Show Notes

• 00:00 – Intro: This Week on the YMYW Podcast
• 01:00 – We’re in the 32% Tax Bracket. Should We Do Roth Conversions? (John, Boston, MA)
• 06:19 – We Have Large Tax-Free Pension Income. Should We Do Roth Conversions? (Flight Deck Dad & Irish Girl, Pensacola, FL)
• 16:03 – Watch How to Break Through Retirement Barriers on YMYW TV, Calculate your Free Financial Blueprint
• 16:52 – Should We Do Roth Conversions or Take Advantage of 0% Capital Gains Tax? (Bert & Ernie, NJ)
• 25:53 – In the 24% Bracket. Should We Contribute to Tax-Free or Tax-Deferred Accounts? (Michael, Bellevue, WA)
• 29:49 – Schedule a Free Financial Assessment at any of Pure Financial Advisors’ 12 nationwide locations or online
• 31:04 – Disadvantages to Paying Off the Mortgage ASAP? Tax Efficiency of Money Market vs. Bond Funds? (Frenchie, ME)
• 36:23 – Outro: Next Week on the YMYW Podcast

Guides | Blogs | Educational Videos | YMYW Newsletter | Subscribe on YouTube

Watch today’s podcast episode on YouTube

Transcription

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

Intro: This Week on the YMYW Podcast

Andi: John in Boston is in the 32% tax bracket. Should he do Roth conversions? Flight Deck Dad and Irish Girl in Pensacola have a lot of tax-free pension income. Should they do Roth conversions? Bert and Ernie in New Jersey wonder if they should convert to Roth or take advantage of zero percent capital gains tax rates. Joe and Big Al spitball for all of them, today on Your Money, Your Wealth® podcast number 529. Plus, Michael and his wife in Bellevue are 34, in the 24% tax bracket and wonder if they should contribute to tax-free or tax-deferred accounts, and if they should slow down on retirement savings and start a bridging account for the years between when they want to punch the clock in their early to mid-50s, and when they can access their retirement savings. Then for something completely different, Frenchie from Maine writes back in: what are the disadvantages to paying off her mortgage ASAP, and what’s the tax efficiency of a money market compared to bond funds? I’m Executive Producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

We’re in the 32% Tax Bracket. Should We Do Roth Conversions? (John, Boston, MA)

Joe: All right, we got John from Boston, Massachusetts. It goes like this Big Al.

Al: Okay.

Joe: All right, I’ll best to plan for twice yearly royalty payments. That can push us into the 32% tax bracket. It’s a good problem to have, but I do love doing those Roth conversions and not sure I should do them. Our RMDs will be healthy, so to the extent I can minimize those, I’m 61 and disabled getting Social security disability. My wife’s 61, I’m planning to work until age 70.

Andi: And that’s all the information that he gave us. So then he got an email from me that said, can you give us a little more information? And this is what he provided.

Joe: Got it. So he’s giving royalties that’s pushing them up into the 32% tax bracket.

Al: Correct.

Joe: And he’s curious, should I do conversion?

So he still de Roth conversions or not? At 32%? Right. I got that question today. At that webinar we did. Should I convert in the 32% tax bracket? Yeah, I heard you. And I was like, okay, well we need a little bit more. We did, and fortunately we got a little bit more. Yeah, we got, okay, so Andi to the rescue here.

Okay, so, so John responds back, he goes, Hey, I got no pets. Both like M Meow,

Andi: I think it’s Meomi Pinot Noir.

Joe: Or something like that. Is that like a special pinot?

Andi: I think that’s the brand name. That’s the company that makes it is Meomi

Al: or omi. Meow. Could something like that

Andi: Could be they both like wine.

Yeah. That would work. Are they both like Pinot? Got it. Yeah, that’s true.

Joe: cars in Acura. Plenty saved, but how to best handle the Roth conversions or anything given royalties when RMD is expected to be large. Good problem to have, but still a problem. This year, royalties will be $300,000. It was a professor, a little school textbook?

I think so, yeah.

Al: Yeah. All a popular textbook at that.

Joe: Geez. I wonder if. Being used  nationally, I think, I wonder if it went to the University of Florida

Al: Maybe.

