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 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 moderator for the firm's digital events. Prior to joining Pure, Andi was Media Operations Manager for a San Diego-based financial services firm [...]

Published On
August 29, 2023

Charles has had it with Joe and Big Al stumbling through the Roth 5-year rules, so he explains to the fellas, once and for all, the rules for withdrawing money from a Roth IRA. Plus, is Shane missing any retirement risks before he retires early at age 55? Nick wants to know if employers are required to adopt all of the provisions in the SECURE Act 2.0, or if they can pick and choose which to implement, like they can with the rule of 55? Plus, how can Stew offset huge capital gains on the sale of an inherited house, and we revisit whether George can move investments in-kind from an inherited trust to a brokerage account. 

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Show Notes

  • (01:57) Roth IRA 5-Year Rules for Withdrawals Explained (Charles)
  • (10:39) Any Retirement Risks I’m Missing Before I Retire at Age 55? (Shane, Chester County, PA)
  • (16:42) Do Employers Have to Adopt All of SECURE 2.0? (Nick, OH)
  • (21:10) How to Offset Huge Capital Gains Taxes on the Sale of an Inherited House? (Stew, Clairemont)
  • (25:49) Moving Investments In-Kind From Inherited Trust to Brokerage Account (George, KS – from ep. 433)
  • (34:02) The Derails

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Charles has had it with Joe and Big Al stumbling through the Roth 5-year rules, so today on Your Money, Your Wealth® podcast 444, he explains to the fellas, once and for all, the rules for withdrawing money from a Roth IRA. Plus, is Shane missing any retirement risks before he retires early at age 55? Nick wants to know if employers are required to adopt all of the provisions in the SECURE Act 2.0, or if they can pick and choose which to implement, like they can with the rule of 55? How can Stew offset huge capital gains tax on the sale of an inherited house, and we revisit whether George can move investments in-kind from an inherited trust to a brokerage account. Visit YourMoneyYourWealth.com and click Ask Joe and Al On Air to get your Retirement Spitball Analysis, to ask your money questions, or to send in your comments. I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

Roth IRA 5-Year Rules for Withdrawals Explained (Charles)

Joe: Charles writes in, he gets a little private email to Andi? What’s going on?

Andi: Yeah, it came straight to me. I guess he knows that is how to get it on the show.

Joe: Got it.

Al: Okay.

Joe: “Forgive me for being presumptuous-“

Andi: Nicely done, Joe.

Joe: Killed it.

Al: Killed it.

Joe: Oh my God. I’m so proud of myself. “-but I having listened to a dozen or so times of Joe and Al explain or stumble through the Roth 5-year rules, I can’t resist making this suggestion. There are two 5-year Roth rules. Both must be satisfied to distribute funds tax-free.”

Al: Okay, well we talk about that every time.

Joe: I mean, I swear to God, I’ve said that a billion times. I don’t think there was any stumbling over that.

Al: I don’t think so either. And furthermore, you can pull money out even if you don’t qualify for any of these if it’s a contribution.

Joe: Exactly.

Al: You put the money in, I put it in 6 months ago. I’m 41 years old. Can I take it out? It was a contribution. Yes, it was a contribution. Can I take out the growth? No. Do I need a 5-year clock? No. Oh, there’s two 5-year clocks. You got to mix that. No, this it’s, this is super complicated.

Joe: It’s not that complicated. It’s so complicated to explain though.

Al: Well, it is.

Joe: Because there’s so many different variations of the rule, but let’s just hear Charles because he’s the smartest guy in the room. “First, there’s a 59 and a half year rule that must be satisfied for growth. Realize that contribution amounts are always available, but the conversions are not contributions.”

Al: Yeah, we agree with that. And we’ve said that how many times?

Joe: A little exclamation point on that.

Al: Like we don’t know that.

Joe: Really? Thanks, Charles.

Al: That’s why there’s a second 5-year clock for each conversion, but that’s another chapter. “Rule one-“ now he’s getting in caps. He’s getting like, he’s getting heated.

