Show Notes

• 00:00 – Intro: This Week on the YMYW Podcast
• 01:11 – Should We Continue Roth Conversions in Retirement? What About Long-Term Care? (Cousy, MO)
• 13:03 – Must I Wait 5 Years to Withdraw My Roth Conversion, Or Only Its Earnings? (“Peggy Hill”, MN)
• 21:50 – Is My Retirement Plan Payout the Killer Deal I Think It Is? (Skipper)
• 28:07 – How to Minimize My Capital Gains Tax? (Jeff, Dallas, TX)
• 33:37 – Must I Empty My Inherited IRA Within 10 Years With The SECURE Act? (Dolly, Bristol, TN)
• 37:50 – HSA and HRA: Health Savings Account vs. Health Reimbursement Arrangement (Larry, RI)
• 40:48 – Outro: Next Week on the YMYW Podcast

Free Financial Resources:

5 Year Rules for Roth IRA Withdrawals

2025 Key Financial Data Guide (newly updated with One Big Beautiful Bill changes)

10 Steps to Improve Investing Success

What to Do When the Stock Market Gets Crazy – YMYW TV

Financial Blueprint (self-guided)

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Transcription

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

Intro: This Week on the YMYW Podcast

Andi: A YMYW listener from Missouri and his wife are retired at 69 and 67, with less than $2 million dollars. Should they continue converting retirement savings to Roth for the tax-free growth? What should they do about long-term care insurance? More importantly, is our listener’s name pronounced Cuzzy or Koozy? Speaking of Roth conversions, must “Peggy Hill” wait five years to withdraw her conversion money, or only its earnings? That’s today on Your Money, Your Wealth® podcast number 547. Plus, is Skipper’s retirement payout plan the killer deal he thinks it is? How can Jeff in Dallas pay less capital gains tax on his 3 million dollar single stocks, million dollar 401(k), and potential eBay income? Is selling on eBay still a thing? Does Dolly in Tennessee need to empty her inherited IRA within the next 10 years due to the SECURE Act? And finally, HSA vs. HRA: how should Larry in Rhode Island navigate switching from his current employer’s health savings account to his future employer’s health reimbursement arrangement? I’m Executive Producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP®, and Big Al Clopine, CPA.

Should We Continue Roth Conversions in Retirement? What About Long-Term Care? (Cousy, MO)

Joe: Let’s dive right in. He goes, Hey Joe and Big Al, have been listening to, you guys for a while as I walk in exercise. So he is been listening for several months. Has he been exercising for several months or just started the show?

Several months? Yeah. I don’t know. Not clear. Got it. would love a spitball from you two. Love the podcast. Have learned a bunch from you two. Thank you. You can call me Coozy from Missouri.

Andi: I think it’s Cuzzy. Like short for cousin? Not sure

Joe: cousin.

Al: I think it’s cozy. C-O-U-S-Y. Coozy. I like Coozy. I like Coozy. Reminds me of beer.

Joe: Yeah. You need a coozy.

Al: You do?

Joe: Yep. All right. Wife and I have been blessed with good health in multiple grandchildren. Retired from full-time work field years ago. I’m 69, wife’s 67. I work. A little part-time, but not counting that income in the following. Listening to others pitfall examples, make me feel like we’re behind most of your listeners in retirement savings, but feel pretty good about our chances to outlive our assets. Here it goes, $72,000 in Social Security. Both of us are claiming $24,000 in pensions. Cousy, you’re sitting pretty good. A hundred thousand dollars of fixed income. Doesn’t matter what your assets are.

Al: Yeah, agreed.

Joe: He’s got a house with no debt, $110,000 expenses. That’s includes tax and maybe a onetime large expense. He’s got some assets in a brokerage account of 150,000. He’s got a five and a 10 year MYGA, multi-year guaranteed income annuity pre-tax, $400,000. Other pre-tax, 250,000. Roth IRA Eat 50. All right. Looks pretty good.

Al: Looks pretty good. I think, that’s about 1.6 million income of about 95. 6,000 expenses of one 10, I’d say. Check looks good.

Joe: Yeah, he’s sitting pretty good. Yep. All right. He’s got a question though. He’s going. I have tried several online calculators plus my Excel on weather to continue to convert additional money to Roth. The advice is conflicting marginal tax rate to convert is 22% and have been converting heavy.

For the last five to six years, started social security in 2025 and it seems like it lived now in the 12% marginal tax rate using qualified dividends. Until RMD start. Initially, I will consume 25% of the RMD with a QCD also considering a qac. Ah, this guy loves annuities. He doesn’t he? At age 73 defer to 85.

As an additional way to convert long-term care costs if needed. Legacy for children would be nice, but children are in good shape financially already, so priority is to us. Thoughts on continuing to convert or not. Seems like I’ll pay 22% when I convert due to the higher taxability of social security, even when I’m in the 12% tax bracket, but will also pay 22% when I start RMDs.