Joe: $2.8 million in pre-tax. $700,000 in Roth, $500,000 in a brokerage account. HSA is 37,000. Alright. Social security is 70,003. Me, wife will be four. Annual spend. 96. So he’s got $3 million in a retirement account. How old is he again? 61. Yep. Okay, so $3 million by the time he’s 75 is gonna be 6 million. Yep. six times four is 24, so $240,000. Is what is RMD could potentially be plus his social security. So he’s pushing 300,000, right? He continues to get royalties every year of another 300,000.

Al: That’s $600,000 of income if they continue. I mean, to me, that’s the question, right? I are these, what’s the expectation on the royalties? Are they gonna continue for the next decade or more? You have a bigger problem, or 20 years or more, it seems to me with a textbook it’s gonna go outta date and maybe be replaced by something else. So you wouldn’t necessarily have these royalties forever. So the point is, from 61 to 75, you got 14 years before you required minimum distribution. So maybe a way to think about it, if you think that royalties are only gonna be around for, let’s say five years, is don’t do Roth conversions. Yet, but as they start to decrease, may do your Roth conversions later and do ’em at year end when you know what those royalties are gonna be. That’s how I think I would do it, Joe.

Joe: Yeah. 32% tax bracket, you’re pushing $500,000 on the top end of taxable income. $400,000 on the low end. So. If you want to go, I think he’ll probably be in the 24. It could be the 28% tax bracket, depending on where tax rates go in retirement. So his RMD is probably not gonna touch 32 unless he gets the royalties. Unless that continues, right. That, yeah. Right at the. Royalties continue. Then convert.

Al: Yeah. Like let’s say the royalties continue at this level for the next 30 years. then convert. Go ahead and convert. Agreed. It doesn’t seem that likely though to me that they continue at that level for that long. You

Joe: don’t know John from Boston what textbook this is.

Al: Well, the other thing too is he could be updating it every year. New version. Guaranteed. Yeah.

Joe: Come on. He listens to Your Money, Your Wealth®. He’s a smart man. Right. Okay, well congratulations on the royalty. Yeah. Could you imagine writing a textbook?

Al: no. That would be, I couldn’t do it. I don’t think I could do a page.

Andi: You said you couldn’t write a financial planning textbook or a retirement textbook? I mean, I think you have, I think you basically have, Joe.

Al: I don’t think a textbook. I could, we could write books. We could orally talk to a ghost writer. Right? There you go. Our thoughts and have them write it. But a textbook.

Joe: I’m just trying to think of like my finance textbooks, statistics, calculus. Just standard, you know. just finance 101, they’re a little dry. Oh my gosh. I couldn’t imagine. But I did have a professor at university, but he wrote his textbook. Okay. Yeah. So, all right, well, very cool. Let’s, let’s move on.

We Have Large Tax-Free Pension Income. Should We Do Roth Conversions? (Flight Deck Dad & Irish Girl, Pensacola, FL)

Joe: Let’s see. We got, hi, Andi Joe and Big Al. This is Flight Deck Dad. Oh, flight Deck Dad and Irish girl here from Pensacola, Florida. Flight Deck. Dad, that’s a badass name. Flight Deck. Dad, I found your show on YouTube and you guys are great. Joe’s lack of, okay. Why ya gotta bust my balls Flight Deck Dad?

Al: I’ll read that one. Joe’s lack of enunciation.

Joe: I got this. Well, ball reading is hilarious. So you like it when I just sound like a complete imbecile.

Andi: It’s amazing how many people say that. A lot of people apparently like it when you sound like a complete imbecile.

Joe: Yeah, I make people feel better. About themselves. Yeah, about themselves. Yeah. It’s just like, wow, this guy is a complete idiot.

Al: I could’ve pronounced that word.

Joe: I’m 52 and Irish, she is 47. I’m retired due to injuries from the Navy and wife. He’s an administrator at a local hospital, we have two golden retrievers. But if the 1-year-old doesn’t stop pissing on the floor, we’ll have one dog. Wow. Flight Deck Dad conditions just coming off hot. Our office Irish will retire at 56 years old. We will have three spoiled daughters age, 16, 13, 10, 4 year degrees, including room and board are paid for by the va. Drive a 2018 Honda pilot. So he calls himself Flight Deck dad because he drives a Honda Pilot or do you think it was actually a pilot in the Navy? I think he was in the Navy. Well, he was in the Navy, but. Was he on a ship or was he a pilot? was he iceman? He was on the RIP Valler. He was. He was on the deck. Okay. That’s all we know. He was on the flight deck.

