Show Notes

• 00:00 – Intro: This Week on the YMYW Podcast
• 00:55 – Roth at 75: Does the Math Actually Work? (John, OK)
• 10:03 – 12M and Still Worried About Taxes: Roth Conversion Spitball (Jonathan & Jennifer, Phoenix AZ)
• 16:47 – Retiring at 55 in Hawaii: When Do We Start the Taxable Account? (J & C, Hawaii)
• 27:26 – Am I Just Working to Create a Bigger Tax Problem? (Bonnie & Clyde)
• 34:20 – Outro: Next Week on the YMYW Podcast
• 36:53 – The Derails: Hart to Hart, Minutiae, and Levels of Fame

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Transcription

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

Intro: This Week on the YMYW Podcast

Andi: Joe and Big Al are spitballing Roth conversions from every angle today on Your Money, Your Wealth® podcast number 597. John in Oklahoma is 75, sitting on a million dollars in traditional IRAs, and he’s got a whole list of reasons NOT to convert to Roth. Is he right? Jonathan and Jennifer in Phoenix have over six million dollars in tax-deferred accounts. How much should they convert, and where should they stop? J and C in Hawaii are both 38 and want to walk away from work at 55. How do they bridge the gap? And finally, are Bonnie and Clyde working for nothing if it all just turns into a giant tax bill? Do your fellow podcast listeners a favor and leave your honest review for YMYW in Apple Podcasts to help them find us over here making fun of finance. I’m Executive Producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

Roth at 75: Does the Math Actually Work? (John, OK)

Joe: We got John from Oklahoma. “Hey, I’ve been listening to your podcast for several months. Early morning and you have yet to lull me back to sleep, as some do.”

Al: Yeah.

Joe: All right.

Al: Not ours, apparently.

Joe: He’s not falling asleep yet. Kind of my plan, really.

Al: He wants to fall asleep.

Joe: “But here’s my situation- “… here’s my questions.”

he’s looking at some Roth conversions at 75 plus, considering many factors. All right.

Al: Okay.

Joe: factor number one, OBBB. That’s the old big ass badass bill.

Andi: One big beautiful bill.

Al: What… Yeah, you’re right.

Beautiful bill. What?

Joe: Yeah, so it adds $6,000, in a senior deduction. Converting can cause a reduction or possibly a total loss of the benefits of such deduction.

To my point, with RMDs and other income, we approach $160,000 per year. The deduction is reduced beyond that $150,000 mark and is phased out entirely at 250. Converting $40,000 per year would cost half that deduction of 1320 at the 22% tax bracket. Not sure how this affects state income at 4.5%. Yeah, if your RMD is $40,000 and it’s getting them at $160,000 of total income-

Al: Yep

Joe: I don’t think, the RMD’s not gonna kill him, so you don’t convert.

Al: agreed, and he’s got five other reasons why not to convert.

Joe: Oh, okay.

Al: But, so far so good. I agree with you.

Joe: let’s look at factor number two. Life expectancy even at 20 years is a gamble What’s your life expectancy, Al?

Al: hopefully at least 90.

Joe: Okay.

Al: Yeah.

Joe: So what’s that? Another 30 years?

Al: give or take.

Joe: Or 20 years. “Life expectancy 20 years is a gamble, and may not justify the cost of conversion even if we limit conversions to the current tax bracket or to the IRMAA limit, which is a lesser figure than the tax bracket, recognizing that it is a gamble either way.

What next?” Okay, I agree with him here. “Factor three, after spouse as beneficiaries, IRAs will go to two children in their 50s. Their tax bracket is currently at the 12% tax bracket. Would we and they be better off with the current status of IRAs?” Yes.

Al: Yes.

Joe: Be- between spouse and myself, we have approximately a million dollars in traditional IRAs and another h- $185,000 in a Roth.

decedents would also inherit about another $450,000 in brokerage accounts. Since we do not-

Andi: Descendants, not decedents. Not people who are dead.

Joe: Well- Their children … or descendants. Descendants.

Al: Descendants, yeah.

Joe: excuse me.

Al: it’s a whole different word.

Joe: it is. it’s a whole different meaning too.

Al: It’s true.

Joe: Yeah. It’s crazy.

Al: It’s very close.

Joe: It, is. It’s-

Al: Yeah …

Joe: extremely close. Yeah, but yeah, I’d much rather receive than be the one that’s, like-

Al: Gave it up …

Joe: got it.

Al: Yeah.

Joe: would also inherit another $450,000 in brokerage accounts. Since we do not need those monies to cover our annual costs, we expect the totals will increase.

Factor number four, widow’s penalty. This may be a bigger concern than any other tax-wise. Number five, because we both have RMDs increasing each year due to the tables, we would need to take the RMDs before any conversions. But could we use those funds to pay the taxes, leaving the conversions wholly in the Roth?