That’s on the above. Appreciate any guidance you got. Question number two, long-term care. I have a policy to pay 50% of the nursing home costs with an inflation rider included all of our annual expenses. all in are annual expenses, general thoughts on self-funding versus asset-based long-term care policy versus traditional, which I have.

Good. Okay. So he’s got eight 50. Roth, which is a giant amount. It’s more than is deferred. It’s amazing. So then he is got $400,000. So four what? He’s six 50 in retirement accounts. Total? Yep. He’s 69 years old. He’s got RMDs coming in, what, five, six years? Yeah. Call it four. Well, yeah, I think 4 72 or 75, 73 I think.

73. Yeah, it will phase. All right. Yeah, I think so. Call it four. all So, but he bought these. It’s annuity contracts. but it’s inside a tax deferred. Yeah. Is he gonna turn ’em on and then create the income? And get the income? That’s gonna be a force out of the retirement account.

Al: Yeah, but you can just keep it an IRA can’t you with a MYGA.

Joe: I suppose. But why would you even buy a MYGA inside an IRA?

Al: I don’t know

Joe: If you’re not gonna take the income, I don’t know.

Al: I think he’s thinking he is gonna take the income. I think so too. Be because Joe, here’s what I did. I looked at not considering the miga, which I agree with you, that’s a question, but if you just look at social security, I took 85% of that.

So that’s 61,000 pension, 24 dividends, I don’t know how much. 150,000, 2%, 3000. So that’s 88,000 RMD. Somewhere around 4% of six 50 ish. So that’s 26. So I get 114,000 of a GI. You take out the standard deduction, 12%, 30,000, you get 84,000 of taxable income. There’s another, what’s 13,000 still in the 12% bracket?

I, there’s a lot converted already, so I wouldn’t be converting, anything except in the 12% bracket. I think that’s where you’re gonna be, unless you start taking a lot of money out of the mica. That could be a different story.

Joe: Yeah. stay in the 12% because he is already done a really good job of converting to keep him out of the 22.

Al: I agreed. I think he, was did it almost perfect, Joe. I mean, he converted enough to kind of stay in the 12% bracket. So good job.

Joe: But if you’re gonna convert in the 12. So he’s saying, Hey, because of higher, taxability of social security, but. If I’m thinking, alright, so social security’s taxed based on provisional income, right?

And so if I look at his provisional income, so that’s half of his social security benefits, call that $35,000, right? He’s gonna have his pension. Of 24,000. Yeah. So what’s that? About 60, $60,000? Yep. Alright. And then interest in dividends, I don’t know, $63,000. Yeah. RMD 26. So call it a hundred. So, yeah, so the, it, it’s gonna be 85% of it, so is gonna be subject to tax anyway, so, yeah.

You know, sometimes if people are. In certain thresholds, depending on where your social security’s gonna be taxed, because it depends on what your modified adjusted growth or your provisional income is going to be to determine if 0% of your social security’s taxed or 50% of your social security tax, or 85% of your, your, social security is subject to income tax.

And when people move their. Their income up, like with Roth conversions and things like that, that might push them into another threshold from a social security taxability issue where their tax rate isn’t 12% anymore. It actually increases because every dollar that you add of income adds another $2 of social security subject staff.

Al: Yeah, it can be sort of exponential there, but I think he’s in a low enough bracket. It doesn’t really matter. Plus, I haven’t even factored in the QCD part, so, but

Joe: I think he’s in a high enough provisional income where. Where it doesn’t matter. Where It doesn’t matter.

Yeah. If he adds a little bit more income, he’s already at that higher threshold.

Al: I agree with that. Yep. So I think, I think Coozy, I think you did a good job. I think you’re sitting in a great place. If you can convert and still stay in the 12% bracket, maybe that’s another 10 or 15,000. Based upon at least what I see that what you told us, maybe do that.

But I wouldn’t convert it into the 22% bracket. I don’t think you need to. Yeah.

Joe: so he’s got these, I’m not sure why he doesn’t need a lot of income. And so we put most of his retirement account in, annuity. And why you would do that is to create a guaranteed income.

Al: Yeah.

Joe: and. I don’t know it, and that’s fine because he said, you know, the kids are doing fine financially and you don’t want the risk and you want this stability and the guarantees, but if you’re gonna turn, you know, so, yeah. All right. What about the long-term care? All right. what do, you like in long-term care? So he’s got a traditional policy that’s gonna pay 50% of nursing home costs. I’ve never seen a policy that says I’m gonna pay 50% of your nursing home costs.

It’s usually daily benefit. Yeah. Got it. A daily benefit with a certain cola on it. Yeah. So is it a hundred dollars a day? $200 a day? Two 50 a day, yeah. versus because. I don’t know. Long-term care could last a long time. It can, I don’t know if an insurance company’s just gonna cut the check for 50%, but I dunno. Maybe there is a policy out there that states that.