Al: Yeah, that’s what we know.

Joe: Got it. All right. Was he like, Mikey Martin jumping outta helicopters or was he actually flying the helicopter? I couldn’t tell you.

Andi: This is gonna become a lifestyle podcast instead of a financial podcast.

Joe: All right, so wifey drives a 2021 Jeep Wrangler. My daughter drives a 2024 Jeep Wrangler. Wow. Daughter gets a better car. Little Jeep family. Yeah. All cars are paid off when you live in Pensacola. It’s basically required to have a boat. I. I paid off as well. Homes primary worth 1.2 $490,000 loan at 2.5% of Beach House, valued at 800,000 with a $400,000 balance at 7.75 or 7.375. We do not rent the house and we’ll refinance once the rates come down. Proud to say I am a three years sober in Irish, enjoys Jameson and Guinness. Shocker. Here’s the deal. All. $1 million in a brokerage account, $450,000 in a Roth, IRA $225,000 in Irish Roth, IRA two 30 in money market for emergency fund and cash reserves. 800,000 in Irish, traditional 403(b) 50,000 in Roth. 403(b) Irish puts away 24,500 in a Roth 4 0 3 B, and the company puts in $10,000 in that same plan. Okay. Income being $96,000 tax free with the Cola for Life and Irish makes 225,000. We would like to withdraw an amount of $8,000 per month when Irish hits 56 years old in addition to my income.

Okay. Alright. So he makes a hundred thousand dollars, they wanna pull out another a hundred. Another hundred? Yep. All right. Assuming an 8% return, I anticipate a total of $5 million. Our plan is to live off the cash of 460,000 while Irish is age 56 to 59, and do Roth conversions since our income will be very low or very little taxable income.

Is this a good plan? Do you have any other advice or options? Does it make sense to pay taxes for Roth conversions outta the brokerage account or use the cash. Our goal is to have $3 million in our Roth when Irish hits 60 years old doing conversions. After spending down our brokerage account, our goal is to take the earnings annually.

From the Roth, meaning that if we have $3 million and the market does 10% and we pull out $300,000 in tax refunds and live out those monies in cash until we need to make another Roth withdrawal while leaving the $3 million balance. Is this a dumb idea? Side note, when our youngest is out of the house, we will live in Ireland for three months per year.

Thanks for what you do. Go Navy. right. Let me add this up. What have they got total? He’s got a million dollars in a brokerage account. $450,000 in a Roth? Yeah. So 4, 5, 6. So they got 700,000 in Roth today?

Al: Yeah. 7 25 in Roth. we, they got about 2.8 million overall. 2.8 million. He’s 52. She’s 47. Yeah.

Alright. She’s gonna work. I just did, I did a little math, which is, that the amount that they have for nine years, 6%, adding about 35,000, they do end up with about 5 million. So I agree with his number, but he’s assuming 8%. I know. I got it at six.

Joe: Okay.

Al: Well, yeah. Your calculator’s better than his apparently.

Yeah. And then, if they want, another. 96,008,000 a month in nine years at 3% inflation. That’s about 120 5K. So first of all, we check the distribution rate, right? 125 divided by 5 million, that’s two point a half percent distribution rate. So check, we like that. That’s, there’s a lot of cushion there to do what you wanna do.

You could probably even spend a little bit more, that wasn’t your question, but I wanted to start with that. But Joe, the question was really kind of sequence of withdrawals and Roth conversions.

Joe: So he’s got a very interesting situation here because he is got a hundred thousand dollars pension that’s tax free.

Al: Right. Which has A cola right? And it a nice cola, which is why I ignored that. ’cause I figured that’s gonna keep up with inflation for the other half of their spending.

Joe: So he needs $8,000. So it is like, do I wanna do massive conversions here? you could still get probably another a hundred thousand dollars out of the plan.

Like each year and still be in the 12% tax bracket.

Al: Yeah, I agree

Joe: you, so I would not convert higher than the 12% tax bracket. If I was going to do conversions, I would wanna keep that diversification strong to keep my liquidity. So cash and brokerage account, you wanna have, so, so you, have to map, this is a little bit different circumstance is just because he has.

That huge pension that’s a hundred percent tax free is tax

Al: free. Correct.