Al: Because we don’t know what we’re talking about.

Joe: He’s getting heated write into Andi. That’s why he wrote to Andi instead of Ask Joe and Big Al. “This one is per person rule and applies to growth. A person must have held a Roth for at least 5 years for growth to be available for distribution. Any Roth open in the past and open for 5 years satisfies this rule for this person. Evermore. Andi 1, important, this rule does not become moot at age 59 and a half.”

Andi: So I just want to mention the fact that there is actually like a footnote, actually there’s two footnotes labeled Andi 1 and Andi 2. And Andi 1 says, “In one show you asked,” meaning me, “if it had to remain open for the 5 years or would open and immediately closing it long ago, satisfy the rule.” According to what Charles read, it must have been open for 5 years, subsequently closed after the 5 years and another opened recently would satisfy that- So, I mean, I remember asking that question and it was years ago. He has been listening and like taking notes on everything you guys have gotten wrong for a long time.

Joe: And he’s writing this and he’s got cliff notes-

Andi: Yes.

Joe: – and subtitles and whatever.

Al: Right. So the 5-year clock for growth does not go away at 59 and a half. Totally agree. And I think we’ve said that a million times.

Joe: I think so too.

Al: What does go away though, is the 5-year clock for conversions at 59 and a half, not for growth, but for conversion.

Joe: Because there’s a 5-year clock on each conversion that you do prior to 59 and a half.

Al: See, this is why this is so confusing. There’s so many 5-year clocks, depending upon what you’re talking about.

Joe: “Rule two, this is per conversion rule and applies to that conversion. Each Roth conversion must be held for 5 years before the conversion looks like a contribution. After the 5 years, the conversion amount, but not the growth can be distributed. No, this rule becomes moot. Joe, this means it’s no longer in force at age 59 and a half.”

Al: That’s what we just said. We’ve said that a million times.

Joe: Well, he’s calling me out, you son of a gun. Let’s go, Chuck. I don’t know, I get, you get tangled up trying to explain this stuff.
I probably blew it up. Charles got all heated and he’s like, you know what? I’m going to write Andi a little letter and I’m going to have little comments and sub-comments-

Andi: Well that that footnote, Andi 2, says “This seems so much less complicated than the above and below game they currently attempt to describe.” Wow.

Al: So far, Charles, everything you’ve said, I agree with.

Joe: “As mentioned in a prior email, I enjoy the show, the banter and the education.” All right. Thanks Charles.

Al: So, okay. We get- we finally got a compliment.

Joe: “One of the Roth commentary shows went down this rabbit hole-”

Al: Oh, here we go.

Andi: It actually says rat hole.

Joe: Oh, rat hole. Oh boy. That’s worse than a rabbit.

Al: That’s way worse than a rabbit hole.

Andi: Yep.

Joe: A rat hole? Oh my god. “- about total taxes now versus later. $30,000 now versus $300,000 later. He suggested paying a higher tax rate to convert now than would be needed in the future because of the enormous hypothetical growth.” True. It was probably enormous hypothetical growth. “I feel he was mathematically wrong as a decision should be based on tax rate, not total tax.” Okay, I agree with some of that. “It’s a time value of money thing. He did mention various extra fees-“

Andi: -did not-

Joe: Oh, “He did not mention various extra fees as one gets older. Social Security tax, IRMAA, etc., which might sway the decision.” Yes, we’ve- I agree with that.

Al: Yeah, me too.

Joe: But you know, if we had to put it every caveat to everything that someone-

Al: – we wouldn’t get through a question.

Joe: – we wouldn’t get through a question. We wouldn’t get through one show- and that’s why it’s called a spit ball.

Al: Right.

Joe: It’s not like we’re just snatch a plan that we’re going through everything with a fine tooth comb.

Al: We’re just chatting about it around the barstool.

Joe: “He didn’t mention that.” I know I did. “And there might be emotion about future tax changes. I see some fear mongering, financial planners pushing, convert it all, plans using the same false math. Just saying. Regards.”