Al: Yeah, I don’t know either, but I think. You know what, it’s long-term care is expensive and if you can afford it and you’ve already got it, and it’s paying for what sounds like a good chunk of your long-term care, I probably just keep it. Why not?

Joe: Yeah, for sure. I mean, I think long-term care insurance is you’re probably gonna use it. You will use it or your spine. Spouse is gonna use it. and if you don’t use it, guess what? Your dad probably. You know what I mean? It’s, insurance. It’s true. You know

Al: what, Joe, you, have fire insurance.

You hope your home doesn’t break down. I hope. Yes. But if it does, you have it. I mean, I, think of this as kind of the same way.

Joe: Yeah. And, I think also you, wanna look at both spouses here because if something happens to one. And then it’s like, man, you have to take care of one spouse and you’re draining all the cash out of.

The investments and then the one spouse finally passes away, then the surviving spouse, you know, has limited funds. So yeah, I’m a big fan of, protecting the overall estate if something were to happen. do I like self-funding, asset-based, long-term care? Traditional? I mean, I think it really depends on the circumstance.

how about a QLAC? Well. Yeah. Then, well, I don’t know. So then he that’s gonna buy another insurance. Yeah. For longevity, you know, so he is

Al: gonna turn that baby on at 85, we should say qualified longevity annuity contract. That, I mean, I think that’s what that is. and that basically what that does is you put some money into policy.

And you don’t get the benefits usually till age 85. So the premiums are lower than, maybe a, typical annuity. ’cause you’re not gonna get benefit unless you actually get to age 85. But if you do, you know, it’s a good leverage. It’s a pretty good amount. Yeah. You put in a dollar, you get 15 back each, whatever the ratio is, it’s a good ratio.

Yep. and, you know, maybe you don’t need it. but if you do. It’s a good thing to have.

Joe: Yeah. I think you’re, I think he’s done a really good job from a financial planning perspective. He’s got a lot of things covered based on what his goals and risk tolerance is. It sounds like, you know, I don’t know if there’s there, there’s an insurance agent in there just kind of selling a product with a qac, with these migas and then the long term care policy.

But I think, you know, if you’re looking to protect the overall wealth. From your, you know, and wanna pass to the next generation, it sounds like that’s not one of his goals. So if you spend the last dime and bounce the last check to the mortuary, who cares? Then maybe the long-term care might be, you know, an added expense where you do have enough assets, it sounds, I mean, they have a pretty solid net

Al: worth.

Joe: Yeah.

Al: I think, you know, and, I’ll just say one other quick comment, which is this, it, really doesn’t matter how much you have. What matters is the relationship between how much you have versus how much you need to spend. Like for example, if you have fixed income of a hundred thousand and your expenses are 80,000, you don’t need a penny, right?

It’s nice to have some cushion. It’s that ratio. It doesn’t matter whether you have a hundred thousand or 10 million, it’s that ratio expenses compared to what you need your assets to produce. And that’s why we talk about 4% just as a, just as kind of a guideline as to how much you need to have to cover your retirement.

Cool. Congrats Cousy. Thanks for the question.

Must I Wait 5 Years to Withdraw My Roth Conversion, Or Only Its Earnings? (“Peggy Hill”, MN)

Joe: Alright, let’s go to Minnesota. My home state here. We got Peggy Hill.

Andi: from King of the Hill.

Joe: Oh, okay. Okay. Hi team. I’m getting very confused about the five year hold. Oh man.

Al: Oh boy. You’re gonna have to do that again.

Joe: No, I’m getting very confused about the five year hold period on Roth accounts before you can withdraw. I have a Roth account for many years, well over five. I started doing Roth conversions last year from my 401(k) to my Roth. IRA. Do I have to wait five years before I can withdraw my conversion or just the earnings on my conversion? Also. I just found out my 401(k) plan allows and plan conversions of a great 401(k) plan. It work pays all management fees, so I’m thinking about doing that this year and converting my pre-tax 401(k) to my Roth 401(k) account. Does the five year hold apply to the Roth 401(k)? The same way applies to the Roth IRA. I’ve been participating in the Roth 401(k) plan for many years. Also. Any preference between the Roth 401(k) and Roth IRA. Love the show. And playing to submit a spitball sometime soon. Thanks for the great content. Alright, Peggy, everyone is confused on the five year rule. It’s very confusing. So I don’t know how old Peggy is. That would help. That would help because what there, there’s two, five year clocks. One is on a Roth, IRA. Let’s just say a straight contribution Roth. IRA. Yeah. Yeah. Let’s just go there. Alright. The dollars Need to season in the Roth IRA for five years or until you turn 59 and a half to get tax free withdrawals on earnings.

Al: That’s on a contribution orconversion five years. 59 and a half, whichever is longer. Okay. And that’s pretty straightforward. And if you have five Roth accounts, it’s the first one that you started that starts the clock.

