stuff. But that’s not really a strategy if you’re somebody who’s concerned about accumulating some wealth and improving your living standard and having a sensible investment portfolio. So you do need to understand how this works. Even though there was all of this change, a lot of the old rules still apply. You’re probably familiar with this famous story that James Tobin, back when he received the Nobel Prize in economics, he was asked, “So, what was all your economic work about that got you this prize? What have you done in economics? And he says, “Well, my work tells you, ‘don’t put all your eggs in one basket.'” That’s still great advice, and you don’t need to be a Nobel Prize-winning economist to understand that advice – it still applies just as much today as it did 20 years ago or 50 years ago.

JA: (laughs) Absolutely. Marc, where can people find more about you more about your work?

ML: They can find out about me and my website, MarcLevinson.net and my books are available at your friendly local bookstore.

JA: Marc, it was such a pleasure to talk to you. I really appreciate you taking some time.

ML: I enjoyed talking to you, Joe.

For a transcript of this interview, check out the show notes for this episode at YourMoneyYourWealth.com – and subscribe to the podcast so you don’t miss our upcoming interviews with author and podcast host Meb Faber, and former Motley Fool and Wall Street Journal columnist Morgan Housel. For some ideas on investing given these evolving, volatile markets, visit the White Papers section of the Learning Center at YourMoneyYourWealth.com and download the free white paper, Pursuing a Better Investment Experience. Learn 10 key decisions that’ll help you effectively target long-term wealth in capital markets. Find out how to let markets work for you, why chasing past performance is a mistake, what drives expected returns, and how to improve your odds for long-term success. Download the white paper, Pursuing a Better Investment Experience for free from the white papers section of the Learning Center at YourMoneyYourWealth.com

15:06 – Tax Reform 2.0 Features

JA: That article I just gave you. They’re trying to make some changes on Capitol Hill?

AC: Yes, so this is the House Ways and Means Committee Chairman Kevin Brady. So he released on Tuesday some more kind of pro-growth savings measures because what they’re trying to do, they’re trying to make sure that we’re saving enough for retirement. So they’re trying to add a few things, like for example, in this tax reform package, there’s a new family-friendly retirement savings vehicles called USA accounts. So we’ll see if that actually passes or not, but that’s what’s being talked about.

JA: What’s a USA account?

AC: So it’ll provide tax incentives for households to save while allowing withdrawals for critical life events. So in other words, instead of putting money into a retirement account then you can’t touch it till 59 and a half when you have an emergency, you might be able to get at it if there’s a critical life event.

JA: We already have that. It’s a hardship. (laughs)

AC: Yeah. We do have that. (Laughs) But that’s what they’ve told us is what they would like to do. And the idea is to get families to save earlier because if they know that they can use this, I guess for an emergency fund, maybe they’d be more likely to save into the retirement account. So that’s the idea. You and I know the problem with that, right? The problem with that is everything’s an emergency. Money is withdrawn. You get to retirement, there’s nothing left. So we’ll see about that. Another one, Joe, is an expanded 529 educational account that would build upon improvements to the Tax Cuts and Jobs Act so that families can use their education savings to pay for an expanded menu of educational expenses, including the cost of homeschooling. So that would be new.

JA: They already expanded the law in the Jobs Act.

AC: They did. And it used to be for college only, now it’s for private school all the way through, K through 12. Also, apprentice fees to learn a trade, and also repayment of student debt. So that’s something that you can do right now. So then there’s a new baby savings plan. So this is designed to allow families to access their retirement accounts penalty-free for expenses on welcoming a new child to the family. So that sounds like a critical life event. So those are kind of the highlights there, and so we’ll see what happens.

JA: So let’s say that you are on Capitol Hill, Al. What changes would you make to our retirement system?

AC: Great question. I think the first thing that I would try to do is create much more parity, and what I mean by that…

JA: Yeah please I don’t know what parity means. (laughs)

AC: Yeah I know you don’t. (laughs) So what I mean by that is, some people have employers that have 401(k) plans or 403(b) plans, they can put $18,500 into that. Then they can also put money into an IRA or a Roth IRA, $5,500 total per year. Some people do not have 401(k) plans or 403(b) plans, and they’re limited to just the IRA Roth at $5,500 – so you might be living next to your neighbor and your neighbor put in three or four times as much as you did. And how is that fair?