In sum, if conversion is wise, the partial conversions over several years is wise. Could you address each of these factors? It seems like many podcasters ignore or do not consider the senior bonus deduction over the next three years. “And if we do not give up most or all of that, then the issue becomes the tax brackets and rates beginning in 2029, which is, of course, anybody’s guess.

We are 75 and 76 years old, retired for several years. Pensions for me, and husband total 59,000. Social Security’s 37 for me, 15,000 for my wife. RMDs for 2026 are expected to be 45,000. QCDs will be utilized to expand part of this. Expenses are fluid due to travel, but we plan to spend about $90,000 a year, not necessarily counting income taxes.

Plus, we plan to distribute part of the excess income to children agai- grandchildren. I hope this is enough information to help guide you with these questions.” So- The, here’s the biggest thing in my opinion, Al- Yeah … is that you take a look at the RMD and the- if the RMD is gonna blow you up, either for higher IRMAA, put you in another tax bracket, you know, then the conversions make all the sense in the world.

But he’s right. He’s got a $6,000 added deduction, and he’s right there at the phase-out.

So he’s got enough income to live off of, but the RMD is not, like, hurting him, in any way, it seems like.

If he did more, if the RMD was larger, that would blow out of those deductions, then maybe it might make sense to do one large conversion one year to reduce the RMD for future years so he could, you know, continue to have those deductions for the next, you know, let’s say three years versus the full five.

Al: But not do it each and every year, ’cause it’s pretty expensive.

Joe: Yeah.

Al: and to put some math to it, so, first of all, I’ll explain it, Joe. So if you think about the way this works is that senior deduction, so it came about, $6,000 per person. So a married couple is $12,000 per, for, the couple, right?

And so the phase-out period is 150,000 to 250,000, which basically, Joe, means that you’re adding a 12% tax rate for every, every bit that you’re over that. So the 22% bracket becomes 34, and that’s not a good idea to convert. The only reason you would convert is if you had a lot of money in tax-deferred and you just did a blowout year where you went to the top of the- Right

24, right? But you, wouldn’t do a little one here and there because it’s way too expensive. The- I think that I, do agree that the widow’s penalty is probably the most important thing here, but she’s not gonna be paying probably 34%, so I wouldn’t do it now. I wouldn’t… I’ll put it this way. I wouldn’t convert for three more years, till 2028.

Now, if they extend this, this deduction, then you still don’t convert, but after the three years, maybe you consider it.

Joe: Yeah. The, you can look at it in another way to, if you really wanted to, but it’s a million-dollar retirement account. He’s got 40 to $70,000 RMD for the next 15 years.

Per year.

Al: Yeah,

Joe: The $12,000 deduction in a 22% tax bracket is what? $3000 of tax savings?

Al: yeah. Plus state, but yeah.

Joe: Call it $4000?

Al: Yeah.

Joe: Okay. So then it’s like, all right, d- is- does it make sense for me to lose $4000 in cash-

to do a larger conversion? Am I gonna outpace that $4000 at some point? Maybe if you invested different in the Roth.

Your kids are in the 12% tax bracket though. They’re in a, a lower tax bracket than you are.

But it’s the spouse is what you’re protecting. if he dies before her, h- she’s gonna take his Social Security. I don’t know what the survivor benefit is on the pension. Plus the RMD is still 40 to 50, or 40 to 60 grand.

So call it $50,000. She might… She’ll be solely in the 22% tax bracket, or probably the 24% tax bracket. It’s

Al: probably 24, but what I’m saying is if they convert now a little bit, it’s a 34% tax, so that’s, why I don’t think it makes sense currently.

Joe: Totally agree. Totally agree. yeah. All right.

way to go with the math there.

Al: Yeah. Yeah, so I think-

Joe: Math solves all problems.

Al: It does for me.

Andi: Roth conversions come up in almost every spitball for a reason. Done right, they can help lower the taxes you and your heirs pay over a lifetime, but the math depends entirely on your situation, your brackets now, your brackets later, and what you’re leaving behind. You don’t want to screw this up. Our free Retirement Account Guide walks through how Roth conversions, IRAs, and your other retirement accounts fit together, so you can figure out what actually makes sense for you. Grab the Retirement Accounts Guide for free from the link in the episode description. And if you’d like the experienced professionals on Joe and Big Al’s team to take a free, no obligation look at your specific financial situation, the Free Assessment link is waiting there for you too.

$12M and Still Worried About Taxes: Roth Conversion Spitball (Jonathan & Jennifer, Phoenix AZ)

Joe: all right, let’s move on. We got Jonathan and Jennifer from Phoenix, Arizona. We’re just opening up our, office in Phoenix, Arizona, Al. Ah. Did you hear about

Al: that? I’m…

Joe: Yeah. Wow. Surprised you heard about that.

Al: I’m somewhat in the know.

Joe: Got it. Somewhat. All righty. “Hey, I’m six…” what’s Andi’s Note? Names came from… oh, Hart to Hart. I loved that show. “I’m 64 with 6.3 millions in tax-deferred savings.” Wow. “Should a Roth con- should I convert to the 24%?” I mean, if I have to do one more question on Roth conversion, Al-

I’m gonna lose my mind.

