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
July 18, 2023

Steven has got “one more year” syndrome. Can he retire at age 65? Joe and Big Al spitball retirement for him, and for MB – can she and her husband live comfortably if she retires at age 59½? And for Johnny – does he have enough to fill the gap until retirement, and should his dad do Roth conversions before Johnny inherits his wealth? Plus, is Austin maximizing his future gains by saving to his 401(k) at age 29, rather than his Roth IRA? How can Mike and his wife leave their kids a lower tax bill when they pass?

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Show Notes

  • (00:45) How to Leave the Kids a Lower Tax Bill When We Pass? (Mike, Boerne, TX – voice)
  • (04:24) I Have “One More Year” Syndrome. Can I Retire at 65? (Steven, Exton, PA)
  • (08:30) Can We Live Comfortably If I Retire at 59½? (MB, Louisville, KY)
  • (12:49) Do I Have Enough to Fill the Gap Until Retirement? Should Dad Convert My Inheritance to Roth? (Johnny, El Dorado, CA)
  • (21:49) Am I Maximizing Future Gains By Saving to Pre-Tax 401(k)? (Austin, Naples, FL)
  • (29:42) The Derails

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Andi: Steven has got “one more year” syndrome. Can he retire at age 65? Today on Your Money, Your Wealth® podcast 438, Joe and Big Al spitball retirement for him, and for MB – can she and her husband live comfortably if she retires at age 59½? And for Johnny – does he have enough to fill the gap until retirement, and should his dad do Roth conversions before Johnny inherits his wealth? Is Austin maximizing his future gains by saving to his 401(k) at age 29, rather than his Roth IRA? But first, how can Mike and his wife leave their kids a lower tax bill when they pass? I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

How to Leave the Kids a Lower Tax Bill When We Pass? (Mike, Boerne, TX – voice)

Joe: Go to YourMoneyYourWealth. com, click on the button, Ask Joe and Big Al.

Al: Yeah, that’s the button.

Andi: It actually works.

Joe: It works.

Al: It works great.

Joe: You can leave a message or you can write us an email.

“Hey y’all, coming to you from the great state of Texas. A little Town called Boerne, Texas outside of San Antonio. Hey, listen, my wife and I are 63 and 69. She retired at full Social Security benefits and she has her own pension and so forth. And I’m going to collect mine here at 63, probably here in- probably September. W egot about $1,000,000 in tax-deferred IRAs. Got about $170,000 in cash. I guess that covers the emergency fund. I still have a $400,000 mortgage, which is $1730 a month. Come September, we’ll have about $15,000 a month income coming in from our pensions and in our annuities. It’s about $180,000 a year, but only $45,000 is taxable because of I’m disabled veteran and so forth like that. But I drive a Subaru, I drink a little 8 lager. My question to y’all is I’m concerned of leaving the kids a large tax bill after we pass in the sense of, you know, I think you got to use it within 10 years if the IRA is passed on to them. How can I mitigate anything if possible? Not worried about income, obviously. And I think $15,000 should cover it. So I’m not really thinking about dipping too much into that IRAs, but just your thoughts, would appreciate a spitball for me. Thank you much, Mike.”

Joe: Very cool.

Al: Yeah, I like that question.

Joe: All right. Yeah. $15,000 a month.

Al: Pretty good.

Joe: Living large.

Al: Yeah. Right?

Joe: So, yeah, a couple of things because the stretch IRA is no longer, Al. So, you know, for people that pass with large IRAs, a lot of that just gets blown up by tax.

Al: Yeah, which now- exactly. So it means it has to be distributed within 10 years and there’s minimums you have to do a little bit each year. And in many cases, not all cases, in many cases, but certainly by year 10, it needs to be fully distributed. And if you have a large IRA balance and maybe just one kid. That’s, let’s say it’s $3,000,000 bucks and you got to do it over 10 years. That’s $300,000 of extra income for a child each year. Now, if you have 10 kids, it makes it a little bit easier. But I think that the answer, Mike, isn’t really that tricky because you don’t have a high taxable income because most of your pension is non-taxable. So you should be thinking about Roth conversions. And get this money to Roth. And then you don’t even have to worry about it. The kids are still going to have to distribute the Roth over 10 years, but they’re not going to pay any taxes.