JA: Yeah, and here’s the problem, I think, with just human nature is it’s really difficult to pay yourself first. We pay ourselves last. In a sense of savings is what I mean. We spend our money on everything else. But then the last thing, “oh I got a couple of bucks left over? Oh, maybe I just fund this IRA.”

AC: And of course there are exceptions, but most of us, that’s what we do. I’d say 90-95% of us, we say that we’re going to save every month, but life happens and nothing’s were left over.

JA: Right. So the studies show that people with a 401(k) plan… we’ll look at cases and then I’ll ask our advisors and I’ll say, “do you think this person is a good saver?” And they’ll have a 401(k) plan of let’s say a million dollars.

AC: Yeah. Which sounds great.

JA: Right. “Oh, that person is a phenomenal saver!” And then I’ll be like, “well this person had a 401(k) plan with the match for 40 years. So they only probably needed to put in a few thousand dollars, then you get the match of a couple of thousand bucks. It’s not that big of a deal. If I had an IRA. Now I have to go to Vanguard, or T. Rowe Price or something like that to set that up. It’s not out of sight, out of mind. I have to cut a check. So someone that has a 401(k) plan that can check a box that money goes automatically into the account versus someone else that has to physically cut a check? Of course, the person with the 401(k) is going to have more money.

AC: There’s no question. The same thing happens with tax withholding, and the IRS knows this.

JA: That’s why they collect their taxes! (laughs)

AC: That’s right. That’s why they don’t wait till year end and, “oh, you owe $25,000.” “What? I don’t have that! Where do I get that?!”

JA: “That’s why I take it out of your check every week.”

AC: “We take a thousand bucks out of your check every week or every other week, whatever it may be, so that by the time you gets to year-end, now maybe a couple of hundred dollars or maybe we owe you a couple of hundred dollars. But we’re pretty close.”

JA: No, I agree. That’s the one thing that that needs to change is that there’s got to be parity. I like it. (laughs) But the problem too is…

AC: I’m going interrupt you because we’re still on this topic. The problem is just what you said, is not only is there not parity in terms of saving but if you have a kind of an overall thing that everybody can do, then they’re on the honor system to make sure they save and you have to coordinate it with the employer.

JA: I was just going to say that, bright minds think alike. Because if we had that parity and say, “OK now you have a 401(k) plan that’s an IRA. So it’s not by the employer, you can set it up on your own, and you can put in $18,500, how well do you think that’s going to go over? Yeah. It’s not. Same problem.

AC: Yeah. It’s got to be tied in with your salary, it’s got to be out of sight, out of mind. And what’s really working the best right now, in terms of 401(k)s, is the auto-enrollment. So you don’t even sign up, it just happens. So if you don’t want it, you have to elect out, but no one understands any of this, so it’s just, “oh I guess…”

JA: “Oh I thought it was just taxes.” And then all of a sudden they’ve got a 401(k) with $50,000. “Hey, that’s pretty good! That’s a nice little gift! I Wonder how that happened?” We’re not trying to make fun of people, are we? The system is flawed.

AC: Yeah, the system is flawed because it’s not equal.

JA: You’ve got a 401(k), 403(b), 457, 401(a). You got a SEP, a SIMPLE, a Keogh. Defined benefit plan. Profit sharing. Money purchase plan. What the hell? I mean the list goes on and on and on. Now let’s get a MYRA. (laughs)

AC: I was just gonna say, we add the MYRA to make this way simpler.

JA: Right. So the government spent, I don’t know, several hundred million dollars – they spent more money than actually went into the program.

AC: I was going to say that – it was a complete bust. The idea was OK, which was to take what would otherwise be like a Roth IRA and have it coordinated with your salary. But it didn’t catch on because of some of the other flaws with it.

JA: (laughs) Other flaws? The whole thing was a flaw. They should’ve called it the FLAWRA. (laughs) That’s wit at its best.

AC: That is, right? That’s why people listen to our show because it gets no worse than this. I think people listen and go, “I love how bad these guys are.”

JA: It’s a train wreck. A train wreck!

AC: “Here, listen to this show, it’s the worst show I’ve ever heard! I’m embarrassed for these guys!” (laughs)

JA: “I can’t stop listening though!” It’s like watching a car accident.