Al: Well, Charles, there’s definitely truth in what you’re saying, but one of the things- we look at a couple of things. We look at in many cases, not all in, in many cases, at least some cases, tax rates are going up. Because people are in the same tax bracket in retirement, and the tax rates are scheduled to go up in 2026. And furthermore, tax rates are near all-time lows, so there’s a concern they’ll go up further. Furthermore, when you do the Roth conversions, you pay the tax now, right, instead, and then you don’t You didn’t waste it spending it. So if you think, if you factor that. Now, if the average person can then do a Roth conversion versus not and save the difference, great, the average person does not do that. The average person spends what’s in their checking account. And so when you factor that in, also, you look at the assets you put in the Roth, you put your higher expected return assets, you probably end up better in a Roth. But anyway, I mean, mathematically that’s a correct statement.

Joe: Yes. “Please say Hi to Brian Busta for me. We had a really nice conversation a couple of years ago when I had to answer a spam call.”

Al: Oh, it was Brian.

Joe: He’s just, yeah, he’s just cold calling Charles, just out of the blue.

Al: Got it.

Joe: “In one show you asked-“

Andi: These are the footnotes that we already talked about. Yeah.

Joe: I’m exhausted.

Al: Yeah, me too.

Joe: Charles, well done. Thank you for calling us out there.

Al: Yep. Yep.

Joe: But he still listens.

Al: Yeah. I mean, if I felt this way, I would not listen.

Joe: Probably wouldn’t.

Al: There’s many other financial shows out there that are better than ours. So go for it.

Joe: Way better.

Andi: Obviously those 5-year clocks are tricky. The point is, taking money out of your Roth at the wrong time could cost you, so make sure you understand the rules thoroughly before you make any withdrawals! If you’re confused even with Charles’ clarification, we do have a free guide that can help. Learn the where, when, and how of taking money out of your Roth IRA by downloading the Guide to the 5-Year Rules for Roth IRA Withdrawals. It’s an in-depth breakdown on how and when you can pull money out of your Roth IRA. Whether you’re under or over age 59 and a half, when you make contributions and conversions, and the IRS order of Roth IRA withdrawals all play a part in whether or not you will be penalized, so this is one guide you’ll want to keep handy. Click the link in the description of today’s episode in your favorite podcast app to go to the show notes, you’ll see the link to the guide just before the episode transcript.

Any Retirement Risks I’m Missing Before I Retire at Age 55? (Shane, Chester County, PA)

Joe: Got Shane from Chester County, PA, Big Al.

Al: Okay. What’s Shane got?

Joe: I don’t know. He’s like, “My wife is 42 and I’m 44. We earn about $350,000 a year and we’ll continue to maximize Roth 401(k) with an average of 6% match.”

Al: Sweet.

Joe: “Currently, account balances are about $500,000 Roth, $800,000 tax-deferred, cash value pension of $250,000, which will continue to have contributions and growth, and about $50,000 after-tax. All invested, low cost, broadly diversified funds. Our home is worth $650,000 with a $300,000 mortgage. Plan is to defer Social Security to FRA eliminating it-“

Al: – estimating-

Joe: Oh, I’m sorry. “- estimating it is about $2500 a month for each. In addition to above, my goal is to grow after-tax over next decade to improve available cash for the first few years before turning 59. I expect to sell the house early in retirement and transition to renting and traveling.” Now this guy’s dialed.

Al: Like it.

Joe: He’s 44. He’s like-

Al: Already thinking about it.

Joe: When does he want to retire? He say that?

Andi: He says “his plan is to defer Social Security to full retirement age. Yeah. So that’s when he is planning-

Joe: He’s gonna rent, he’s gonna travel, he’s gonna see the world. He’s got-

Al: Well, he is talking about he wants to improve his available cash in the first few years before turning 59 and a half.

Andi: Oh, actually, it’s further down. He says his goal is to retire in 11 years when he turns 55.