Al: Yeah, that’s, it’s your thing. It’s like a musician that has to play the same songs every set. Jesus. Over-

Andi: You gotta play your hit, man

Joe: … over again. All right. But I do love Hart to Hart, so let’s, so we’ll, I’ll let it slide.

Al: Okay. All right.

Joe: “Hey, Joe, Big Al, Andi. Currently retired and my wife, age 60, is working making about $220,000 a year and expecting to retire in two years.

I drive a 11-year-old SUV, and my wife drives a 10-year-old coupe.” What’s a coupe? Is that like a Ford Taurus?

Al: No, it’s a s-

Andi: A coupe is just, it’s a two-door, instead of a four-door. Oh. Yeah, it’s two-door. Isn’t it? Instead of a sedan.

Al: Lower. Lower to the ground.

Joe: Oh. Yeah. Got it.

Got it. maybe a convertible of some sort?

Al: It could be.

Joe: Got it. Yeah.

Andi: It’s Hart to Hart, of course.

Joe: Oh. “I drink iced tea and she likes red wine.”

Al: Nice.

Joe: We have $12 million in assets. Wow.

Al: We’re gonna get some calls on this.

Joe: Oh, this is gonna be great. “Should I convert? Love, Jonathan and Jennifer.” Let’s go. Okay, “70/30 split between equities and fixed income.

I have a $3.8 million tax def- I have 3.8 million in tax-deferred, my wife has $2.5 million tax-deferred. We got $120,000 in an HSA, $300,000 in a Roth, $3.2 million in a brokerage, and $2.5 million in bonds and m- money market accounts. I will start Social Security at age 70 at $60,000 a year. My wife will start Social Security at the same time, but her age will be 66, and she will receive 45,000 a year.

We receive $70,000 in interest and 50,000 in dividends today. We plan to spend $180,000 after tax in retirement. I’m concerned about taxes to the next generation and considering Roth conversions to the 24% tax rate, or until our tax-deferred is completely converted. Any spitball on my Roth conversion plan would be appreciated.

Jonathan and Jennifer, living in Phoenix.”

Al: Okay. Okay. you, have a thought there?

Joe: Yeah, I got a lot of thoughts.

24% tax bracket. He’s got $6.5 million in the tax-deferred account. He’s 64.

Al: Yeah, She’s 60.

Joe: she’s 60. So he’s got 15 years. Or no, 10 years, she’s got 15.

Yeah. they don’t need the money. He’s living off of dividends and interest right now, and they wanna- Yeah … spend 180,000.

Al: He’s concerned about the taxes for the kids.

Joe: Yep.

Al: It’s this is an easy one.

Joe: Yeah.

Al: Convert to the top of the 24 every day.

Joe: Yep. I agree.

Al: I’ll put a little math to this one, Joe.

Joe: Okay.

Al: So, and this is just in today’s dollars, ’cause I, you know, without inflating anything. just to see what it would look like today. So Social Security, 105,000. 85% of that’s taxable, that’s 90.

Interest and dividends they say is 120. And RMD at 4% is 250. That puts them at 460, minus, call it $30,000 standard deduction, which puts them in the 32% bracket. and it will only get worse as time goes on, and then there’s the widow penalty. So yeah, you convert, and they got plenty of money to pay the tax.

So you convert all day long at the 24. Would you do

Joe: 24 or 32?

Al: I’d do 24.

Joe: You wouldn’t go higher?

Al: No.

Joe: Nope.

Al: I don’t think, they don’t need to convert all of it.

Joe: S- yeah, $6.5 million- Yeah. Not gonna happen … converted. N- it’s not gonna happen. But let’s say- I mean, they have $6.5 million in tax-deferred accounts. They have 10 years.

That’s gonna be 12- 12 million. That’s gonna be, what, a $500,000 RMD roughly?

Al: Yep.

Joe: You know? Plus their interest and dividends and Social Security.

Al: I wouldn’t go to the top of the 32 on a down market, I’ll put it that way.

Joe: Okay. The tax is gonna be a… that’s a hard pill to swallow-

Al: It

is

with the 32. The 24, it’s gonna be a-

I- yeah, and they’re in Phoenix, and Arizona taxes aren’t that high.

Joe: 22.5%.

Al: Yeah, is what they’re saying. Yep.

Joe: I, but I think… what is his dividends and interest? that’s not that bad, right?

Al: if you add Social Security-

Joe: no, what is his dividends?

50,000?

Al: Yeah, 50, interest- 50,000- … interest,

Joe: 70 …

Al: less what

Joe: he spent?

Al: Yeah. in- interest, too, so he’s got a lot of bonds.

Joe: But it sounded like he had, tax-free bonds. So his- Yeah … it might be tax efficient. There’s some things, I don’t know, is he charitably inclined?

Al: Yeah.

Joe: Maybe you could pair a, lot larger conversion with a donor-advised fund.

Al: You could.