AC: In slow motion.

JA: You just can’t keep your eyes off it.

AC: For hour after hour.

Hey, the hours and hours of this train wreck car accident in slow motion somehow manages to eventually get around to helping people create a better retirement! You may have noticed, one of the things Joe and Big Al are pretty decent at is answering listener questions, though they have been caught talking in circles there, too. Take your chances at getting some gems from worst show you’ve ever heard: send your money questions to info@purefinancial.com or call (888) 994-6257. That’s (888) 994-6257 or email info@purefinancial.com – here are some emails now.

23:42 – What Should I Do With Extra Money?

JA: We’ve got Josie from Pasadena, California, so just a little north of us. So she writes, “I’ve learned a ton from your podcast, so thank you.” Well, thank you, Josie.

AC: That’s why we’re doing yours first. (laughs) We like the compliment.

JA: ‘I started a new job recently and now have an extra $10,000 burning a hole in my checking account. I don’t want to waste it. My husband and I have already maxed our Roths for 2018 and we’re contributing to our 401(k)s up to the matches.” Well, congratulations. We just talked about that in the last segment. “I increased mine by 1% after hearing it on YMYW.” Listen to that. I love it when they say YMYW.

AC: (laughs) Like we’re important? We get letters?

JA: Yeah. “I guess this $10,000 is now our emergency fund since we didn’t have one before. Where should this asset be located? I heard that on YMYW too.” Asset location. Very good Josie. “Our expenses are low, but it’s likely we’ll need to move within the next 6 months and rent will probably be significantly higher. Is there something productive we could be doing with this money in the meantime? Thanks again for everything.”

AC:  So that’s a great question, Josie, and I’m going to tell you that you need to build up your emergency fund. The fact that you got $10,000 you didn’t have before, and you’re going to be having higher rent. You actually don’t want to do anything with any risk at all. You could leave it in your checking account, but I would actually probably open up a little savings account or money market account, so it’s separate money, so you’re not tempted to spend it. That’s your emergency fund, and eventually, you’d like to build that up to maybe 3 months, or maybe even 6 months of your expenses. That’s what I would work on before you think about any more investing, and then once you’ve done that, I’d probably go back to the 401(k) and start saving more into that. That’s what I would do.

JA: I would take the $10,000 short Facebook.

AC: (laughs) I know you would because you’re a gambler.

JA: Then just cross your fingers! Then in a couple of months, boom, that $10,000 is now $100,000 – or it’s zero.

AC: Or if your cousin comes to you with an investment opportunity, why wouldn’t you do that?

JA: Of course. Or your Uber driver. (laughs)

AC: Stock tips from Uber drivers? Best ever?

JA: So no, I agree with Al. So just keep the money cash, or I like the money market account – go to like Vanguard too – a mutual fund company. Check out their maybe short, very short-term bond fund. You might get a point and a half.

AC: I’ll tell you what I’ve done and I think this works pretty well is, my emergency fund, I actually went to a different bank – actually went to a credit union, and put it in that, so it’s not very easy to get at. Because if it’s at the same bank, I can do an inter-account transfer, I can easily spend it. So that’s what I’ve done.

JA: It’s kind of like the envelope method?

AC: I guess, yeah. Different banks for different purposes.

JA: Then you just hide the envelopes (laughs).

AC: Yeah. I don’t know which bank it’s at. Anne knows that. (laughs)

26:51 – Can I Avoid Taxes on an Inherited Annuity?

JA: All right, next one, we got John from San Diego. John writes, “I just inherited a MetLife annuity from my sister.” Sorry to hear about that John, that your sister passed. “The agent said I must take the lump sum. He suggested rolling over into a stretch IRA annuity. The agent also mentioned I would pay tax if I took the lump sum. Are there other options to avoid tax?” Alan?

AC: Well, so do we make the assumption that this annuity was inside of an IRA in the first place?

JA: I would say yes, or a 403(b) or some sort of retirement account.

AC: Right. So when you inherit, let’s say it’s an IRA. When you inherit the IRA, just by making sure you have the right titling, you don’t have to set up a new account, it can become a stretch IRA. You can talk about the titling, you like to talk about that.

JA: I do, I love it. (laughs) I go on dates and I talk about stretch IRA titling.