Al: Okay.

Joe: Oh, there we go. Okay. I just gotta keep reading. Perfect. See the preparation I do for the show.

Andi: Yeah.

Joe: It’s top notch. That’s the beauty of the show.

Al: I know. It’s just-

Joe: It’s not like we study.

Al: It’s spit balling.

Joe: Just sit there and study- I mean, if you go to a bar and you’re hanging out and you start talking about finances and all of a sudden some guy gives you like a textbook kind of boring ass answer, you’re probably never going to want to talk to the guy again.

Al: Yeah. Or it’s like you get this really cool question. You go, just a minute. Let me go to my car, fire up the computer. I’ll be back about half an hour.

Joe: Yeah. Right.

Al: Let me Google it.

Joe: Hold on. Let me yeah, I need a full blown financial plan for this one.

Andi: I was going to say, do you guys carry your HP 12 C calculators with you?

Joe: I carry my HP 12 C probably, and then I have it on my phone.

Al: I’ve got on my phone.

Andi: You go to cocktail parties and whip it out.

Joe: I have done that in the past. I don’t really go to cocktail parties.

Al: You played on the golf course, which is the same thing.

Joe: Yeah. Sometimes I need that. Tally up my score.

Al: Got it.

Joe: Do you go to cocktail parties?

Andi: Not at all.

Joe: Are you like a cocktail party kind of guy?

Al: No. I don’t know. I mean, we spend time with friends and we have beer or wine or whatever, but yeah-

Joe: You don’t like to dress up and go to a little fancy house.

Al: That’s not me. I know people that like that. That’s not me.

Joe: I know the same guy.

Al: I think we are thinking about the same guy.

Joe: “We have 3 kids, 7, 10, and 15, that we will likely put through college before our very early- or very early in retirement. We have 529 plans and we’ll cash flow it. We may need to provide some continued support for each- for our special needs daughter. Our goal is to be able to retire in 11 years when I turned 55. I’m estimating that I’ll need $150,000 in retirement when factoring in all above. We have a house full of pets. We drive a 2021 Honda Accord and a Kia Telluride. My drink of choice is whiskey sour and a-“

Andi: – mezcalita-

Joe: “-mezcalita from Chester County, PA. Just looking for a spitball. Any blind spots, risks that I’m missing?” Okay. $150,000. He’s going to receive- God, he’s got some work to do here.

Al: Yeah. Let’s see. Well, he’s got about $1,500,000 now. Let’s see, a couple max out Ross plus match. So let’s call that $60,000 savings, 11 years, 7%. Why don’t we do that? Okay. $1,500,000, let’s add $60,000, 7%, 11 years. I get $4,100,000. Is that what you get? I got $4,400,000 depending on when you count, started your compounding.

Al: Yeah, I got it. Okay. Well, okay let’s just call it around $4,000,000. Okay. Okay. And then $150,000 is, I’m assume that’s in today’s dollars. What would that come out to be? 4%- 3% is $132,000, so he’s gonna be short $150,000, 11 years at 3%. I’m guessing it’s gonna be close to $200,000.

Al: Yeah. I just got $207,000. So let’s call it $200,000. So you got $4,000,000. You want to spend $200,000. Okay. So that’s a, what is that? 4%, right? 4% at 55 is a little rich. However, he’s going to Social Security.

Joe: You got $70,000.

Al: You got $5000 a month, right? Between the two of them plus COLA. So in all likelihood, probably be fine.

Joe: Yeah. I mean, he could save a little bit more. Work a year longer, spend maybe a little bit less. I mean, there’s so, so many things that you can toggle here.

Al: You know, you could work part time a little bit here and there. Right. Yeah I think-

Joe: But he’s going to sell his house too.

Al: Yeah, so there’ll be more money there. So I think Shane, there’s a lot of ways to make this work. So I think, you know, broad strokes, I think your plan is fine.