Joe: You get a little bit larger deduction. I don’t know. Or does all of this go to the kids and the grandkids and things like that? That’s totally fine, too. But if he’s giving, you know, as- the sooner you get the money in the Roth, the better off you’re gonna be, ’cause all that compounding then grows tax-free versus in the retirement account.

Al: Sure.

Joe: but- Yeah. it’s w- usually with $5.5 million in a taxable account, you see a little bit more dividend and interest, so-

yeah … sounds like he’s pretty tax efficient with that. that’s, that, that could leverage the Roth IRA too. Yeah. If you’re a little bit more tax efficient, you’re doing some tax loss harvesting or you have investments that are not kicking out a lot of interest and dividends in the non-qualified account to keep that income off the return so you can do more conversions.

But, 24 is a no-brainer. 32 is probably some math that needs to be run.

Al: So you, you would consider it?

Joe: I would consider it.

Al: Yeah.

Joe: I don’t have $6.5 million in a retirement account. So it’s not my problem. It’s- … it’s heart to hearts here.

Al: Heart to hearts, yep.

Joe: but c- congratulations. Yeah. That’s a hell of a, a balance in a retirement account for 60.

Al: Yeah.

It’s fantastic, yeah.

Joe: so good for you guys. But, all right, we’ll move on.

Al: Yeah. Next page.

Retiring at 55 in Hawaii: When Do We Start the Taxable Account? (J & C, Hawaii)

Joe: Let’s go. “Aloha, Joe, Big Al, Andi. This is J and C from Hawaii. First off, I wanna say I had a pleasure of running into Big Al and his wife at a local store, which caught me completely off guard.” You remember this, Big Al?

Al: Oh, yeah. It was Costco- … in Lihue-

Joe: Lihue …

Al: on the island of Kauai.

Joe: “Joe, you’ll make fun of this, but Big Al had me starstruck.” Oh.

Al: How about that? You have

Joe: to be starstruck every day. I got the luxury of sitting next to this man.

Al: Heh.

Joe: “I never thought I’d get to meet or see any of you in person.” Wow. “I’ve been listening to the podcast since 2016 or so, so I feel like I know you guys so well, yet to Al I was a complete stranger.”

Probably treated you like one. It’s like, “Get the hell out of my way.”

Al: No, we had actually a good chat.

Joe: Yeah, you had a, yeah. What an interesting dynamic. “I’ve been wanting to write for years, but have never found the drive to.” in fact, I mentioned this to Al when I met him. God, I feel like I’m right there in Costco with you guys

Al: you can, you can picture-

Joe: I just, I can’t, I mean-

Al: Picture, picture-

Joe: This guy is just-

Andi: That’s what you’re always going for

Joe: this dude, like, just ran home

Andi: … you always wanna get into the mind of the, the writers, and now here you are, standing in Costco.

Joe: Yeah. God, it was so fun. Yeah. Oh my God.

Al: I didn’t meet, I didn’t meet C. I- but I met J.

Joe: Oh. “I mentioned this to Al when I met him, so now I feel like my secret is out and I need to walk the walk.”

So here it goes.

Al: I told him he should write in, so he did it.

Joe: Okay. Look at the power you have on this guy.

Al: Apparently.

Joe: “My wife and I are both 38 years old. I work at…” He’s 38 and he’s starstruck from Big Al. Love it. Oh, I- That’s our kind of people right there. That is. Yeah. “I work at a local utility and C works for the state. C isn’t a drinker, but I more than make up for her pounding my Blue Moons and Kona Big Waves on my off days.”

Al: Nice.

Joe: All right. “When C asks me how much I had to drink, I tell her two, the first and the last.” Killed it.

Oh man, you are-

Al: That’s great …

Joe: this is a gem. Okay. “C drives a 2014 Toyota Highlander and I drive a 2014 Chevy Silverado. Our combined income can vary based on the amount of overtime I work, but has been around $210,000 for the past couple of years. We have a $250,000 mortgage on a house valued at 900 grand.”

Okay, we got assets. Here they are. We got Roth IRAs, 401(k)s, 525. Another IRA, 401(k), 518. A little taxable account of 20. Fixed income, combined pensions will be 60 grand, combined Social Security will be 40. Savings rate, they’re do- both doing, Let’s see. What is, Roth? 401(k) max at 23,000, Roth IRAs max at 15. Total savings, $40,000 a year. “The ultimate plan for us is to call it quits at 55, spending $120,000 in today’s dollars. To make this possible we need to beef up that taxable account by then, but for now I feel like the amount we’re saving and the accounts we’re saving in is good enough.” All right. “Never one, never was one to make the perfect…” What? “Never was one to make the perfect the enemy of the good, so I don’t bother with getting into the minutiae of things.” Did I s- is that how you s-

Al: Yeah,

Joe: I don’t- … spell minutiae?

Al: I don’t think so, but I think that’s what he meant.

Andi: It is, actually. And yes, that is-

Al: Oh, it is?

Andi: … actually correct, and you pronounced it correctly.