Joe: If you start a Roth IRA at age 60. Yep. You have to wait five years even to get the earnings out. If that was the first Roth IRA that you’ve ever established, that you ever did, even if you open

Al: up a Roth for a dollar.

Joe: That would count, that would start your five year clock. Yeah. So if you start, and so she’s got a Roth IRA, that’s well over five years, right? So she always has access to the earnings. Contribution. The contribution, I’m even confused. You always have access to the contributions to a Roth IRA contribution. The earnings need a season in for five years, or 59 and a half, whichever is longer, and that’s the key. Whichever is longer

Al: Correct.

Joe: So. Again, if you started at 59, you have to wait until 64 64 to get the earnings, but you can always take the contributions out because it’s after tax.

Al: Yeah, but what’s cool is if you do a contribution or conversion, it goes back to January 1st of the tax year that you’re doing it. Even if you do it April 15th of the following year.

Joe: The following year, yeah. you wait till 2026 to do a 2025 Roth IRA contribution. Yeah. The five year clock starts January 1st, 2025.

So that’s a pretty good deal.

Al: Okay, so, okay, so that’s, we got that.

Joe: Alright, so conversions. So now conversions is like, all right, well here you have a five year clock for every conversion that you do until you turn 59 and a half. Okay? The reason for that, so if I have a Roth IRA, established well before five years.

And then, so in her case, Peggy, she’s got a Roth that’s seasoned for five years. She does a conversion. Okay. Okay. Those dollars would apply to the five year clock depending on how old she is.

Andi: Yeah.

Joe: Is she over 59 and a half or is she under 59 and a half? If you’re over 59 and a half and you already have a Roth, IRA, established.

For five years. Then don’t worry about the second five year clock.

Al: it’s, all tax free.

Joe: It’s all tax free because basically what they’re trying to avoid is that, let’s say I am 45 years old and I do a conversion. And so I pay the tax, I do a $50,000 conversion. I pay the tax, the money’s in the Roth IRA.

Then the next day I take the money out because I paid tax on the conversion. Take tax.

Al: Yeah. What’s the problem with that?

Joe: But what did I do? I avoided the 10% early withdrawal penalty, right? So the, conversion penalty or the conversion five year clock is to avoid that loophole. Got it. So as long as I’m over 59 and a half, I wouldn’t worry too much about the conversion.

five year clock because it would already be satisfied by another Roth IRA that was established if you had it for over five years. But

Al: if I, let’s say I’m 45. Yeah. That’s a little while ago. Sure. A couple days. A couple days. And I do a conversion. Yep. $50,000, whatever, doesn’t matter the amount.

So I’d have to wait till I’m 55 years later to have access to those conversion funds. And I would at that, it’d be just like a contribution at that point. I can’t take out the earnings ’cause I’m not 59 and a half, but I could take out that $50,000 conversion as if it were a contribution. Correct.

Joe: So if you were 59 and a half and you did a Roth conversion right.

Of $50,000? Yes. You would have access to the $50,000, but you would have to wait five years for any earnings that $50,000 made. Yes. If you didn’t have a Roth IRA established five years earlier, if I already

Al: had one established, then I do have access. God, who’s on first? That second just sounds like

Joe: that, doesn’t it?

Oh my gosh. Don’t we have a white paper or something like that, that we did years ago? I we do. It is called

Andi: the Five Year Rules for Roth Withdrawals, and I’ll put that in the show notes.

Al: Well, I think it’s, it’d be a white paper that you have to read over, over and over again until you get it.

Andi: and it’s broken down into whether you’re before 59 and a half or after 59 and a half. So, and it explains the order that you can actually take the money out of the Roth. Yeah. So it’ll be in the show notes.

Al: but we, what we just described was a Roth IRA now a Roth 401(k) oh, here we go.

Joe: Yeah, if you keep it in the Roth 401(k), it has the same laws that apply to the Roth IRA. So what I would do if I were you is that when you retire.

Roll those dollars into the Roth IRA and in an IRA or if you’re gonna convert a hundred percent of the 401(k) dollars into a Roth IRA does that five year clock trail through the 401(k) if it goes into a Roth IRA that was established over five years, I would say the Roth IRA trumps it in that it would be satisfied for the five year clock if that Roth IRA is established.

Al: For five years along. Yeah, I, agree with that. But here’s the weird thing is if like, let’s say you keep the money in the Roth 401(k), then it has its own five, it has its own five-year clock. Maybe you got 5, 401(k)s. ’cause you had all these jobs, they all have their own five-year clock. So it’s not like an IRA where they get, sort of combined together as if you had one account, every single Roth, 401(k) or 401(k) plan that has a Roth option has its own five-year clock until you get it out of that and gets to a regular Roth IRA.