Joe: Yeah. No, I like it as well. He’s- 44 and 42, they got $1,500,000 saved already.

Al: That’s amazing. Right.

Joe: And if he can sock away, I mean, he makes a ton, they make a ton of money, $350,000 bucks a year.

Al: That’s a lot. Yep.

Joe: You know, so $350,000, $60,000 into $350,000 is, so they save about 17%. Maybe you can get that to 20%.

Al: Sure. Yeah. Yep.

Joe: Over the next 11 years. Get that 6%, 7% rate of return. I think it’s all good.

Al: Yeah. Me too. Cool.

Joe: All right. Good work, man. Thanks for the email.

Do Employers Have to Adopt All of SECURE 2.0? (Nick, OH)

Joe: We got Nick from Ohio. He is a “48-year-old longtime loyal listener. Grand Cherokee driving, Iris Setter dog ownin’ and W2er.” A little W2 er.

Al: Wow. That means he’s an employee, not an employer.

Al: That’s what that means. Yeah.

Joe: “Could you please provide some clarity on the adoption of the IRS rules compared to the government acts. As you know, the SECURE Act 2. 0 has over 92 provisions in that Act.” I didn’t add them up, Nick, but thank you for that. “The IRS also has many rules such as the Rule of 55. My HR Benefits Department said that the IRS Rule of 55 is not available to myself, because it’s not written specifically into our 401(k) plan. Question, are employers required to adopt all 92 provisions of the new SECURE Act 2.0? Or are the employers going to pick and choose what provisions of the 92 that they specifically want their 401(k) plan like they do with the IRS rule of 55? Love the show. Thanks again. Peace.”

Al: Okay what do you say?

Joe: Good question.

Al: Yeah, good question.

Joe: Yeah, it’s the plan doc overrules the law.

Al: Yeah, always. And a lot of times the plan doc isn’t even caught up with what the law is. And that’s just unfortunate. That’s the way it goes.

Joe: So, yes. If your employer doesn’t want to say, you know, we’re going to have the- if the plan doc is not- if they’re not going to amend or adopt any of this, they might lose employees. So a lot of employers usually try to update their plan documents every so often. I’m not sure how big of a company Nick works. He’s a W2er.

Al: Right. Right. Yeah, I don’t know either. Remember a few years ago, the IRS, or I should say our government, Congress and Senate, mandated that you had to have the Roth option in a 401(k), the Roth provision in a 401(k) and no one had it, even though that was law and it’s like, what’s up? Well, but the problem is they made the rule right before year-end. So there wasn’t enough time to do it. And then next year happened and there wasn’t enough time to set it up timely. So we spent whatever amount of time, even though that was the law, no one had it in their plans until they amended it.

Joe: Right. IRA planning, 401(k) planning, things like that. When you go to 401(k)s, the IRAs, and when you’re trying to do like a 72T tax election, or if you’re taking RMDs from a 401(k), if a trust is a beneficiary, if, you know, there’s so many different kind of weird things with retirement accounts, that is completely different than any other account. Unfortunately, it’s up to the plan doc. You could be a master at the law, but if you don’t have the actual plan doc to see how the plan doc was drafted. Because this is there- lot of this is just boilerplate. The employer has to pay money to a third-party administrator to set up the 401(k) plan, and then when they want to amend it and adopt different things and add different flavors, it costs money. And some employers don’t necessarily want to spend the cash. And so, you know, you’re kind of stuck with whatever plan doc that you’re stuck with, but just be happy you got a plan. Because I think what- there’s still a large percentage of employers that don’t even have a 401(k) plan.

Al: Yeah. And then if you don’t have whatever provision you want in there, talk to your company, talk to your HR department, try to get a put in there.

Joe: Yeah. Yeah. And have them listen to this segment. Maybe that might, it’s just might change their minds.

Al: Yeah, right.