Joe: And then so you still have the standard deduction and then you still have another, I mean, it’s $250,000 of total income potentially that could come to ’em. And they’ll still be in a very low tax bracket. Right. And so if they wanna live off $200,000 a year and they’re doing conversions to the, let’s say the top of the 22 over that time period, I think they’ll, they would end up paying too much tax.

Al: I would agree with you. And the other thing is they’ve already got a lot of money in a Roth. They’ve already got a lot of money in a non-qualified account, so they, 800,000 is a lot in tax deferred. But having all that tax free income, provides you a little bit of flexibility. Now you think about this, so later on, if you have higher medical expenses, those are usually deductible.

You can take those out of the IRA. and have it be deductible. If you wanna give any money to charity at a two point half percent distribution rate, you got some cushion, right? You could do a qualified charitable distribution starting at age 70 and a half. So that doesn’t count for acquired minimum distribution.

So you don’t necessarily wanna drain it out. And if you do drain it out, you probably end up paying higher taxes, doing the Roth conversions than you might be otherwise, if you did less. Now, I’m not saying to not do any Roth conversions, but I just think you have to be a little bit careful. You don’t want to go too far here.

Here’s

Joe: another way to look at this flight deck. Dad. I’m looking at $120,000. That’s the $8,000 a month that he will need to live off of given three and a half percent inflation by the time he needs a distribution. Right. He’s got the a hundred thousand dollars coming in tax free. So he would need $3 million of liquidity to create the additional one 20.

Right. Given a 4% distribution rate. Sure. So if I look at that $3 million, he’s wanting all of that roughly to be in Roth. Right. I would say. Man, you could probably have maybe a half of that in Roth, half of that in, traditional. So you still get a little bit of the tax deduction today. but it’s just mapping this out to make this thing sing for you, because let’s say you got 1.5 million in the, in a traditional IRA.

4% of that is $60,000. You’re never gonna hit like a higher tax bracket from your RMDs, right? You could keep yourself in that, you know, 10 to 12 or 15% tax bracket. instead of converting everything. I know this is crazy for some people to believe that you don’t wanna do that, but. This case is a little bit unique where you could do some really cool tax planning and if you run the numbers appropriately and you get the growth rate of what you think you will, I mean, I think the tax savings could be enormous.

Al: Yeah. I think one, one thought that could change that is, I don’t know what happens to the, tax free pension if he were to die. Maybe that goes away, maybe. and then, Irish girl is in a higher tax bracket as a single taxpayer. That could change the delta just a little bit. So you gotta think about that too, maybe.

Joe: Yep, I agree. Okay, cool. Thanks Flight Deck Dad.

Watch How to Break Through Retirement Barriers on YMYW TV, Calculate your free Financial Blueprint

Andi: The top 3 barriers to retirement for most people are not having enough retirement savings, not having a formal plan, and overspending. This week on Your Money, Your Wealth® TV, Joe Anderson, CFP® and Big Al Clopine, CPA show you how to break through those retirement barriers. Click or tap the link in the episode description to watch it on our YouTube channel. Then, calculate your Financial Blueprint for free, to help you determine your probability of retirement success. Just input your income and savings, investments and debt, and your expenses and goals. The Financial Blueprint tool will analyze your current cash flow, assets, and projected spending for retirement and output a detailed report outlining what you can do now to help you achieve those retirement goals. Minimize stress. Maximize life, and prepare for the future. To start taking control of your retirement, just click the Financial Blueprint link in the episode description.

Should We Do Roth Conversions or Take Advantage of 0% Capital Gains Tax? (Bert & Ernie, NJ)

Joe: dear Joe, big Al, Andi, this is Bert from New Jersey. I’ve been listening to your podcast since about 2018 while driving or walking and going about in other daily activities. The friendly banter makes listening to an Enthralling Financial podcast even more fun.

Andi: Nice.

Joe: Alright. I’m trying to make a decision on whether to do a Roth conversion or take advantage of the 0% qualified income tax rates.

0% qualified income tax rates.

Al: I, he is, I think he’s talking about capital gain.

Joe: That’s what I’m thinking too. But yeah, qualified income tax rate.

Al: Well, qualified dividends fall into that, so maybe that’s where he got it.