Joe: 63 years old. He’s got $1,000,000. So he’s got 20 plus years of life expectancy. So that $1,000,000 could go to $4,000,000, $4,500,000, $5,000,000 by the time they pass.

Al: It could be a big number and right now, and maybe even indefinitely, the taxable income is low. So get that thing out. What you want to do is look at your tax brackets. Probably you’re in the 12% federal tax bracket. So you at least want to convert IRA to that amount. But maybe you want to look at the 22%, 24%. I don’t know. This is where you just kind of need to chart this out, but I’m thinking-

Joe: You can get a lot of it out.

Al: I’m thinking get all of it out almost by the time it’s RMD age, which should probably be 73.

Joe: 75. For him.

Al: Well, for him, 73, probably for her.

I Have “One More Year” Syndrome. Can I Retire at 65? (Steven, Exton, PA)

Joe: Let’s go to Steven from Exton, PA. “Love the show. I’m a victim of one more year syndrome.” One more year.

Al: Yeah. Gotta work one more year, but I really don’t want to.

Joe: I hate this place.

Al: I’ve been here long enough.

Joe: Just one more year. “Can you spitball if I’m in position to retire at age 65? If I retire before 65, should health care costs be a concern? Age 63, wife is 61, $4,500,000 total assets, $3,000,000 tax-deferred, $500,000 in a Roth and $1,000,000 in a brokerage account. I saved a max into my and my wife’s Roth IRA. We earned a combined $200,000 per year. I’d like to plan for both of us to live to 90. I’d like to draw $150,000 in retirement. I’ll save approximately $5000 a month combined in Social Security around 67 years of age. My friend at work is trying to convince me I can retire now, but I keep saying one or more two years.” You think his friend at work wants his job?

Al: You know, it could be.

Joe: Hey, Steven. You’re fine.

Al: You know, I’m kind of, I’m kind of thinking I’m ready for the promotion. I’ve been hanging out for 35 years.

Joe: I’ve been hanging around your office here waiting for you to f’ing leave. “My drink of choice is Sam Adams. I drive a 2019 Ford Edge and my wife drives a Lincoln. Thanks for your help.”

Al: Oh, okay. Cool.

Joe: All right. So, first of all, congratulations, Steven. You have saved quite the nest egg.

Al: So you Steven, have reached financial independence. I can tell you that. Your friend’s right.

Joe: So what does he have? $4,500,000.

Al: Yeah. So, so here’s this quick, simple math if you retired tomorrow. You got $150,000 of expenses. You got $4,500,000. So you divide the expenses, $150,000 into $4,500,000. You get a 3.3% distribution rate. At age 63 and 61, that’s fine because that’s not even including Social Security. By the time Social Security kicks in, you’ll have more like a 2% distribution rate.
So yes, Steven, you don’t have to wait an extra year unless you want to.

Joe: It just feels a little bit more secure.

Al: I know. Well, we all do, right? Because they go from-

Joe: Yeah, you’re still here.

Al: I know. What am I doing here? I like that paycheck. That’s a good point. Steven, I’m retiring tomorrow with you.

Joe: Oh, well, congratulations, Steven. But yeah, well, the one-year syndrome is a big deal. I mean, it’s a true thing.

Al: It is. It’s a true thing.

Joe: It’s like, okay, well. You know, it’s, it’s tough to jump off the ledge.

Al: It’s very tough.

Joe: It’s like, oh my gosh, I’m going to give up this paycheck to create my own paycheck. Man, that $4,500,000. It’s really nice. And my check, my brokerage accounts, the last thing I want to do is tap that when I can still work.