Joe: I was just rolling with it. ‘Cause that’s what I thought it should say, “but maybe I should. Can you guys spitball a few things?” Sure. “When would be a good age to start dumping money into the taxable in order to retire at 55?” All right. Jay, first off, you can have access to your retirement accounts at age 55 if you retire at age 55.

Al: With a 401(k).

Joe: Yes. If, does he have a 457 plan? Then there is no- No … 59 and a half. He can grab it at any age.

Al: Yeah. they’ve got a, they’ve got 401(k)-

Joe: He’s got IRAs, 401(k)s.

Al: Yep.

Joe: So move the IRA into the 401(k). The 401(k), you’re- fully eligible to take the money out at 55 as long as you separate from service at 55.

Al: Correct.

Joe: What do you think?

Al: Yep.

Joe: So I think he’s trying to bridge the gap from 55 to 60.

Al: I think you’re right.

Joe: But he doesn’t have to.

Al: Doesn’t have to, you’re right.

Joe: All right. “If not 55, at what age do we look, on track to retire? Should I make tax-deferred contributions instead of Roth to the 401(k) because Hawaii doesn’t tax retirement accounts?”

Al: Hey, that’s a twist, huh?

Joe: Ooh. Got the plot thickens. “Thanks so much for all your help with our situation, you guys. This is a load off my chest that I’ve been carrying for years. I can breathe again. Al, it was very nice to meet you, and I hope it’s not weird to say that I’d like to buy you a beer whenever you’re on the island again.”

Al: Okay.

Joe: “I know a place- Sounds good … that makes great pizza and even better beer. Heck, you’ve probably already eaten there. Mahalo, Jay and C in Hawaii.”

Al: Great.

Joe: Very nice.

Al: Super nice, and he was a nice guy, for sure. Let me, let me put a little bit math to this, Joe.

Joe: Okay. I think he’s in good shape.

Al: He’s in good shape, yep. So he’s starting at, call it 1.1 million.

Joe: Okay.

Al: 17 years from now, 6% rate of return, adding $40,000 a year, that’s $4.1 million. And if you look at his spend, $120,000 a year, seven, 17 years, 3%, $198. That’s a 4.8% distribution rate before pension- Social Security. If he can get 7% rate of return, which probably could over that period of time, then it’s $4.7 million, and it’s a 4.2% distribution rate. I think that works. When you look at in just a few years, you’ll have about $100,000 in pension.

Joe: In pension income.

Al: So yeah, I think so.

Joe: What do you think? What’s- How rich do you think you could go to bridge the gap? 7%? 6%?

Al: you, mean-

Joe: Distribution rate

Al: … distribution rate? Yeah. I pr- I would say probably at least 5, because,

Joe: how, rich would you go? Would you stay to the, like, the math of, like-

Al: Of-

Joe: When you know, you… Like, like, yeah … it’s your life, right? I think-

Al: Yeah, okay. I like that.

Joe: I wanna retire at 55.

You know, he’s like… He lives in Hawaii, you know. Of course- he’s, he wants to drink a lot more of the, the Big Kahunas.

Al: Yeah, he wants that Kona Big Wave.

Joe: Yeah.

Al: Probably throw in a couple- It’s a- … Maui Big Swells.

Joe: It’s a Mo Pizza. So he wants to retire at 55. He knows he’s got, like, a pension coming, Social Security coming of $100,000.

Al: Yeah, and that’s at 62.

Joe: And at 62, so seven years.

Al: Seven, seven years, and then he’s in great shape.

Joe: So how… W- what… Would you, would you… be comfortable spending a little bit more than the, the golden rules of-

Al: Of, of 4%?

Joe: Yeah.

Al: Yeah, I would.

Joe: Yeah. I would, too.

Al: Yep. Yeah, because the money’s coming.

Joe: Yeah. He’s gonna be fine. So at 55, I think he saves as much as he can into the 401(k) plan. Keep managing that appropriately. move the money from the IRA into the 401(k), so he has access to the full monty at 55. don’t worry about stacking up the taxable account. I think it’s a lot easier to save in a tax-deferred account-

Al: Right

Joe: in, in your Roth account, ’cause he’s already doing that. He’s got $525,000 already in a tax-free account, $500,000 in the tax-deferred account.

Al: Great balance already.

Joe: The $40,000 that he’s saving, $15,000 is going into the, the, the tax-free account. I would wanna burn through the tax-deferred account from 55 to 60.

Al: Great.

Joe: And then your Roth is gonna continue to grow. Yeah. And let’s say if you blow out a, the whole tax-deferred account, your Roth IRA is gonna be worth a million and a half at that point or maybe even more. You’re gonna have a nice pension. You’re gonna have Social Security, and then any added dollar that you pull out is gonna be 100% tax-free. I love this-

Al: Yeah … plan. It’s a great scenario.

Joe: Yep.