AL: Now we know what the problem is. (laughs)

AC: That is the problem. (laughs) But yeah. So you get it titled properly… (Joe interrupts) Hold on one second. I know you want to interrupt me.

JA: I’m sorry. No, I don’t.

AC: (laughs) I’m assuming it’s the annuity inside an IRA, you can take the lump sum inside the IRA. There are no taxes there because it’s still in the IRA.

JA: Couple of things. So if you want to blow out of the retirement account. So here’s the problem where people get a little bit confused. There are two separate things here. There is a shell of a retirement account, and then there’s also an investment. So Al and I get the question often is, “hey, I have a Roth IRA, or I want to start a Roth IRA, what does it pay? What type of rate of return does a Roth IRA get?”

AC: “I’ve heard IRAs are better than Roth IRAs”

JA: Yeah, or “I had a Roth. It’s awful because it didn’t make any money.”

AC: Yeah, made like $100 over five years.

JA: That is the investment inside the shell of the account. And so John, you inherited a MetLife annuity. But if the agent is telling you to put it into a stretch IRA, those are two different things. The annuity from MetLife is the product – that is the investment that you’re in. It’s probably in a shell of a retirement account.

AC: That’s what it sounds like.

JA: So if you blow out of the retirement account and the annuity all at once and say, “I don’t like the annuity, just send me a check.” He’s absolutely right. You take it as a lump sum, it’s going to be 100% taxable that year. However, you can do this: you could set up a separate inherited IRA account, let’s say at Charles Schwab, T.D. Ameritrade, Fidelity, Vanguard, T. Rowe Price, I don’t care. If you don’t like the annuity, if you don’t like MetLife, you don’t like this guy, you could say, “hey, I’m going to set up a stretch IRA.” This is what I would recommend to you. The tiling has to be in the sister’s name, however, so it’s whatever your sister’s name is for the benefit of you, John. And then whenever she passed. So you get the titling correct when you open up that account. Then you just do a direct custodial transfer from MetLife into the IRA let’s say at Charles Schwab. I have no affiliation with Charles Schwab, it’s just easy to remember. So now, the money will come in cash. But you will not pay tax on that money. Now, you have an inherited IRA sitting at Charles Schwab. Then, you want to buy a mutual fund. You want to buy a stock. You want to buy a bond. You want to buy CDs, or you want to purchase another annuity, I don’t care, whatever you want to do. Now, it’s sitting at Charles Schwab in an inherited IRA. What you need to do then, is take out a required minimum distribution, based on your life expectancy. So I’m not sure how old you are, John, but you have to take a look at publication 590 in the IRS code to look at your age, and then it will give you a factor. And it’ll say, OK, you need to take, say, 1% out of this account, and then each year you’re going to have to take out a little bit more. So it’s based on your life expectancy. They want that account to get drained out. That will save you a ton of money in taxes. If you need the money, however, just cash the thing out, pay the tax and move on. So it really depends on how much money is in the account. If it’s like 10 grand, I don’t know, maybe you just blow the thing out, pay the tax, and move on with your life. If it’s a couple hundred grand? That’s a pretty big tax bill. So you want to be a little bit more creative in what you’re doing there to make sure that it’s really the right thing for your overall financial goals.

They don’t talk about it on the show much, but Joe and Big Al aren’t big fans of annuities. That said, we do have some resources available if you’d like more information about them – just visit YourMoneyYourWealth.com and type “annuity” into the search box right at the top of the page. You’ll find our blog post on annuity pros and cons, as well as a recent episode of the podcast on life insurance, long-term care, and annuities. The website is actually a huge resource full of articles, blog posts, white papers, and over 500 educational video clips on pretty much every personal finance topic you can imagine. And if you don’t find what you need on the website, email info@purefinancial.com and Joe and Al can fight over who answers your question:

32:05 – Does a SEP-IRA Have ERISA Protection Against “OJ Stuff”?

JA: We have some e-mails that were answering this afternoon, and here’s another one. I don’t like that you have these, Alan (laughs, grabs for Al’s papers) because it’s better when I could just surprise him.

AL: Oh my gosh, watching you two fight over papers is adorable!

AC: With the last several years I’ve had to just write all these things down, you give me about a hundred numbers. Now Andi is being nice enough to actually print them out for me, so I can read along with you. But full disclosure, I haven’t really read these beforehand – so I think that’s what you want is kind of a surprise.