Joe: Got it. I’m 55 years old and work as a software engineer, but intend to stop working for money and trying something different. My husband, Ernie is 61 on disability. Has significant disability income. We spend about $200,000 per year. We have a total of about $7 million. I’m gonna work only part of this year, so my taxable income will be reduced to about $40,000, ordinary $42,000 of dividends that leaves us qualifying income to be taxed at 0%. And even some room for tax gain harvesting in 2026, there could even be more tax at 0% since I won’t be working. Earnings non-taxable income is about $111,000 per year. My annual non-taxable income is $8,000 from an inherited Roth RMDs. Okay. Our taxable income is 113,000 A GI. Here’s our assets pretax, two and a half million, Roth, 2 million taxable, 2.7 million, with one about another $2 million basis there. We have HSAs of about $12,000. I’m gonna liquidate. in 2025 based upon the 2024 medical expenses, because I’m not itemizing, I have a cash value pension worth about $28,000 that I expect to start drawing $4,000 of benefit annually in 2035. Based on the benefit schedule, I am doing maximum 401k pretax contributions instead of Roth at this job before I terminate my employment. I can reverse the tax impact of this decision later if I want to do a Roth conversion. If I wanna further reduce our non-qualified income to leave room for more qualified income, I can move some assets. Okay? I could only, I could hold more the non-qualified income producing assets in a pre-tax IRA. Once I stop working and roll it over. This guy’s an engineer, right?

Andi: Yes.

Joe: Theme. Yeah. That vocabulary uses on some of this stuff. Yeah. these assets I could move would be cash bond et f in some stock ETFs with a lower qualified income percent.

Most people are like, what is he talking about? I’m even trying to, a tough pen to follow here. With qualified income percent, the hell is qualified income percent.

Andi: He’s talking about the percentage of his income that’s qualified. understand versus non qual.

Al: I understand. There again, I think he means capital gain.

That’s, what I’m going with my,

Joe: but then yeah, he, uses the same term with two different words. Yes. Or right. Qualified income percent in capital gains, just pick one, right? Just so we can all follow along. My thought is that I should take advantage of the 0% capital gains tax bracket for the next few years while they still can.

I’m not adding to the pre-tax IRAs or 4 0 1 Ks, and since they’re heavily invested in bonds, they should grow at a slower rate than the rest of my investments. I can withdraw the inherited pre-tax IRAs. Starting in about three or four years from now when the RMDs time, for the regular IRAs, assuming that tax rates stay the same for the next 15 to 20 years, I can use some qcd from the IRAs to keep the a GI in check drive 2016 Mercedes C 300, or historic 1997 Saturn.

Wow. Saturns. They still make Saturns.

Al: No, that went out a long time ago. Really? Yeah.

Joe: Did you have a Saturn?

Al: No. No, but I knew about it.

Joe: Ernie drives a 2021 Jeep. We enjoy an IPA, but usually the non-alcoholic variety. There’s non-alcoholic IPAs.

Al: Yeah. athletic. It’s actually pretty good. Athletics and ipa. A, athletic beer.

Yeah, I’ve heard of that. I, Diego. It

Joe: was an I, Diego. I didn’t know that was an IPA. Well, they

Al: have all different kinds. Oh, I suppose, including IPAs. Got it.

Joe: Yep. Okay. so what’s the question?

Andi: Should he do Roth conversions or, do the 0% capital gain stacks rate.

Al: Okay. Yeah, that’s the question. And so let me recap.

So he’s got about $7 million, and 2.2 million is pre-tax. 1.9 is, is the brokerage, is, I’m sorry, is the Roth, and 2.75 is taxable. So, so the, so here’s the, lemme sort of explain the question as I understand it. So, when you are in the 12%. Income tax bracket, which is about $96,000 in taxable income, for a married couple.

Then your capital gains are taxed at zero. Your long-term capital gains are taxed at zero, including your capital gain dividends, and your qualified dividends. They’re taxed at 0%, but once you go over that 96,000 of capital gain income, they’re taxed at the 15% rate,

Joe: and that’s taxable income.

Al: Taxable income.

Yeah, that’s exactly right. Taxable, not total income. Taxable income. So then the question is, well, I basically have about zero income this year, or not very much income this year. Should I go ahead and sell some of my stocks or mutual funds that I gain up to that? Up to that 96,000 of taxable income and pay zero tax, or should I concentrate on Roth conversions?