Andi: By the way, the rule of 55 that Nick mentions is the one that says you can take money out of your 401(k) or 403(b) at your current job without penalty if you leave that job, or “separate from service,” in or after the year you turn age 55 – it’s part of IRS code section 72(t). But as Nick points out, the SECURE Act 2.0 of 2022 contains a ton of retirement and tax-related provisions that make some fairly major changes to taxes and retirement planning. Download the SECURE Act 2.0 Guide from the podcast show notes to learn which changes that affect you are already in place, which are on the way, and how that’s going to impact your required minimum distributions, Roth account options, catch-up contributions, student loan payments, emergency savings, and college savings. Click the link in the description of today’s episode in your favorite podcast app, go to the show notes, and download the SECURE Act 2.0 Guide for free.

How to Offset Huge Capital Gains Taxes on the Sale of an Inherited House? (Stew, Clairemont)

We got Stew from Clairemont. “When I’m not driving my Toyota hybrid to and from work, I enjoy a little rum and Coke, but I’d like to relax watching a nice Stanley Cup playoff hockey game. Go Blackhawks.” When did he send this?

Andi: July 10th.

Al: Yeah. Pretty recent.

Joe: I suppose. I mean, the Stanley Cup playoffs end in probably May?

Andi: So apparently that’s the only time he drinks rum and Cokes during the playoffs.

Al: Gonna have to wait a while now.

Joe: I’ve been to a Blackhawk game.

Al: Have you really?

Joe: Yes.

Andi: Do you like hockey?

Joe: I do like, I like watching live hockey. I’m from Minnesota.

Al: He’s from Minnesota.

Andi: That’s true. Yeah.

Joe: “Before my mother-in-law died 5 years ago, my wife and brother-in-law took title of my mother-in-law’s house because my brother-in-law wanted to keep using the house for several more years. Now my brother-in-law is done.” With the house. He’s done with it.

Al: Okay. Doesn’t want it anymore. Here, you take it. Just gimme the money.

Joe: Alright, I’m done with this. “And now he wants to sell it. It’s valued at $2,000,000. So my wife should get at least $1,000,000 when he sells it. Last year my wife, 53, and I, 55, had an AGI of $235,000. I know you don’t give actual advice. But, is there anything you think we could do to help offset the looming tax bill when my brother-in-law sells the house and my wife gets $1,000,000 of the sale?”

Al: Well, when there is a gift, which is what happened here, then mother-in-law’s tax basis then transfers over to who got the property. Right? So, Stew, that’s your brother-in-law and your wife. So whatever that basis is, let’s just say $100,000 just to make up a number, a nice low number. Which means if it’s, if it was bought for $100,000, sells for $2,000,000, there’s a $1,900,000 capital gain. Presumably you’d split it between the two of you because you own 50/50. Now, interestingly enough, if mother-in-law had kept the property until she died, there would have been a full step-up in basis. She dies, it’s worth whatever. Let’s just say $2,000,000, even though it was a few years ago, and then you sell the property. Now it’s no tax because $2,000,000 sales price, $2,000,000 cost basis, zero, zero. But at this point, let’s just say you got a $1,900,000 gain. For brother-in-law, who I guess lived in it for two out of the last 5 years, I think that’s what he was implying because brother-in-law used it.

Joe: He used it, now he’s done.

Al: I’m assuming he lived in it.

Joe: How else do you use a house?

Al: Yeah, so he lived in it and owned it for 5 years.

Joe: His sister’s still on title though.

Al: I know.

Joe: But he gets $250,000-

Al: He gets a $250,000 exclusion himself. Your wife, Stew, doesn’t because I don’t think she lived in the house. So it’s all taxable. So what can you do at this point? Tax loss harvesting with other stock sales. I mean, it’s, there’s not a ton here.

Joe: Here’s what I would be thinking about is that Stew’s brother-in-law was using the house for 5 years. So I would be like, hey, Stew, you know-

Al: How about some rent?

Joe: If we would have sold the house when mom died- Oh, that was a gift, so I don’t know what the appreciation is then.

Al: Yeah. Yeah.