Al: Yeah. I think, plus here’s a couple other thoughts, Joe, and that is to have, 1.1 million at age 38- He’s- … probably is gonna have increases of income, increases of saving- Totally … so I think it’s gonna be better, actually. and

Joe: he’s, like, starstruck with being Al.

This guy’s gonna have, like, $10 million at 55. I know.

Al: Yeah, if he keeps listening.

Joe: He’s gonna do everything he can.

Al: and, the, you know, the second thing is, you know, this, the spend and the fixed income, they’ll both keep going up because of inflation. So then the two are already pretty close. 100,000 fixed income to 120 spend

Joe: 120, yeah

Al: I mean, yeah, no, it looks amazing.

Joe: Yep. Yeah. I thought he was 48.

Al: Yeah,

Joe: 40, 38. but yeah. I knew he was 38, but then with the assets there- … I was like, “He had to be 48.” But-

Al: I mean, did he have 1.1 million at 38?

Joe: I did not, Big Al.

Al: I did not either.

Joe: I did not. So yeah, congratulations, man. Yeah. That’s cool.

Al: So J and C, you’re doing great.

Andi: Half of Americans say they’re too nervous to invest, and the ones who do invest may still be leaving money on the table. On this week’s episode of Your Money, Your Wealth® TV, Joe and Big Al break down the investing psychology working against your portfolio, what really happens when you miss the market’s best days, and how to build a strategy you can actually stick to when the market gets rough. Once Retirees See This Data, They Stop Worrying About Investing. Watch it and download the companion Ultimate Investing Guide, our free 68-page guide covering investing basics, asset location, recession protection, and smart investing strategies to keep a cool head and develop a reliable strategy. Both the TV episode and the Ultimate Investing Guide are linked in the episode description, so go take advantage of ‘em. When you download any of the free financial resources, do me a favor and choose “podcast” in the “how did you hear about us” dropdown.

Am I Just Working to Create a Bigger Tax Problem? (Bonnie & Clyde)

Joe: “Hello. I listen to the podsc- I listen to the podcast every week. I love the honesty. I love the quick spitball.” Man, thank you. “My wife and I, Bonnie and Clyde, age 52 and 57, make approximately $300,000 annually.” What’s the honesty that-

Al: We-

Joe: We’re not bull***ing. I mean bull- the, the numbers or-

Andi: Sometimes you tell people that it’s not gonna work out and they need to work longer or spend less.

Al: Yeah. I think that’s what they mean.

Andi: And you call them out when they say, “Oh, we’re not lavish. We don’t spend that much.” And you’re like looking at it going, “it looks like actually you do.”

Al: Yeah, you, you actually do.

Joe: Oh. this guy really, really don’t hate our jobs. I thought he said, “I really hate my job.”

Al: Yeah, really-

Joe: Really don’t hate our jobs …

Al: really don’t hate it.

Joe: Okay, plan to work another five years maybe.

Al: Okay.

Joe: You are just, like, on the fence, bro. He’s just, like, a little passive-aggressive here.

Yeah. We really don’t hate our jobs and maybe work another five years. maybe not. I don’t know. “We would like to convert our tax-deferred money to Roth, but quickly run up against the 32% tax bracket. This really limits our conversions. We need about $225,000 annually after taxes for living expenses. My concern is that by continuing to work and making a relatively high income, we will just be letting our tax-deferred money grow, and the mandatory distributions will be more than we ever made in the next five years. Am I working for nothing? Should I be getting a hobby instead of a new work car?” Ooh. This is a good one.

Al: Yeah,

Joe: All right. “My wife, she drinks a Mas- Mmm- Moscato? Moscato. Never heard of Moscato. I’m gonna try it, though. Sounds sexy. I drink a little Hazy IPA. Nope, I’m gonna pass on that.

Al: That, I’ll drink that one.

Joe: Okay. I drive a 20-

Andi: Moscato is sweet wine. I don’t think you will be trying it, Joe.

Joe: Oh.

Al: Oh, that’s right. Yeah. I knew I’d heard of it.

Joe: Moscato, sweet wine. Can I put it in a rocks glass?

Andi: Does that just make everything better, even if it’s sweet wine-

Joe: Yeah, it just makes it a little manlier

Andi: … put some rocks in it and you’re good?

Al: it’s cooler that way.

Joe: Yeah, it’s…

Al: Yeah. Do you want, do you wanna hold the little stem?

Joe: No, I don’t like the stems. Got it. No. I’m not a stem guy. Not a stem guy, okay. Just can’t do it.

Al: Yeah.

Joe: “We drive a 2020 Mercedes C-Class and a 2024 Mercedes GLC.” That sounds… What is that, SUV? No GLC, or is that, like, the new, 2024, that could be a hybrid.

Al: I don’t know.

Joe: All right. I bet they got a ton of money here. Couple Mercedes in the garage. We got Roth IRA, a million dollars. Brokerage account, $3.3 million. I bonds, $250,000. Tax-deferred accounts, 3.7 milli. HSAs, $250. Social Security, approximately $80,000 a year at age 70. House, $600,000 value. 440K, 6.5 mortgage, no other debt. All right

Al: So they got about a little over 8 million.