So I think, Joe, I think that’s the question. And my answer would be, when you’ve got $7 million in 2.2 million of pre-tax, I would focus more on Roth conversions. I think that’s more important. However, there could be an exception, and that is if you’ve got a brokerage, Investments that you would like to, diversify, sell and diversify ’cause you’re too concentrated, then might, I might switch my answer to go to, to go ahead and start tax gain harvesting, or maybe even in some cases, sell additional and pay the 15% tax just to get a better investment allocation.

Joe: He’s 55 years old, he’s a software engineer. He’s gonna stop working for money. Try something different. Yeah. Volunteer, I’m guessing. Alright, so he’s got 20 years, so he’s gonna contribute to the retirement account for another year. He’s gonna go pre-tax, so let’s just call. Hm. Two and a half million dollars sitting in a pre-tax account or, yeah.

Or even two to be conservative. Yeah. And then that,

Al: that

Joe: in 20

Al: years, that could double

Joe: twice. It’s gonna be $8 million. Could be, yeah. Four times eight. That’s a big number. $160,000 is gonna be the RRMD plus social security plus whatever, taxable pension Plus he’s got. Couple million, $3 million in a taxable account.

There’s gonna be interest in dividends and everything else that spits off of that. he’s gonna be in a lot higher tax bracket potentially. ’cause he’s, his partner, Ernie has got almost $120,000 pension coming to him tax free. Right? or is that a dis It’s a disability payment. Dis disability. Yeah. I don’t think that stops $111,000 That’s coming to them with no.

Taxes. Yeah. Right.

Andi: There’s more information that I took out of there. His private disability policy, which is about half of it, ends at full, social security full retirement age, and then he is got VA disability that ends at death.

Al: Got it. Okay. Yeah. And then let me just sort of interject too. the, your math was just a little off, four times H 32.

So 320,000 would be the RMD. No. There you go. Just to add to, you know, plus all the income from the brokerage account, right? And social security. So it’s gonna be a big, the point is it’s gonna be a big number, a high tax bracket. And so that’s why I would probably favor Roth conversions, unless you wanna rebalance the account.

Because what we talked about, if you’ve got, if you wanna diversify a little bit more, maybe focus more on that, but you’ve got. Plenty of time to actually do both depending upon your situation.

Joe: Yeah. Congratulations on, the mighty net worth that you built up. It’s fantastic.

In the 24% Bracket. Should We Contribute to Tax-Free or Tax Deferred Accounts? (Michael, Bellevue, WA)

Joe: Alright. We got, Bellevue, Washington, Michael. He goes, Hey, Joe, big, I don’t just start listening to you about a month ago. I really enjoy, the single malt whiskey meat. All right. Little single malt whiskey. Neat. My wife prefers a good Italian red wine. We’re both 34, currently making right about $350,000 a year, give or take. With various bonuses. We have $342,000 in retirement accounts, mainly invested in mutual funds and index funds.

175,000 of that is in Roth IRAs. We’re currently maxing out my wife’s Roth 401k, both the Roth IRAs. Her employer matches all her 401k contributions in the traditional 401k, so an extra 11,500 a year. Since we’re in the 24% tax bracket, should we be contributing to the Roth 401k or should we do regular? We also do not have a brokerage account.

It would like to retire early, sometime in our early to. Mid fifties, should I slow down our retirement contributions and start building a bridge account for the years we wanna retire before we have access to our retirement funds. Thank you for your thoughts. I have greatly enjoyed listening through many of your past episodes since I discovered the show.

Cool. Thank you, Michael Bellevue. Got a pretty big presence now in, lv, the Greater Seattle. We do a couple offices, right? Yeah. Redmond in Mercer Island, correct. I think I

Al: know your answer. 34

Joe: years old. All Roth baby. All Roth. I,

Al: agreed. I do, and, here’s why. For me it’s because, well, first of all, 24% is a, it’s a pretty good bracket compared to historical bracket brackets, at least over my career.

That’s number one. Number two, you’re 20. You’re what? 34? 34. You’re 34. You’re probably gonna make more money as you age, as you get older, as you get more experience.

Joe: You’re making a ton of money now, though, already 350 grand.

Al: I know, but it’s probably only going up. Right, right. So that’s what I’m saying. So I, would stick with Roth right now, maybe later.

You’re making 500,000 or whatever, then send us a note, we’ll discuss it again, but Roth conversions or Roth option right now.