JA: Yes, I don’t want you to be studying this stuff before or whatever.

AC: I haven’t. (laughs)

JA: Ok yeah, I can tell after that last answer. (laughs)

AC: Well you should’ve known! I did tell you the break your answer was better than mine. So John, listen to Joe on that one.

JA: Now we’re going to Ross. “I still enjoy watching new characters on YouTube.” Well, still? Thank you. What does that mean? “I still enjoy? Like you stopped?

AC: He watched just like two shows and goes, “oh, there’s no way I can watch these for very long,” but he still enjoys it as it turns out.

JA: “Would like to know a way to follow you currently.”

AL: I think the problem is that he’s watching the TV show on YouTube. So he’ll be able to do that again very soon.

AC: Yeah, we got season 5 starting up here pretty soon on TV,  which will also be on YouTube.

JA:  OK. Enough with the plugs, jeez! (laughs)

AC: Here let me read this CTA! “If you’d like to go to our…” (laughs)

JA: “One question. You had mentioned that ERISA protected the retirement funds of a retirement plan from civil exposure. I have a SEP IRA plan. Do I have the same protection as ERISA in that plan is also protected from creditors, like the OJ stuff?” (laughs) OJ stuff, what happened with OJ? He’s innocent! Come on Ross!

AC: Yeah but he did all kinds of crazy stuff to save his assets.

JA: I haven’t talked about OJ in…

AC: So I wonder if Ross says some OJ stuff he wants to protect.

JA: I don’t know. Ross, what are you doing? You got some gloves somewhere? That don’t fit? (laughs)

AC: Well, I guess the main comment here is with an ERISA plan. A SEP IRA is not an ERISA plan, so you do not have the same protection. However, Joe, I think this was, maybe within the last five years or so, there is now protection on IRAs – any type of IRAs. The protection is a little over a million dollars. I don’t know the exact amount, so it does have similar protection, to a certain level.

JA: It’s only bankruptcy. Right? So if you get sued, you get a car accident or you do some OJ stuff, (laughs) that SEP IRA is not going to be protected. There’s federal law and there’s state law. Where’s Ross from? I don’t know, he’s watching us on YouTube so I don’t know. So you have to look at the state law, because that’s where it gets in the weeds a little bit, depending on what you’re looking at. So if I just file bankruptcy, yes, my retirement accounts are protected. But civil lawsuits, then they are not as protected as they would be in a 401(k). So OJ had, what, the NFL plan, so all of that is protected under ERISA. Do you know what ERISA stands for?

AC: I forget. It’s retirement something something something. (laughs) What does it stand for?

JA: I have no idea.

AL: Employee Retirement Income Security Act of 1974.

AC: I got the first three right.

JA: So no, if you got some OJ stuff going on, you need to talk to an attorney. I think Johnnie Cochran died.

AC: Yeah, but he’s probably had a nephew or something. (laughs)

JA: So, sorry Ross, but yes, if it’s bankruptcy, you’re good. Civil, you want to look at your state.

AC: Now I don’t know if you’re still working or not, but if you have an employer that has an ERISA plan, they might be able to roll your SEP into that plan and have similar protection.

JA: Yeah, but if you all of a sudden have a lawsuit on your hands, and you do it after the fact, I don’t think that’s going to fly.

AC: I agree with that. Yeah, you’d want to do it before, I think.

JA: So if you’re plotting something, Ross… (laughs)

AC: (laughs) Let’s see in a year or two!

36:55 – Where Can I Find a 2018 Online Tax Calculator?

JA: All right, Clint. “Greetings Joe and Big Al. Where can I find a simple 2018 versus 2017 tax calculator? I had a shortfall of $4,200 last year on my federal taxes. When I heard the bad news from my CPA, I immediately elected to withhold an extra $200 per paycheck. I get paid biweekly, live in Florida, and have already paid $4,200 more federal income tax than last year at this time. I earn approximately $95,000 per year and would like to know if any surprises are heading my way next spring. Even with the 2018 standard deductions considerably higher than 2017, I cannot seem to find a simple online tax calculator. Should I continue to like extra federal tax withheld or am I good to go? Go Gators.” Boom, Clint! That’s right! Go Gators, brother!