Joe: Interesting.

Very interesting. Why are they holding a $440,000 mortgage?

Al: That’s a good question. At 6.5%.

Joe: At 6 and… They just bought the house. They had to have.

Al: Yeah, and they got $3.5 million non-qual. Would you take that mortgage?

Joe: $6000 house, they put 20% down.

Al: Yeah.

Joe: It’s a couple hundred grand, so they have 440 left, so they must have just moved in. At 6.5%, I would pay that 440 off tomorrow.

Al: I would too, and then the spend goes down ’cause you don’t have the mortgage. Cause-

Joe: I’d buy another Mercedes …

Al: and the reason is ’cause they got the money and, they don’t necessarily need it.

Joe: aren’t they… Yeah.

Al: I mean, Joe, if, you just look at the-

Joe: Take the I bonds, 250. Get rid of those- Yeah … and pay down the- Yeah … get rid of the mortgage.

Al: You just look at the current distribution rate of their spend and assets is 2.7% today.

Joe: Yeah, 52 and 57.

Al: Yeah, but if they wanna work another five years, you know, I will say this, more, working longer, more income, more savings is always better.

Joe: Always better. Always better.

Al: Now, if you don’t want to, then you, then go ahead and retire, but it’s, if you-

Joe: That’s just like a, the, like, that’s head trash. “Oh, am I working for nothing? I’m just gonna end up paying more in tax.” Dude, no. Just keep working, keep saving. The,

Al: the, flip question we get is, “If I make contributions, is it gonna help me financially more than not making?”

let’s do the math here. You do a contribution, a dollar, and your tax rate’s 33 cents, so you lost 33 cents, so you got 67 cents left. So that’s-

Joe: You feel good. You’re still in the-

Al: it’s not better. It might feel good, but it’s not better.

Joe: Ugh. Yeah, I don’t know. It’s like, They got a ton of money.

Al: They do.

Joe: $3.5 million liquid.

Al: and the other thing too is all-

Joe: 5257.

Al: Yeah. if they work another five years, all contributions need to go to the Roth ’cause they’re, they’re in the 24% bracket.

Joe: But why is he saying that he’s in the 32? Oh, ’cause the qu- he’s got 225, or $300,000 annually. The top of the 32 is 500K.

Al: Yeah. it’s 400-something, but still it’s, they’re not, I, don’t see how they got that.

Joe: I don’t see that either, unless… Okay. And you’re-

Andi: Isn’t he saying that they make 300,000 annually, and if they converted, that would immediately put them up against the 32%- No … tax rate? So he’s- 30, 32- … asking about converting 200,000?

Al: he didn’t say that number. The top of the 24 is a little over 400,000. There’s like- Like four- 410-ish I think So, he’s gonna have a lot of interest and dividends probably, so I gotta check the math. But-

Joe: Yeah …

Al: yeah, I think converting to the top of the 24 would make sense. I think there’s probably gonna be a little room.

Joe: Yeah, 403.

Al: 403, okay. And then you add 30,000-plus for standard deduction, so you can make about 430. And with that standard deduction, Joe, end up in the 24% bracket. Yep.

Joe: Yeah. You could still convert quite a bit. I think so. I would go all Roth, and then just convert to the top of the 24.

Al: Yeah, that’s what I would do too.

But, yeah, if you think you’re working for nothing, the answer is no. You’re helping your situation by working longer, but you don’t necessarily need to.

Joe: Yeah. You’re helping yourself, your kids, grandkids, legacy.

Al: yeah.

Joe: There’s also-

Al: all that stuff …

Joe: oh. Hell of a job.

Al: Yeah.

Joe: Hell of a job.

All right. All right. thanks for listening. Thanks for, the emails, and we’ll see you guys next time. show’s called Your Money, Your Wealth®.

Outro: Next Week on the YMYW Podcast

Andi: If you hadn’t noticed over the last few episodes, thanks to your feedback in the 9th annual YMYW podcast survey, The Derails have moved to the end of the show once again. You’ll find Hart to Hart, minutiae, and levels of fame at the very end of this show, so stick around. Speaking of the podcast survey, congratulations to NLF, the randomly-chosen winner of the $100 Amazon e-gift card just for providing their feedback about YMYW. They listen on iHeart and said, “I only learned about YMYW a few months before retirement and I would have preferred to learn about it years PRIOR to retirement. I was an engineer my whole career and spent all my time running my business and never gave retirement much thought, Same for my husband.” Thanks for listening and thanks for sharing, NLF. Email me at [email protected] and tell me how you’re going to use your $100 at Amazon if you like!

Next week on YMYW, Michael in Texas wonders if his wife can retire at age 47, Homer and Marge have 3 million saved and want to retire at 50, Seth sas a pension and $1.45 million and wants to retire in 5 years, and Shua in Phoenix is hoping he and his wife can stop saving now at 42 and 45 and still retire in 10 years. Tune in to podcast 598 next week to find out what the fellas think.