Joe: So here’s to, to bridge the gap. You, there’s FO tax treatment in Roth ira, so first and first out. So you can always take out the contributions of a Roth IRA and not pay any tax on those.

And you have access to those dollars at any time. So I highly don’t recommend that you’re using the. The basis of Roth IRAs to bridge the gap versus a brokerage account. But I would, if I can max out Roth IRAs, that’s where I want to go because I love tax free growth all day long. So if I’m not fully funding all Roth options that I have at age 34, I.

And there’s still room in Roth. I’m gonna go Roth. But now let’s say if you make more money or you spend less money or something happens, or you get a larger bonus, max out those retirement plans first because there’s contribution limits. There’s only so many dollars that you can put into Roth IRAs as a contribution, or Roth 4 0 1 Ks, or 4 0 3 Bs, or whatever plan that you have.

If you, after you max those out, then that’s when I would think about the brokerage account. So, Because you have access to these plans and it’s hard enough to get the money in there.

Al: Yeah. and I think the other thing to realize is at age 55, if you can work till age 55, you said early to mid fifties, if you couldn’t work till age 55, you have full access to your Roth 401k and your traditional 401k without penalty.

As long as you’re working at age 55 and then you retire. With your 401k, you have access to that and there’s no 10% penalty. So I think a lot of people don’t really know that rule. they think everything’s 59. 50 and a half.

Joe: Yeah. alright, cool. Thanks for listening,

Schedule a Free Financial Assessment at any of Pure Financial Advisors’ 12 nationwide locations or online

Andi: Including the two Seattle area offices the fellas mentioned, Pure Financial Advisors now has 12 nationwide locations. We’re in Northbrook and Wheaton in the Chicago area, Greenwood Village in the Denver area, Prescott, AZ, Lehi near Salt Lake City, Utah, and in 5 California locations: Davis, Brea, Woodland Hills, Irvine, and our original San Diego headquarters. Pure is still growing, which means more experienced professionals on Joe and Big Al’s team, able to provide you with more conflict-free one-on-one financial guidance, from more locations, without selling you any investment products. But here’s the thing: you can schedule a financial assessment with Pure no matter where you are – that’s literally what Zoom is for. So even if you’re right next door to one of our offices but you’d rather get a professional, free, in-depth review of your finances while you’re at home in your jammies on your couch, you totally can. Just click or tap the Free Financial Assessment link in the episode description to book yours. Or if you’d rather do it the old fashioned way, just call 888-994-6257 and schedule your assessment now. And if you’re still not sure, check out YourMoneyYourWealth.com to learn more about us, then hit the green Get an Assessment button at the top of the page.

Disadvantages to Paying Off the Mortgage ASAP? Tax Efficiency of Money Market vs. Bond Funds? (Frenchie, ME)

Joe: Hi Andi and the Fellers. Oh boy. This is Frenchie from Maine. The 2024 YMYW survey winner with a hundred bucks. Thanks again. I bought lots of green tea and a bike lock. Dishwashing pods for the first time of my life. New homeowner. That a hundred dollars went for a lot of good stuff. Stuff. Wow. If you bought some lotion and some sunblock.

Well, thank you for everything that you purchased with that hundred dollars.

Al: Yeah, right. She bought some dishwashing pods. What? The Never had ’em.

Andi: She’s a new homeowner.

Joe: Oh my God, first time homeowner. Alright, congratulations, Frenchie from Maine. I will once more be representing your non wealthy listeners, or you were still looking for some. Okay. I am 54. I live out in the country for a decade. My monthly social security currently is projected to be quite low. One reason why I plan on working until at least 70. To Heaven’s willing, my trick of choice is, you guessed it, green tea. I thought she was gonna say dish washing pods. I’m, still driving around in my 2000 Toyota Avalon with the sunroof in $150,000 or 150,000 miles, which I inherited from my mother. Two questions today that I was hoping to get a little spitball on. Number one is someone new to debt of any sort. I’m eager to pay off my mortgage for the condo I bought several months ago. The mortgage is quite manageable. However, as I put a very low down payment, I’m not certain that I’ll be here at this place long term. Is there any tax or general wealth disadvantage to paying off the mortgage as quickly as possible, especially if I do not itemize my taxes at this time. The only thing about paying down debt super aggressively is that you wanna make sure that you have adequate liquidity, cash reserves. you know, we get people, Hey, I’m paying this thing off. And they, like, everything goes to the debt and they don’t have enough cash. Something happens and they’re just refinancing their house any way.