Joe: And, that same with like required distributions. If you have several. F 401(k)s or you several 403(b)s or anything like that, they all are separate IRAs. They can aggregate, right? So they can take a look. All right. You have 15 different IRAs, have 15 different custodians. It doesn’t matter.

They’ll count it as one IRA, and they look at the total balance there. So if I had a required distribution, I could just take it from one IRA, the five year clock would satisfy with that. from a Roth perspective, but 401(k)s are completely different. They’re gonna look at each 401(k) separately, so they would all have to follow the five year clock.

They would all have to follow their own required distributions, and they might have to all follow the, aggregation and, pro rata rules and everything else. So I, yeah, I think for us. And she’s asked, what do I like better? 401(k)s or Roth or, IRAs. I think it’s a lot easier once you’re retired, you can just move and consolidate the dollars into one IRA.

Pick a custodian that you like, right? Just roll it into one account from A IRA perspective and one Roth, IRA perspective, it’s a lot easier to manage the risk when it comes to rebalancing. It’s a lot easier to tax manage. It’s, just consolidation, I think in just my opinion is better.

Al: Yeah, I agree with that.

And the real benefit Joe is. It’s the fact that if you have a Roth provision in a 401(k), you can put a lot more money into it. First of all, even more if you’re 50 and over and then, you add the mega megatron apple tax. Oh boy, okay? You put after tax dollars into your Roth and so, and there’s no income limitation, right?

So you can get actually quite a bit of money into a Roth 401(k) that you may or may not be able to get into a Roth. I a Alright, Peggy,

Joe: thanks for the question.

Is My Retirement Plan Payout the Killer Deal I Think It Is? (Skipper)

Joe: Love listening, regularly for a couple of years now. Love the show. Love the non advice. Love the banter. Always look forward to the next episode dropping. Cool. Thank you very much, Skipper. Just an FYI. I like the new feature where Andi gives a little preview of the next episode at the end of the current episode. Quick and easy question for you today. Wow. Started doing that because we’re, we got a backlog.

Andi: We’re actually, we’re able to record in advance so I can actually tell people what’s coming up next. It used to be that we would record like three days before the actual show was gonna air, and it’s like, I don’t know what the heck’s gonna happen next week, so, Yeah. Now I actually can tell people in advance, we can do teases. It’s good.

Joe: Got it. Okay. I like it. All right, so Skipper’s got a question here.

He is like, the payout for my retirement plan is based on a formula which includes years of service. The plan has provisions where employees who have served in the US military, which I have, can purchase five additional years of service credit in the retirement plan. Based on the particulars of my situation, this will cost me $45,000 today to pay an extra $12,000 per year for the rest of my life, starting when I retire, plus or minus 18 months.

Also. I could pay the $45,000 fee via rollover from my traditional ira, so there won’t be any out-of-pocket expense. Damn good. Cool. All right. Let’s see if he’s doing the math right. Okay. If I use the 4% rule, I would normally need to invest $300,000 investment to generate a safe withdrawal rate of $12,000, so getting that return for only $45,000 investment is a killer deal.

Am I missing anything? Short of having a life expectancy of less than 45 months? Is there any reason I shouldn’t do this? Also, not exactly sure how to calculate the rate of return. If I invest a hundred thousand dollars to make 10%, I have 110,000. But in this case, I gave the principal away to get the payment.

So what’s my return? I’m guessing not the only listener who wants to know the calculus behind this, so we can enter it into our spreadsheet, the skipper.

Al: So this, is what you might call a net present value type of calculation.

Joe: Or you can use, internal rate of return

Al: You. So I did net present value.

Okay. Which is probably, I figured you’d do that. Probably harder to explain, but anyway, that’s what I did.

Joe: How old is he?

Al: it doesn’t say he

Joe: wants to retire 18 months.

Al: Yeah. So retirement age, let’s assume, well, first of all. Anytime you can pay $45,000 to get 12,000 a year for life, do it is a good deal. It doesn’t matter what you read, I don’t care what the math is, it’s high, but here’s what I did.

net present value. it’s just a, it’s just a way to calculate. Whether the money that you put in versus the money that you get out at a certain cost of capital, whether it’s positive or negative. and I use 7%, Joe, you could argue lower, but I use 7% ’cause that’s kind of maybe an investment rate that you would be giving up.

On the

Joe: 45,000 is your, the discount rate is what you’re using? I use,

Al: yeah. I use 7% and so five years I get. A $4,000 positive 10 year, I get 39,000 positive, 20 year, 82,000 positive. These numbers are almost irrelevant. It just shows you anytime you get a positive net present value, you’re going to, and it’s, in other words, you, your, the amount of return that you get is greater than what you estimated for your cost of capital or investment return.

It’s a good deal and this is a good deal. I knew that before I did this calculation. But, internal rate of return, is another way to go. And I think Joe is working on that right now, but I can’t figure

Joe: it

Al: out because I don’t know how old he is and I don’t, well, I just say 20 years. I mean, that’s, that, that’s what I did.