I have  about 150 pages worth of your questions still to be spitballed on the show, and you know how far behind we are. Don’t wait. This is your entire retirement future we’re talking about. A financial assessment with the experienced professionals on Joe and Big Al’s team at Pure Financial Advisors can bring you the clarity and confidence you need, and it’s two meetings – way more comprehensive than a spitball. Like a spitball, the assessment is free, and there’s also no obligation. They’ll look at your whole picture, your income, your taxes, your Social Security timing, your investments, your risk tolerance, and they’ll work with you to create a plan that fits your unique needs and goals. Meet online via Zoom from anywhere, or meet in person at one of our offices in San Diego, Seattle, Chicago, Denver, Salt Lake City, Nashville, Davis, Los Angeles, Irvine, Brea, or Phoenix. Click the free assessment link in the episode description or call 888-994-6257 to schedule yours now.

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

The Derails: Hart to Hart, Minutiae, and Levels of Fame

Andi: Did you? You watched that?

Joe: Oh, yeah.

Al: Yeah. I, used to love that show too.

Joe: It was like a, my, my-

Al: You were a kid

Joe: … parents watched it. I was a baby, but I remember this theme song when it, Yeah when it opened up, and he was, like, on a boat or something. I always thought he dressed well.

Al: Yeah, they both did. They were a sophisticated couple.

Andi: In half of these pictures he’s wearing

Joe: a tuxedo.

Andi: What was that? What was the question? Having what?

Joe: We, you the one?

Al: we don’t n- they were-

Joe: Or, allegedly

Al: they were on the boat together. we don’t really know what happened.

Joe: What’s his name? Roger Moore? Or-

Al: No, Robert Wagner.

Joe: Oh, Robert Wagner.

Al: Yeah.

Joe: He’s very handsome.

Al: Yeah.

Andi: And she was Stefanie Powers.

Joe: Ooh, Stefanie Powers. Very beautiful woman.

Al: Yep, agreed.

Joe: Yeah.

Al: Both good-looking people.

Joe: Yeah. that’s why Hart to Hart, come on.

You can’t have just your average Joe on there.

Al: No, you can’t.

Joe: Yeah.

So, I shouldn’t have said that, Aaron? Is it… No? Big ol’ big problem. I did- I didn’t know. I just heard it on a podcast. What was the theme song of that, Hart to Hart? Can you play that?

Andi: I’ll see if I can find it.

Joe: Okay.

Al: Yeah. See- Ready? See if she plays it, I’ll recognize it.

Joe: Oh, yeah. He is quite a guy

Al: Yeah.

Joe: And he’s the butler or something that’s talking, right?

Al: I don’t remember who

Joe: There he is.

Al: Oh, yeah.

Joe: Max.

Al: You’re right. Max. You’re right. he’s the chauffeur and the butler

Joe: Oh yeah, I remember this.

Okay. Very good.

Andi: So there you go. There’s the, the Hart to Heart theme song.

Joe: Yeah. I’m gonna watch-

Al: You gonna watch it tonight?

Joe: Yeah, I don’t know. Maybe.

Al: yeah, we should. We should both watch it.

Joe: Yeah. Sometimes those old shows are great.

Al: They are. Yeah.

Andi: You know? The theme song- So yeah … is very, it’s got that ’70s kinda disco thing going on.

Joe: Yeah,

Andi: I like that. A little subtle.

Al: Yep.

Joe: I kinda like the narr- the narration in the beginning. Yeah. The acts. yeah. You wanna poke a nice little-

Andi: It reminds me of CHiPs.

Al: Yeah.

Joe: But it’s spelt like it’s- It’s, it’s- … minute, minutae. It’s a

Al: w- it’s a weird spelling.

Joe: Minutae.

Al: But that’s right, Andi. Okay. I thought- That’s-

it was probably spelled wrong, too …

Joe: I would be very embarrassed if I was in, like, if I had to spell minutiae. It would- It is- It would look nothing like that.

Al: You would, you would drop out of the spelling bee.

Joe: It would look nothing like that. It

Andi: is correct, and it refers to the small, precise, minor, or trivial details of something.

Joe: All right. Is he like, “Hey, are you Big Al?”

Al: That’s what he said.

Joe: You were like, “Yes.” as a matter of

Al: fact, yes, I am. ”

Joe: Yes, I am. How can I help you?”

Andi: Joe, has anybody done that to you?

Joe: Oh, j- every day of my life. No.

Andi: Oh, that’s right. You had little kids running up to you at the golf tournament asking for your autograph. I forgot.

Joe: Yes. no. Never, “Hey, are you- I was gonna- … Are you Joel?”

Al: I was- … I was gonna ask you this morning when you talked about being at a basketball game sitting near Paul McCartney whether he asked you for an autograph.

Joe: yeah, Paul McCartney asked me. no, I’m not the, I’m not the star. Big Al’s the-

Al: Yeah,

Joe: you are the, the star of the show. I’m just the reader.

_______

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