Al: And yeah. And so I got to tell you, so yeah, maybe you can’t, maybe you have to spend a little bit more than $150,000, cause you got to pay healthcare for a couple of years, but you still got it now.

Andi: So you’ve gotten a retirement spitball analysis from Joe and Big Al and you know when you can retire, but have you thought about how you will spend your time once you are retired? I mean really thought about it in practical terms. In 2016, a Fidelity Investments survey found that 60% of men said having time to spend time with their spouse was a strong factor in their decision to retire, while only 43% of women said the same thing. Download the Retirement Lifestyles Guide from the podcast show notes at YourMoneyYourWealth.com and get some insight, suggestions, and ideas to make the most of your lifestyle, growth, health, and relationships in retirement. Click the link in the description of today’s episode in your podcast app, go to the show notes, and download the Retirement Lifestyles Guide for free.

Can We Live Comfortably If I Retire at 59½? (MB, Louisville, KY)

Joe: I got MB from Louisville, Kentucky writes in, he goes, “Hello there. I’ve been listening to you for about a year now, really enjoy the show and I’ve learned a lot. Andi, you’re a saint.”

Andi: I don’t know about that, but thanks MB.

Al: Have you been called a saint before?

Andi: Never. Absolutely not. Not sure why I would be.

Al: First time.

Al: Okay.

Andi: Yeah.

Joe: “I am a 57 year old and want to retire at 59 and a half, would love a spitball analysis. I’m married and my husband is 58 and will work at least until he’s 65. He loves what he does.” Don’t we all?

Al: Of course we do. That’s why I’m still here.

Joe: It’s nothing to do with the fat pay check.

Al: Now I know the real reason.

Joe: “Current total 401(k) between the both of us, $2,600,000 mostly in non-Roth. Just started contributing to Roth last year and now putting 90% of my contributions into the Roth options. I make $210,000 annually and my husband $200,000. We both max out the 401(k)s. We also have $285,000 in our brokerage account, $120,000 emergency fund. No mortgage. I think we need gross $10,000 a month to live comfortably. Can I retire at 59 and a half and accomplish the budget needs? I drive a 2019 XC90 Volvo.” Wow. That sounds exciting.

Al: Yeah, that’s cool.

Joe: Is that like a SUV?

Al: Yeah, that’s gotta be an SUV.

Joe: There’s a lot of. XC 90. That’s probably like a really safe-

Al: That’ll be the giant one, right?

Andi: Yeah, it is.

Joe: – super safe vehicle.

Al: Unless you drink a glass of Chardonnay while you’re driving it.

Joe: “Love a great glass of Chardonnay. We have two golden doodles. One very good boy and one very naughty girl. Thanks for all you do.” All right. Thank you. MB. All right, Big Al. She wants to retire, live off about $120,000 a year. Wants to retire at 59 and a half. So there’s a bridge for Social Security. She didn’t give-

Al: There is, but he, but he’s gonna still work, right?

Joe: Because he loves what he does.

Al: Yeah. Right. Or that’s what she tells him, right? You love what you do. So you’re staying.

Joe: So he’s making $200,000. They wanna spend $120,000, so they really don’t need to tap into their portfolio.

Al: So here’s what I did, Joe. So they got about $3,000,000 now. I just did 7 years at 6% and then adding $30,000 per year full 401(k), we get about $4,700,000, right? $4,700,000. Then I took the $120,000 they want to spend, 3% inflation, $150,000. So let’s see, $150,000, and this is before Social Security, into $4,700,000. What’s that? That’s a 3% distribution rate. That should be fine. Here’s my concern, is I think you’re spending more than $120,000.

Joe: Yeah, because they make $400,000 a year.

Al: You’re making $410,000 and taxes are not $300,000. Yeah. So just, you might want to rethink what you really want to spend in retirement.

Joe: Because they’re saving, let’s call it $50,000. 401(k)s, Roth IRAs. So if you’re making $410,000 minus $50,000-

Al: Minus taxes- but anyway, I’m thinking you’re spending quite a bit more than you may think. So look at your spending and make sure you’re good with that number.