Joe: So, I’m getting at 20 years. Like a 20 some. Percent rate to

Al: return.

Joe: I don’t know if

Al: that’s right. I’m not sure if that’s right either, but that seems really high. Yeah, it doesn’t, I don’t think it’d be that high, but it’s gonna be a good number. It’s, gonna be a lot more than you can make, as far as investing,

Joe: that’s probably right because I mean, your payback is in three, three and a half years, less than four years.

So then after four years, everything is profit. Yeah. So the, point you build your profit is $12,000 per year if you live. Yeah. 20 years, it’s all house money. You know what I mean? So you’re, yeah, you’re at 16. Times your profit on that is

Al: $192,000. It’s good. Maybe that’s why you’re getting such a high return, right?

Yeah, could be. But you don’t need calculus. It’s a good deal, no matter how you think about it.

Joe: Yeah. I mean, and what he did was fine too. It’s like, all right, well if I had $300,000 and a 4% burn rate, but the 4% distribution or the. The rule of the 4% rule assumes that you keep your principle. Yeah. But you have to use, all right, if I got $45,000 and I’m gonna use the principle and everything else, you look at it that way to figure out, but you look at how many years that you’re going to live.

Hypothetical. Yeah. and when you’re gonna collect it. And so that’s gonna be your years, your end. Then you look at your $45,000. That’s the base value of the payment on that is gonna be $12,000 per year over the 20 years. And then you solve for I,

Al: yeah.

Joe: or your, interest rate or your internal rate of return.

So, yeah, so

Al: this,

tells me that you live five years, you’re gonna be happy you did this. If you die in two years, well maybe you don’t know you passed away, right? Yeah. You don’t care. You’re dead. It’s, in all likelihood, it’s a great deal. And I do agree with you, Joe, that the fallacy in the calculation you just said is the, is with this is kinda like a payment.

Through life. Whereas the 4% rule assumes that you’ll still have that 300,000. So it’s, a lower number. Is worse

Joe: if,

it’s 192 plus 45, it’s gonna be 2 37 if you live 20 years. Yeah. Not the 300. Yeah. Because you’re spending on the principle gives it going down to zero. Yep. Yep. Makes sense. All right.

How to Minimize My Capital Gains Tax? (Jeff, Dallas, TX)

Joe: We’re going to Jeff from Dallas. Damn. Currently 50. I’ve decided to retire from my high tech career. After 24 years I’ve been healthy or heavily invested in brokerage firms, primarily focused on single large tech stocks, approximately $3 million. Also have a 401(k). With approximately value of $1 million since I no longer have a W2.

I’m curious about how to minimize my capital gains tax. I do have dividend income from my E-Trade and interest income from my high yield savings account, as well as a potential 10 99 form from eBay. See you doing like selling on eBay? I guess

Andi: he could have sold a car or a boat on eBay. You can do that.

Joe: When’s the last

Al: time you’ve been on eBay? it’s been a while. Yeah. It’s like I, in fact, I can’t even remember when I wonder if he’s got like a Hotmail. Oh, my email account? No, it’s aol com. Yeah.

Joe: eBay. Yeah. I haven’t been there. I haven’t heard of, yeah. All right, cool. So he’s selling some stuff on eBay.

I guess people still do it. That’s awesome. Yeah. Could you please provide me a strategy to maximize my capital gains bucket, Pam. Okay, cool. Yeah. He doesn’t have W2 income. That’s

Al: helpful.

Joe: That is, and I wonder if he’s single or married.

Al: So it’s the same concept either way. Sure. So I’m gonna pull out my trusty sheet and tell you.

So when it comes to capital gains, so if you’re single, and I’ll just use round numbers, the first $48,000 of long-term. Capital gains is tax free. If you’re married, it’s, double that, right? It’s about 96, 90 7,000, something like that. now, so that’s where it’s zero. Now, the next, the next bracket after that’s 15%.

So you have 15% capital gains bracket, and that goes quite away. If you’re single, that goes to 533,000 of taxable income. If you’re married, it’s about 600,000. After those points, it becomes 20%, but one more little. Caveat, once you hit $200,000 of modified adjusted gross income, single or 250,000 married, that net investment income tax, it applies to it.

That’s another 3.8%. So just be aware of those. I don’t know how old you are or how long you want to do this. You know, I will say you could do this over a period of many years and save taxes. Be aware of the stock price. Don’t try to save a dollar in tax and lose $10 in stock value. So just be mindful of what the stock itself is doing.

If you, if it’s, you think it’s gonna go down and down quite a bit, go ahead and pay the tax. ’cause that’s better than losing the principle.

Joe: Yeah. It depends on how many single stocks you have. but there’s, tax gain harvesting, and so you, the 0% tax bracket is at, a married couple is what, a hundred thousand dollars plus the standard production?