AC: All right, this sounds like a question for me. The reason, Clint, you cannot find a simple online tax calculator is, there is no such thing as a simple online tax calculator. The reason for that is, tax law is very complicated. So it’s not like plugging in, you save X number of dollars per month, the rate of return, you work X number of years, here is your retirement balance. No, it’s not simple at all, because there’s a lot of factors when it comes to taxes. So if you really want to fine-tune this further, what you do is, you go buy yourself a copy of Turbo Tax would probably be the most common. There are other ones too, but you get Turbo Tax, you put your numbers in it.


AC: Yeah that’s another one.

JA: Is that free?

AC: I don’t know.

JA: Maybe $100.

AC: Less. Probably $50, I bet. So you go ahead and get some tax software, 2018 is not out yet, so that’s the tricky part there, 2017 would be out. So you could put your numbers in 2017, but still, it’s not going to quite answer your question. Now if you really want to do this correct, then you’d go to a CPA that has tax projection software. You could buy that too. It’s expensive and you would really have to know what you’re doing to be able to do that.

JA: Or you can hire Big Al for $4,200. (laughs)

AC: (laughs) In the meantime, yes. I like the idea of having extra withheld, and whatever your shortfall last year, $4,200 last year, figure out X number of paychecks, and just have that withheld between now and year-end, So you’re doing the right thing, but if you want to know with more certainty, you’re probably going to need some professional help on that because Turbo Tax is only for 2017, not 2018.

JA: No, that’ not going to help him. Because if let’s say, I don’t know if Clint is single or married. You make $95,000. You look at the standard deduction $12,000 or $24,000. So you have to look last year, did you take the standard deduction, did you itemize? What were your itemized deductions? Andi, look something up for me: smartasset.com I know there’s a tax calculator there that I’ve used in the past. It’s like Al said, you probably want to do something else, but I think you might be good to go, to be honest with you. Are there calculators in there? You can just hit taxes, look at that. You go to taxes, and then you go income tax calculator – so go smartasset.com, Clint. You can kind of play with that.

AC: Now, if you have anything over it above the ordinary, other than salary, that’s probably not going to do it.

JA: if you have rental income and things like that, you could kind of guesstimate. But I think if you’re already $4,200 more and you have the same amount of income and everything else is same-same, I would say you are good to go.

AC: I will say one other comment, and that is the withholdings were changed in 2018 so that we would get more withholding back, and there was some concern by the CPA community that people were not going to have enough withheld, and we won’t really know until April 15th of next year – so the fact that you’re putting a little bit more in is probably a good idea.

JA: Thanks a lot for listening, Clint Go Gators. Should be an interesting football season this year.

AC: How are you looking this year?

JA: Phenomenal. Gonna be awesome. New coach.

AC: My Colorado Buffs are not looking great.

JA: I don’t think they’ve ever looked great. Yeah, they did. Two years ago. They were ranked #8 in the country. You forgot that. Just because all you pay attention to is your Gators.

JA: That’s right. We got what, Mark Faber comin’ on next week?

AL: MEB Faber.

JA: Meb Faber, we had Marc Levinson on this week, I was reading that wrong, sorry. Meb Faber. Sounds great. We’ll see you next week, the show is called Your Money, Your Wealth®.


Yes, special thanks to today’s guest, economist Marc Levinson. Find out more about The Economist Guide to Financial Markets and all of Marc’s other books and articles at MarcLevinson.net.

Clint, and everyone else, for links to the online 2018 tax calculator Joe just mentioned or any of the other resources the fellas talked about, check out the show notes for this episode at YourMoneyYourWealth.com, and if you haven’t already, subscribe to the podcast there too, so you can catch Meb Faber and Morgan Housel on the show in the coming weeks. We’re on Google Podcasts,  Apple Podcasts, Spotify, Stitcher, Overcast, Player.FM, iHeartRadio, TuneIn, and a bunch of others, but if we’re not on your favorite podcast app, drop me an email at info@purefinancial.com and let me know. Same goes if you have a money question for Joe and Big Al – email info@purefinancial.com, or call (888) 994-6257! Listen next time for more Your Money, Your Wealth, presented by Pure Financial Advisors. For your free financial assessment, visit PureFinancial.com

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