Joe: Because the numbers work at $120,000.

Al: Of course they do. It can work a little bit higher.

Joe: But it’s convincing the husband that, hey, I’m done. Because once one spouse retires, the other one is still working-

Al: – for 7 years.

Joe: -sometimes some conflict arises.

Al: It could happen.

Joe: What have you been doing all day? This place is the same as when I left, what happened?

Al: Don’t you remember? You love your job.

Joe: I’m out of here too. You’re drinking Chardonnay with the ladies all day. So, I mean, the financial part looks so good MB, but I think the relationship part might need some work.

Al: So, but I mean, from the numbers you gave us, yeah, this does work.

Do I Have Enough to Fill the Gap Until Retirement? Should Dad Convert My Inheritance to Roth? (Johnny, El Dorado, CA)

Joe: “Hey guys and Andi, love the show. Longtime listener. And you are my number one podcast. And yes, I have high standards.”

Andi: Nice.

Joe: Johnny from El Dorado.

Al: Yeah.

Joe: Johnny’s coming in hot. “I don’t have animals but really hope my wife lets me have a dog one day.”

Al: Oh, let’s hope so, Johnny.

Joe: Come on. Johnny. “I’m 63 and not good looking.” Oh, I’m not a- what?

Al: Not- not looking good-

Andi: He’s hoping that his wife will let him have a dog, but he is 63, so it’s not looking good.

Joe: Oh, I’m 63-

Al: Thanks for, thanks for explaining that.

Joe: Still not looking good. I thought he was-

Al: I thought he was saying I’m- I don’t look very good.

Joe: Terrible looking. My wife won’t let me get a dog-

Al: I am so ugly and I don’t get a dog.

Joe: Oh, sorry, Johnny.

Al: Yeah, I’m sure you’re like really good looking.

Joe: Super hot. I’m 63 still not looking good. “I drive an older Tesla and my beer of choice is Guinness. Although I love an Ashland seltzer made in San Diego.” Yes, I’ve had an Ashland seltzer.

Al: I don’t know about that.

Joe: Never had an Ashland, huh?

Al: No.

Joe: Really?

Al: No. Not big seltzer fan.

Andi: It’s the San Diego’s best kept secret.

Joe: Andi?

Andi: Nope. Never even heard of it.

Joe: Well, really.

Al: Okay. So you’re the one that knows. Are you more of a drinker than I am?

Joe: Seltzer, probably.

Andi: Is Joe going to Houston tomorrow?

Al: There’s gonna be doing some drinking there, you think?

Joe: Could be. “I will keep this short as possible, hoping to save you from mispronouncing anything.” Ah, that’s a little wise guy here.

Al: It’s the truth.

Joe: It is very true. Just call me Marble Mouth. “Our current net worth is about $4,000,000 and $2,000,000 in 401(k) and deferred comp, $1,000,000in home equity, and another $1,000,000 equity in a rental property that brings us about $5000 a month in income. We plan to continue to hold the rental in retirement. I currently earn $250,000 a year and I plan to work another 4 years at the same amount. I’m still paying for kids’ college. This will be you, Joe, and it’s not so bad since I was able to save a lot when I was younger.”

Al: Did you save in your younger years?

Joe: I got a couple of bucks saved.

Al: You did. Yeah.

Joe: Yeah. I was single for a long time.

Al: Yeah. You were.

Joe: Just waited til-

Al: load it up. Have fun.

