Show Notes

• 00:00 – Intro: This Week on the YMYW Podcast
• 00:53 – How to Retire at 55 With $2.6M and Debt? First, How to Write a Good Spitball Request (Mackey, FL)
• 03:46 – Sequence of Retirement Withdrawals: IRA First or Taxable First? (Retired G-Man and Nurse Ratched, PA)
• 12:10 – Roth Conversions vs Concentrated Stock: Which Comes First? (Mike & Carol, FL)
• 29:27 – What to Do With 90-Year-Old Mom’s $1.9M Annuity? (Mike, UT)
• 40:59 – Is Gifting Appreciated Assets to Parents Tax-Smart or Risky? (Doc McMuffin, MN)
• 48:27 – Outro: Next Week on the YMYW Podcast

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Transcription

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

Intro: This Week on the YMYW Podcast

Andi: We’re playing “which comes first” today on Your Money, Your Wealth® podcast number 551. Retired G-Man and Nurse Ratched from Pennsylvania have saved $2 million. Should they withdraw money first from their IRA or their taxable accounts in retirement? Mike and Carol in Florida want to know when and how much to convert to Roth, but they’re also sitting on a mountain of company stock. Should they deal with that first? Mackey in Florida is 55 and wonders if he can retire now with $2.6 million and some lingering debt – but there’s an important first he’s missing too! Plus, Mike in Utah asks Joe and Big Al to spitball on a plan for his 90-year-old mom’s $1.9 million annuity, and Doc McMuffin in Minnesota asks for the fellas’ take on her plan to gift appreciated assets to her parents. I’m Executive Producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

How to Retire at 55 With $2.6M and Debt? First, How to Write a Good Spitball Request (Mackey, FL)

Joe: Mackey from Florida. Tonight was the first time I saw the podcast and it was very educational.

Andi: I’m guessing that means they were a YouTube or a Spotify viewer. Thank you for watching Mackey.

Joe: Yeah. Awesome. I turned 55 next month. Note this email was from June and want to retire. I have, 1.5 in an ESOP and 1.1 a 401(k). I have $200,000 mortgage and $30,000 in credit card debt. What’s my best option? I’ve been working since I was 15.

Please advise. Thank you. Wow. Mackey, I could tell that you just had that watched the show tonight. Yeah. don’t really understand the rules of engagement here.

Al: We don’t know the drink or the car or the dog’s name. And we, we don’t have any details.

Joe: Zero details. Hey, lemme just, I got a couple million bucks and 55. Get me the hell out.

Andi: Well, he’s getting $30,000 of credit card debt. How should he pay that off?

Joe: What’s my best options? He must retire. I don’t know. Mackey, why do you have fi, why don’t you have $30,000 in credit card debt? Is that reoccurring? If you pay that off monthly, is that a one time expense? I’m guessing it’s ongoing.

So what do you spend on an annual basis? What are you making currently? that’s what’s gonna determine if you can retire at 55. So what is your best option is? I would write back in with a little bit more detail.

Al: But I will say besides that, assuming you’re okay to retire, ’cause we don’t know, we don’t have any of the details, but let’s just assume you’re okay to retire, then keep that 401(k) in place because you retire after age 50.

Five, you can actually withdraw funds from the 401(k) without paying that 10% penalty. Yes, you’ll pay taxes on it, but you don’t have to pay the 10% penalty. That’s about the only thing I could say. Well, esop, you know, a lot of ESOPs, Joe, there, there’s vesting and, so restrictions. And restrictions, and maybe you have to take the money out, maybe you can roll it.

So you have to look at the plan and see what the option is there.

Joe: Yeah, I, think there’s, we have a lot more answers or questions than answers.

Al: Yeah, we do. That’s about the best I can do with what we have. So,

Andi: and I will point out on the Ask Joe and Al form, there’s a video from me that will tell you the information that we need to get you a good spitball. And after you email us, you’ll get an email from me that says, did you remember to include these four things? So if you didn’t, then you’re just not paying attention.