Joe: I don’t know. Do you pass some of the tax to Stew’s brother-in-law and say, hey, because you’ve used the house for 5 years and we didn’t receive any compensation?

Al: I think the best you could hope for is if he underpaid rent, you could make that up to Stew’s wife, offset some of this. Here’s the good news. The good news is-

Joe: You’ve got $1,000,000 coming.

Al: -you’ve got $1,000,000 coming and it’s capital gains, which is a pretty decent tax. So let’s not lose sight of this is an awesome thing, right? We’re just trying to make it better. And once you have a capital gain, it’s a capital gain. Unless you have other capital losses. Like let’s just say Stew, you and your wife have a $50,000 stock loss from whatever, if you sold that position, that $50,000 loss would go dollar for dollar against this, call it $950,000 gain, which you would have, presumably. So that would be at least something.

Joe: I mean, if you want to give to charity, you can do that to offset some of the gain.

Al: Yeah, you can potentially do that. I mean, there’s things that you can do, but basically it’s a great gift. It’s a low tax. You can sort of come up with a few little strategies to reduce the taxes a little bit, but there’s not a ton you can do here. I don’t think.

Joe: All right. Hopefully that helps.

Miving Investments In-Kind From Inherited Trust to Brokerage Account (George, KS – from episode 433)

Al: Wanna do George?

Joe: Yeah, let’s go to George. “Hello, Andi, Joe and Al. Thank you for sharing your knowledge about investing and planning for retirement. I feel like I’ve learned a lot by listening to you. I’m focused on saving for retirement, playing catch up after life put me back to zero 8 years ago. I’m now 60, single, have $200,000 in total investments, 60/40 split with $50,000 in brokerage, $50,000 in Roth, and $100,000 in my workplace Tax Advantage Retirement plan. I earn $55,000 a year and plan to work two to 5 more years. I save $20,000 a year.” He makes $55,000, Al.

Al: That’s- that’s a, that’s good. If you could do that.

Joe: That’s a pretty, pretty good savings right there.

Al: Maybe that’s- maybe that’s net pay. I don’t know how you do it after taxes.

Joe: Well, it’s all pre-tax. So, good for you. “I will have a school system pension of $2000 per month at retirement at 62, and it’ll grow a little if I work a little longer and I’ll take Social Security at 67, which is also about $2000 a month. I stand to inherit $450,000 soon, $60,000 in inherited IRA, and the rest is in a trust. I will add the inherited IRA to my custodian Fidelity and maintain a 60/40 allocation of US and international stocks with a small value tilt bond funds and a little real estate allotment.” This guy sounds like a CFP®.

Al: He does, yeah.

Joe: He’s got a little small value tilt. And a little REIT.

Al: Listens to our show maybe.

Joe: “My question though, it’s about the trust investments. Which are now a mix of mostly fixed income, 80%, a few individual stocks, and some expensive stock funds. I have no interest in staying with the bank investment arm where the trust monies are now handled. And as I understand it, through some internet researches or searches, I can move the investments in-kind to my Fidelity brokerage account. Does that sound right? My hope is to realign the mix to a 60/40 allocation after moving this inheritance to the brokerage account. That would mean selling all of-“

Andi: “- the extraneous-“

Joe: Thank you, “-expensive and repetitive funds the bank I bought for my deceased benefactor and buying a simple mix of index funds. Geez. Okay.

Al: Okay. Keeps going.

Joe: “Could you help me understand the inherited investments are handled on a step-up in basis and what I should expect for tax consequence. Also, about half of the fixed income portion is in municipal bonds and the other individual bonds with maturity dates in the years to come. I obviously am not in a tax bracket that justifies municipal bonds. And I have no interest in buying and selling individual bonds now or in the future, but rather will always use the core bond funds. Do I lose money if I sell them earlier than the maturity date and try to keep my portfolio simple? I know a likely response will be to find a fiduciary financial planner to help me out, and I likely will be giving your firm a call for a consultation as well as checking with some others.” Look at that.