Joe: -midlife crisis. Let’s have a kid. Will this make me happy? Oh, boy. Here we are. “I’m not saving much- I am not saving much each month as cash flow is tight. Currently, however, I am putting the full $30,000 into my Roth 401(k) at work. We would like to have about $200,000 in annual retirement income at the start of 67. We expect about $60,000 combined in Social Security at 67 in 4 years when I retire, and I’m hoping the other assets I mentioned above might fill the gaps. What do you think? Lastly, and the real reason for writing you, I will eventually inherit about $1,500,000 from my father. He currently has $1,000,000 in IRAs and $300,000 in home equity as well as $300,000 in cash. Does it make sense to have him convert any or all, some of his IRA to Roth? He has the cash to do it- to do this, and it seems to make sense so that I will not be forced to pay the taxes as I inherit the IRA over the next 10 years at a likely higher rate. I really- I would really love to have $1,000,000 in a Roth. Does this tactic make sense? He currently makes about $150,000 of income due to his RMDs and Social Security. Go ahead, guys, pile on me. Let me know what you think. I can take the pain. Thanks so much for all you do. Regards, Johnny from El Dorado, California.”

Al: Well, I’ll start with the first thing. What do you think?

Joe: What do you think?

Al: Okay. So here’s what I’m going to say-

Joe: Well, let’s answer. Can he retire?

Al: Yeah, I think so. So that’s what I was going to ask.

Joe: Because he said, what do you think twice?

Al: Oh, that could be. I’m going to answer one of the what do you think questions?

Joe: Okay. Got it. Got it.

Al: So, let’s see nest egg- He’s got a couple million dollars right now. Deferred comp, 401(k). I’m just assume it’s like liquid $2,000,000. So here’s what I did, Joe. I took a 4 years from now, 6% adding $30,000 a year, $2,000,000 to start with. He ends up with $2,600,000.

Joe: So $2,600,000 when Johnny decides to retire at 67, he’s got $2,600,000. All right.

Al: Roughly, based upon my assumptions, right. And then expenses of a couple of hundred thousand, 3% inflation rate. I get $225,000 is his expenses. $60,000 rental, $60,000 Social Security, $105,000 leftover divided into the $2,600,000, 4% distribution. So Johnny, you’re right on the margin, right on the margin. So theoretically, this should be good. There’s not much room for error. But you’ve got the $1,500,000.

Joe: Oh, he’s got pocket aces.

Al: Maybe, maybe, maybe coming. So Johnny, yeah, I think you’re probably fine. Now you’ve got a tax problem too, though, because all your money is in a 401(k) and deferred comp. So we got to think about that too. But you didn’t ask about that.

Joe: Right. So the $1,000,000, his dad- his father’s $150,000. I’m not sure if his, he didn’t say parents, so I’m guessing maybe dad might be single.

Al: Maybe. Yeah.

Joe: So $150,000 of income, that’s RMDs and Social Security. So man, he’s got $1,000,000. That’s a pretty big RMD- he must be a little-

Al: He must be older.

Joe:- older. Yeah. That’s why he’s probably-

Al: You would think so. I’ll answer the question from a tax standpoint, but then let’s go back whether that’s a good idea otherwise. And so here’s how you think about it. If your father’s in a lower tax bracket than you, and he doesn’t need it, so that’s a huge qualifier, which I want to talk about in a second. But if he doesn’t, if he really, really doesn’t need it and he’s in a lower tax bracket than you, yes, he should be converting to get that money paid, to get the tax money paid. And then, so you can keep that money in the Roth so that when you get it, it’ll be tax-free. That’s actually kind of a no-brainer. But to me, Joe, the bigger question is, are you sure he’s not going to need it? And is he okay with this?

Joe: Yeah. But another way to look at it too is that Johnny’s going to have to pay the tax if he inherits it if dad doesn’t do anything.

Al: That’s right.

Joe: So what tax rate is that going to be, hypothetically, given what Johnny’s goals are? Johnny wants to spend a couple hundred thousand dollars a year. He’s got rental income, some of that’s probably sheltered through depreciation. He’s got Social Security, but everything else is going to come from the IRAs, which is going to be taxed at ordinary income. So, and if Johnny’s married, he might be in a lower tax bracket than his dad. So, but let’s say if Johnny’s actually in a higher tax bracket, maybe Johnny pays the tax. Dad, why don’t you go ahead and convert it? And I will help pay that tax. Because he’s going to have to pay the tax regardless if he inherits it over 10 years.