Al: Yeah. They’re borrowing again, right? Yeah. So I guess the way I would say it is make sure you have your emergency fund set aside.

Make sure you’re. Saving appropriately for your retirement accounts. If you’re still working, you probably still have a 401k or something like that. Make sure you’re funding that first. Make sure you got a little money outside a retirement brokerage account and if you still have extra money, then start paying down that mortgage a little bit.

But it would help to know how much you have in assets and also what the interest rate is. ’cause those two are gonna, IM impact how we might say it too, but I think the main. Point, I guess, is that people are sometimes so aggressively paying off their mortgage. they, they don’t have any savings and that’s not good either.

Joe: French, yeah, I would just go for it. She just bought the condo a couple months ago. She’s probably paying what, 7% on the, it’s probably high.

Al: So, so the way I would look at refinancing when rates come down, that’s what I would do.

Joe: I would, there’s no tax advantage of keeping that mortgage or aggressively paying it off because you’re, she’s got the standard deduction.

Al: Yeah. Right. So, exactly.

Joe: Alright. Number two, along with the Toyota Avalon inherited two small bond funds from my mother when she passed away a few years ago. They’re my brokerage fund and they give off a small amount of income each month that I reinvest in those funds. I heard Big Al mention that in a taxable accounts such as funds may not be tax efficient, however. Either we’ll keep that money in those bond funds or simply put them in a money market fund also in that taxable account. Is there a difference tax efficiency wise, whether I’m earning interest out that money in a money market fund or dividends out those in bond funds? That money is currently part of my security fund and I’d like to keep it pretty stable. Okay, so that’s her cash reserve. Yeah. So it sounds like she’s got that buttoned up. Sure. So from a cashflow perspective, going back to question one, Frenchie, I would aggressively pay out the mortgage. is there a tax benefit from a bond fund to a money market? Fund the money market fund is gonna be more stable.

Al: Yeah. They’re both taxed the same way. Unless it’s a, municipal bond, which is tax free. Whether you need a municipal bond or not is dependent upon your tax bracket. ’cause typically they pay a little bit less than regular bonds that are taxable. So just consider that.

Joe: All right. by the way, I wrote in over a year ago, and you were wondering on the show what a Franco American is.

Al: Okay.

Joe: You remember that?

Al: I don’t, but we prob we probably didn’t know – Andi?

Andi: She said that she was, Frenchy from Maine and that she was Franco American. And you said, what the heck does that mean?

Joe: I have no idea. I do. Now we are descendants from Quebec. That’s what it means. We are all over Maine. The largest ethnic group here. We are hardworking and really cool. Thanks for all the three of you do. A real pleasure to hear you each week. By the way, I started an MBA program so soon I’ll be writing in correcting you. Ha Frenchie. All right. Okay, be one of the crew.

Outro: Next Week on the YMYW Podcast

Andi: Thank you all for sending us your spitballs. Technically you’re all part of the crew, because Your Money, Your Wealth is your podcast! Next week Joe and Big Al spitball on rebalancing your asset allocation, muni bonds in a brokerage account, and emergency funds for DJ in St. Louis, Coach Dobber in Minnesota, and Daniel in Stevensville, Michigan, respectively. Tim the Enchanter and Duke in update New York, your spitballs will be featured too. If you haven’t  gotten your own Retirement Spitball Analysis yet, what are you waiting for? Click or tap Ask Joe and Big Al in the episode description, watch my how-to video, then send us an email or a voice message, and I’ll see that it gets to the fellas.

Your Money, Your Wealth is presented by Pure Financial Advisors, 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.

_______

Listen to the YMYW podcast:

Amazon Music

AntennaPod

Anytime Player

Apple Podcasts

Audible

Castbox

Castro

Curiocaster

Fountain

Goodpods

iHeartRadio

iVoox

Luminary

Overcast

Player FM

Pocket Casts

Podbean

Podcast Addict

Podcast Index

Podcast Guru

Podcast Republic

Podchaser

Podfriend

PodHero

Podknife

podStation

Podverse

Podvine

Radio Public

Rephonic

Sonnet

Spotify

Subscribe on Android

Subscribe by Email

RSS feed

See All Platforms