Al: Yeah, he’s doing some research.

Joe: Don’t have to- well, he’s already given us a call. We’re going to answer his question and then-

Al: And then he’ll see how we do.

Joe: Exactly. We’ll probably blow this thing up.

Al: Probably.

Joe: Now I’m getting nervous. I got some business on the line here, Big Al.

Al: Here, lemme get Kleenex to dab your forehead.

Joe: “-calling and checking with some others when my nest egg grows substantially in a short time. But I enjoy handling my modest investments now and see continue to doing so as much as possible. Anyway, keep up the good work and look forward to hearing your response, George, in Kansas.” Okay.

Al: Okay. Well, first of all, let’s talk about when you inherit these assets. Yes, you can move them to your Fidelity brokerage account in-kind, that’s not a problem.

Joe: Easy peasy. Full step-up in basis.

Al: Yeah. Full step-up in basis means that whatever the value is when the individual passes away, becomes your new cost basis. So it doesn’t matter if the investments were bought for $50,000. Now they’re $100,000. Your cost basis is $100,000 because that’s what it would be worth or that’s what it was worth the date your parent or whoever this is-

Joe:- the benefactor.

Al: Benefactor. Thank you. I was searching for that word and it wasn’t coming. The date, the benefactor passed away. So when you sell ’em, like let’s say you sell ’em in the next week, there’s no tax consequence, right? Unless the stock goes up or down in that week. So yeah, that’s the good news about inheriting assets outside of a retirement account. You can sell those, you can rebalance and there’s no tax consequence at all.

Joe: But we’re assuming that it is just a revocable living trust.

Al: Yeah. And it is. Because there was a side follow-up.

Joe: If it was irrevocable-

Al: That’s totally different.

Joe: Yeah, totally different.

Al: Yeah, you’re right. Good. Good point.

Joe: Yeah. So easy peasy, George. You get the assets because you are the beneficiary. And then whenever the successor trustee settles the estate, then that account will go into your name and then from there you can just do an ACAT transfer right into your Fidelity account.

Al: That investment scope right over and you can sell ’em there. As far as the inherited IRA, so you can obviously buy and sell assets in that as well, there’s no tax consequence, but you will pay taxes on that because all money coming outta IRAs is taxable. As ordinary income.

Joe: Yeah. On the distribution.

Al: On the distribution. Yep. Yep. And you’ve got a- there’s a 10-year period where that has to be distributed nowadays.

Joe: Alright. Hopefully that helps. That’s it for us again this week. Thanks for the questions. Thanks for the comments. You know where to go. YourMoneyYourWealth. com. Click on that special offer- click on-

Andi: – Ask Joe and Al.

Joe: Yeah. What the hell am I talking about?

Andi: You can click the special offer if you want, but if you want a question answered, then click Ask Joe and Al.

Joe: Yeah. All right. That’s it. Great job, Andi. Great job, Big Al.

Al: That was fun.

Joe: Yep. We’ll see you next time. The show’s called Your Money, Your Wealth®.

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The Derails



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.

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CFP® – The CERTIFIED FINANCIAL PLANNER™ certification is by the Certified Financial Planner Board of Standards, Inc. To attain the right to use the CFP® designation, an individual must satisfactorily fulfill education, experience and ethics requirements as well as pass a comprehensive exam. Thirty hours of continuing education is required every two years to maintain the designation.

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CPA – Certified Public Accountant is a license set by the American Institute of Certified Public Accountants and administered by the National Association of State Boards of Accountancy. Eligibility to sit for the Uniform CPA Exam is determined by individual State Boards of Accountancy. Typically, the requirement is a U.S. bachelor’s degree which includes a minimum number of qualifying credit hours in accounting and business administration with an additional one-year study. All CPA candidates must pass the Uniform CPA Examination to qualify for a CPA certificate and license (i.e., permit to practice) to practice public accounting. CPAs are required to take continuing education courses to renew their license, and most states require CPAs to complete an ethics course during every renewal period.