Al: It would be cheaper.

Joe: It’d be cheaper. I mean, it’s just another way to hedge. So, unless he’s like, well, no, dad, you pay the tax and just we’ll lower my inheritance. Maybe all that money’s coming to him, but I don’t know what shape health-wise dad’s in.

Al: And I don’t know whether dad needs the RMD. I don’t know if he needs the cash or not.

Joe: I don’t think Johnny cares.

Al: That didn’t really come up, did it?

Joe: No, it didn’t come up. He calls, oh, he answered. I guess we gotta wait. So.

Al: Yeah, so the concept is fine. Agree with the concept. I just want to make sure dad is okay and he agrees with your thinking. Yes. Andi, you got that one, huh?

Andi: I got it. Yeah. That was terrible. Anyway… is now the time to buy tech stocks? Is it too soon to go global with your investments? And what is next for the Federal Reserve? Find out in our Q3 Financial Market Outlook webinar on Wednesday, July 26th, noon Pacific, 3pm Eastern. Get all your investing questions answered live, and learn all about what’s happened in the financial markets so far this year – and what we might be able to expect for for the rest of the year, in this free webinar hosted by Brian Perry, CFP®, CFA®. He’s the Executive Vice President and Chief Investment Officer at Pure Financial Advisors. Click the link in the description of today’s episode in your favorite podcast app, go to the show notes, and register for the Q3 Market Outlook webinar now.

Am I Maximizing Future Gains By Saving to Pre-Tax 401(k)? (Austin, Naples, FL)

Joe: Got Austin from Naples, Florida. “Hey Joe, Big Al, new listener here. I’ve been enjoying your podcast on my drive to and from work. No pets. I rarely drink, but when I can, I get a free drink at an open bar. I opt for a mojito.” So he’s just going to open bars.

Al: Yeah. He goes to hotels and gets in with conventions and business- pretends like he’s an employee.

Joe: He’s like, yeah, I don’t drink, but every, every night of the week, I get a mojito at the open bar. “I’m 29 years old.”

Al: Oh, well, that’s why he wants the free drink. He’s still, still in building mode.

Joe: Oh, he’s a revenue analyst. Yeah. He’s just analyzing revenue. “I’m also an Army vet and was medically retired a few years back. Between my salary, employer matched dividends and some VA compensation, my gross income is between $150,000, $160,000. I have about $35,000 to $40,000 in a Roth, $70,000 in a 401(k). I reinvest all tax savings.” Very good. “$425,000 in taxable brokerage accounts, $22,000 across some CDs and then $4000 in a high yielding savings account, about $7000 in checking.” Also have a piggy bank of $47. And then I have some stuff under my pillow-

Al: Quarters.

Joe: I have about $2.75 in my couch. I just checked the cupholder in my car. There’s another $0.48 there.

Al: My brother just came over, gave him a beer, a little money spilled out of his pocket. So we got to-

Joe: I found $1 on the street.

Al: I’m expecting to find $1 this week. If I look hard enough.

Joe: Oh my goodness. He’s just give us the details here.

Al: Yeah. Yeah. All right. So that’s a lot of savings at 29. My goodness.

Joe: He’s “got a 2010 Honda civic with no power locks.” All right. Thanks for that detail.

Andi: We had that conversation about power windows the other day, so I think he’s following up.

Al: Power locks. Got it.

Joe: Oh. All right. “And a few other bigger ticket items. I live with my girlfriend and have annual spending is usually around $25,000 per year.” That’s what Big Al spends a night at the bar.

Al: That wouldn’t last too long in my house.

Joe: “All in, I invest about $100,000 each year. And I’m always looking to bump that up. My question is, my research suggests that I’m actually maximizing potential future gains by doing my 401(k) all pre-tax as long as I invest the tax savings, which I do. Based on my current situation in my savings investment style, what risk do you foresee me sticking with this approach? Thanks for the input.” Austin. What I see with this approach is that you have no life. Start spending a couple of bucks.