Al: Yeah, that’s right. Yeah,

Joe: so let’s call it $130,000. So you could sell $130,000 of capital gains with zero tax.

Al: Yeah. Well minus your dividends and interest,

Joe: right? Yeah. So you get up to $130,000 of gains and interest and dividends and everything else tax free. So yeah, up to the 12% tax bracket plus your standard deduction.

So just think of it like that of all right, well, what’s the interest in dividends? what does that look like hitting your tax return? And then how much dividends or how much capital do. That you wanna sell, you can get up to that dollar figure of gains. So if you have a million dollars of gains, it could take you, you know, maybe it’s a 10 year process.

But I think I’m with Al here. you don’t wanna weigh the tax dog tail to do, to eat the beans. I don’t know. The beans part that

Al: went off in a completely different direction. Oh yeah. You know what I’m saying? I know what you’re saying. Something about wagging the tail. Don’t let the tax

Andi: tail wag the dog.

Oh,

Al: I’m glad you’re here because we’re talking about beans. Whatever else we can think of now, what kind of beans are those? I don’t know. They’re fri. That’s even worse. I was thinking like a whole. Pinto be or something, but you mushing ’em together. Yeah. They’re so good. Okay.

Joe: all Well, good luck, Jeff, but congrats.

Yeah. That’s a, that is, that’s a great problem to have. Really. Yeah. 4 million bucks at age 50. Yeah. All right. Killing it. Good job.

Must I Empty My Inherited IRA Within 10 Years With The SECURE Act? (Dolly, Bristol, TN)

Joe: Alright, let’s, let’s go to Dolly. She goes, please use Dolly as my call name.

Al: She’s from Tennessee, yeah.

Joe: All right.

Al: Yeah.

Joe: okay. We are both 62. My husband, my husband has an inherited an IRA from his mother in 2018, from which he is taking RMDs. Should my husband pass away? Honestly, not hoping for this early demise.

Thanks, Dolly. And I become the beneficiary. Would that IRA need to be emptied in 10 years now The Secure Act is in place, or can I continue as my RMDs before? I’ve been listening to you for the past year and have helped me correct several mistakes we’ve made. We feel much more comfortable with our current assets and retirement plans. You guys are great together and keep me laughing. Those who don’t find this funny, have no sense of humor. Oh, look at Dolly. Yeah. Makes me happy. also wanna tell Joe that he shouldn’t put himself down with bad words, like idiot. Wow. When do I call myself an idiot? I don’t recall that. When you’re reading and

Andi: you say that, people say that they must be listening and thinking, this guy is such an idiot.

Al: You probably have said that. Well, I think Andi.

Andi: Oh, it’s me. That’s

Joe: spread. Spread those rumors. Yeah. I prefer savant and ignore the critics. Yeah. That’s a good word. All right. Savant. Yes. Okay. Keep spitballing. And sometimes you do have to hurl the whole luie. What the hell is that mean? Well, we’re, that’s spit in reference to spitball, just ball.

Oh, wow. Okay. Dolly’s got a sense of humor there, right? Yeah. You gotta hurl the whole luie. You gotta hurl it out, you gotta do it. Get it out there so you can answer the question. My sympathy is to Big Al with his mom. I’m currently caring. Thank you for my 95-year-old mother and preparing for the in inevitable.

Andi’s a joy. We have two chocolate laps. We. Husband drives a 20 18 4 runner. I drive a 2024 Tacoma. My dream car, I saved up to pay cash. A Tacoma is a dream car.

Al: Yeah,

Joe: why not? Yeah. Yours

Al: was a red convertible Mustang. You know when I was a kid, the game shows, you know the price was right? Yeah. Brand new car.

Let’s make a deal behind cur. You know, you pick curtain number two and it’s a goat curtain. Number three is like red convertible. That was always the top of the pile. Got it. Yeah.

Joe: Finally got one. All right, so her husband, he likes a shot of straight bourbon a few nights a week. All right. For the health benefits, I

Andi: like straight.

There’s health benefits to bourbon. A few nights a week.

Joe: Oh yeah. and he makes the best old fashioned or mojito on rare occasions only. Okay. Okay. All right. So some confusion on RMDs 10 year rule Secure Act. So 2018 was prior to the, secure act. Yep, it was. And so his mother passed. And, back then, depending, is that you could take a required minimum distribution based on the life expectancy of Dolly’s husband.

Al: Yep. In other words, he, took over his, mom’s and he could stretch the IRA over his lifetime. Correct. So can Dolly do that or does she have to go to the new 10 year rules? Well, because she’s a

Joe: spouse, I’m assuming that she can continue with those RMDs. Yeah, that’s my thought too.

Al: 95%, not a hundred percent, 91, but that’s how, the rules typically are, right?

it’s in in the hands of the person that passed away if the spouse,

Joe: but

Al: if it goes to non-spoken benefic,

Joe: that’s different. That’s when things get a little bit,

Al: hairy. Correct. So, I’m, Pretty sure that you can take over your husband’s position. Hopefully this doesn’t happen, for many years, if ever, but, that’s, what we think.