Al: He’s learned how to get free drinks. So that’s good.

Joe: He’s going to the open bar.

Andi: I bet he’s siphoning gas.

Joe: Yes. Oh my gosh. He’s saving $100,000 a year. When does he want to retire? What? I mean, what?

Al: Well, 29, you have no idea, right?

Joe: Well, unless he’s FIRE. Then they wanna retire at-

Al: It could be 30.

Andi: He doesn’t mention it.

Al: He doesn’t.

Joe: So what he’s, I guess what he’s getting at Al, is so there’s after-tax, so Roth IRA contributions, you pay the tax and then you put the money in a Roth and it grows 100% tax-free. But you forego the tax deduction by putting the money into the Roth IRA. So real simple math, let’s say I have a Roth 401(k), I’m in the 25% tax bracket, I put $10,000 into the Roth IRA. I forgo a $2500 tax savings. Makes sense?

Al: Yep.

Joe: If I put it in the pre-tax, I don’t have to spend the $10,000. I only have to put in $8500 or is that right- now $7500 because I get the $2500 tax savings-

Al: That’s right. So if you do the Roth, you’re gonna have a smaller take home pay. If you do the regular, you have bigger take home pay cuz you’re getting tax savings.

Joe: So what he’s doing, he is like, you know what, I wanna even this out. I’m going to go pre-tax and take that $2500 tax savings and I’m gonna put it into a brokerage account and invest it.

Because if you look at it over time, if you put it in after-tax versus pre-tax, so pre-tax, you have $10,000 in, you get a tax deduction today of $2500. Let’s say that $10,000 grows to $100,000. So you pull the $100,000 out in the same tax bracket, you’re going to pay $25,000 in tax. So you’ve got a $2500 tax deduction today, but you’ve got to pay the government $25,000 in the future to get the money out. Or you put it into the Roth IRA and forgo the $2500 and you grow it to $100,000. You pull it 100% out and you save $25,000. So what he’s saying is that instead of doing the Roth, I want to go pre-tax, but that $2500, I’m going to continue to save it into a brokerage account over that same time period, given the same rate of return, I should come out even, but I have more liquidity.

Al: Right, right. So here’s my answer. I would go Roth all the way because you’re young, you probably will make more in the future. You’ll probably be in higher tax brackets, but here would be an exception to that. The exception is, if you really are part of FIRE, financial independence retire early, and you want to retire at 35 or 40 or whatever the number is, you’re going to need some money outside of retirement, and this is a good way to do it potentially.

Joe: Yeah. Phenomenal. You’re saving $100,000. You’re 29 years old. You got $425,000 already in a brokerage account. I mean, what does he got, $1,000,000 plus?

Al: Yeah. He’s got no, it’s maybe $700,000, but it’s a lot.

Joe: $700,000 at 29?

Al: I think what I would do is I’d put all $30,000 into the Roth and then the other $70,000, that’s going to go to the brokerage.
That’s what I would do.

Joe: Awesome. Well, Thanks, Austin. You know, keep grinding, but wow.

Al: Yeah, that’s amazing. Right.

Joe: How do you get to $25,000 a year? Well, he lives with his girlfriend. He gets free mojitos.

Al: Well, he’s got that worked out. There’s a Holiday Inn right next door. He knows when the big companies come in.

Joe: Yeah. And I wish I would’ve done that. Alright, show’s called Your Money, Your Wealth®. Thanks all, we’ll see you next week.

Andi: Joe is Texas-bound, and why Al’s folks would spend summers in the desert, in the Derails at the end of the episode, so stick around. Help new listeners find YMYW by sharing the show with your friends and colleagues, and by leaving your honest reviews and ratings for Your Money, Your Wealth in Apple Podcasts, and any other podcast app that accepts them.

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The Derails



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