Joe: I’m sure we’ll probably have to recant that.

Al: Probably.

HSA and HRA: Health Savings Account vs. Health Reimbursement Arrangement (Larry, RI)

Joe: All right. Let’s go to Larry, from Rhode Island. Hello, love the show. Long time listener. First time caller. I love my IPAs and Zade wine. Larry, that’s just like. Your head’s in the freezer and your feet are in the oven.

Well, I like IPAs and I like I like red wine. Well, little. Well, yeah. I’m having trouble finding the answer to this question. I hope you can help. I’m changing jobs in July. My current employer offers an HSA. By the time I leave in July, I will have contributed my max 5,850, and my employer contributes $225 a month.

This has been, standard over the years, for this high deductible plan. When I started my new job in July, the employer offers an HRA, they provide me a $10,000 to spend on medical expenses for the HRA. Here is my question. Can I max out an HSA contribution with my current employer and then use the HRA with my new employer to its full capacity when I start that job of a family of six.

So we do get a lot of medical bills. While I may not be able to spend all of the $10,000 in the HRA as I only have a half a year left, I will definitely use a portion For what it’s worth, I’ve used my HSEA as an investment tool over the years. I’ve never pulled money out of the fund for medical expenses.

Instead, I pay all medical bills outta my pocket and let the HSA grow. I’ve saved all my receipts and plan on pulling money from my HSA in retirement. Can I utilize both plans in the 2025 tax year? Thanks for the help. Also, you email us which episodes the question will be answered in. Sometimes I get a little bit behind and I’m hoping to get this answer sap.

Thanks again.

Al: Well, yeah, he, wrote this in, may and he starts in July, so it’s too late. Sorry. Sorry, Larry.

Andi: You guys were on vacation.

Joe: Geez. Sorry about that. But yeah, you, the, I think the HSA health savings accounts, you have to have a high deductible health insurance plan, which presumably you did at your other employer.

Yeah. You can max that thing out, you know, by the time midyear. And then you change jobs, and now you get on a HR, a plan health reimbursement arrangement. That kind of plan is where you submit a medical bill to your employer and they re that you pay it and they reimburse you. The most important thing, and you’ll basically have two plans in one year and that’s okay ’cause you cut off employers. But, but just to be on the safe side, don’t use any of your HSA funds for the rest of the year. Use the HRA plan only, which is what you’re gonna do of course. Already. So I think you’re fine.

Joe: Yeah. He’s not spending that anyways. Yeah.

Al: Yep.

Joe: All good. All right. Yeah, just a couple months behind Larry.

Sorry. So, appreciate the questions, Andi. Wonderful job.

Andi: Thank you.

Joe: What are you doing? Are you typing some notes there?

Andi: Uhhuh? Making sure that I can do good show notes talking about how you’re an idiot.

Al: I am an idiot. Are you gonna lead with that?

Andi: no. I’ll leave that for later. All

Joe: right, Aaron. Thank you.

Wonderful job Big Al. Good to have you back.

Al: yep. And good to be back and good to, be doing with this, with you.

Joe: Yeah. And, we’ll see you guys next week. Show’s called Your Money, Your Wealth®.

Outro: Next Week on the YMYW Podcast

Andi: Dolly, thank you for pointing out that Joe is not an idiot, he’s a savant. One we are very lucky to have on Your Money, Your Wealth®, along with the Big Man, the brilliant Big Al Clopine. And Skipper, this is just for you:

Tune in next week on YMYW to find out whether Wendy in Loveland Colorado should continue converting to Roth while working despite being in a high tax bracket, the pros and cons of “Kurt and Courtney” paying off their home before early retirement, and whether “Tim and Faith” should stick with saving to their tax-deferred accounts on their way to retiring at ages 55 or 60. Kurt and Courtney and Tim and Faith. Now that would be one heck of a supergroup.

Your Money, Your Wealth, your podcast, and it is super obvious to me that this show wouldn’t be a show without your questions, your participation, your feedback, your awesome name choices, and your help in spreading the word. Every comment on our YouTube channel, every honest review in Apple Podcasts, every time you tell a friend about YMYW, you’re basically saying thanks to Joe and Big Al for the years of fun and spitballing. And we truly do appreciate it.

Your Money, Your Wealth is presented by Pure Financial Advisors. And while a spitball from Joe and Big Al is great, a free financial assessment with one of the experienced professionals on their team at Pure is even better. Click or tap the link in the episode description or call 888-994-6257 to schedule yours. It doesn’t matter if you’re in one of our 13 nationwide locations to meet with Pure in person – take that Zoom call right from your couch, without leaving home – and find out how to get on your unique, customized path to retirement.

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.

_______

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