Joe: Got it. Tonight was the first time. Yeah. I was like, wow, I gotta write in. Yeah. Immediate. Good. Send. Just, it’s immediate. I need to know now. I hate my job. I wanna retire tomorrow. I wanna get out. All right. Well, Mackey, good luck. I get it. You’ve done a great job. He’s got a couple million bucks. it’s a really good job. 200,000. I don’t know. Why do you have – whatever. I think Mackey will be all right.

Sequence of Retirement Withdrawals: IRA First or Taxable First? (Retired G-Man and Nurse Ratched, PA)

Joe: Let’s go to Retired G-Man and nurse rate Ratched. Ratched? Ratched?

Andi: Nurse Ratched. She was from One Flew Over the Cuckoo’s Nest. She was the antagonist in that movie.

Al: Oh, there you go.

Joe: Who’s G-Man?

Andi: I think he’s a G-Man. He is a retired G-Man.

Joe: Or is it like, his name’s Gary.

Andi: He used to be in the FBI?

Joe: or, alright. Or is that a government man? Is that what G-Man actually stands for?

Al: I don’t know.

Andi: I think G-Man means that he was formerly in intelligence. Let’s see.

Joe: Got it.

Andi: Yes. A slang term for agents of the United States government.

Joe: Got it.

Al: Well, I think you got it. Yeah.

Joe: Retired G-Man and a nurse.

Al: Yeah.

Joe: All right. Hey, hi Andi. Here’s my question after the four things needed.

Al: Oh. So that’s just funny.

Andi: See, G-Man’s been paying attention.

Al: Yeah. Okay.

Joe: All right.

Al: Okay.

Joe: Okay, let’s, let’s see what he’s got. My wife and I have two and a half million dollars, 1.5 in traditional $600,000 in mutual funds. All monies are in index funds with Vanguard, with a mix of 55 stock, 45 conservative bonds. Fixed income is $45,000 to pensions, $45,000 combined Social Security all before taxes. We are both retired 65 and 64, no debt. We’re looking to spend approximately one 30 per year with traveling and gifting to the kids. So he wants to spend one 30. he is got quite a bit coming in. Shortfall’s gonna be. Okay. Yeah. Shortfall. He’s got, wants to spend one 30 pension, Social Security of 89. Shortfalls about 40,000.

Al: Yeah. 40,000. And he’s got two and a half. Yeah. Percent distribution. 1% even. Yep.

Joe: Yep. I found your podcast on Apple and thoroughly enjoy the good info and humor. Wonderful. Thank you, G-Man. I like to drink a variety of beers, including IPAs. The side of vodka. Little sidecar.

Al: Yeah. Yeah,

Joe: I do. Sidecars.

Andi: Do you do that Joe?

Joe: I do the sidecar.

Al: Do you have your own special Sidecar.

Andi: Coors with vodka?

Joe: No vodka. Not vodka. I like bourbon.

Al: You like Fireball?

Joe: I like Fireball. So Coors Light a little fireball. I’m out on a little fancy place.

Andi: Spicy.

Joe: I might have a Coors Light and maybe some Jameson.

Al: Only Coors Light though. That’s your only beer.

Joe: Yeah.

Andi: He likes to dress up his beer.

Joe: Yeah.

Al: Yeah.

Joe: I don’t know. I mean, maybe Mic, Mic Ultra Light.

Al: Got it. Bud Light. You’ll do Bud Light.?

Joe: No, I’m not a big Bud Light guy.

Al: PBR?

Joe: I would drink a PBR.

Al: Okay. PBR yeah. You grew up with that?

Joe: Yep. yeah, that’s about it.

Al: Okay. I not a, not anything else?

Joe: No. No colored-

Al: Craft beer? No Craft IPA, no IPA hazy.

Joe: No. That just gives me an instant headache.

Al: Yeah.

Joe: Yeah. Just like that happened to you?

Al: Oh, that marizon beer that I, yeah, I think that was my 50th birthday party or something.

Joe: oh, yeah.

Al: That was pretty bad. That, yeah, that I think I had to do, I had to do a radio the next day.

Joe: Yeah. You called it sick. I had to do it myself.

Al: I can’t do it.

Joe: We’re live.

Al: I remember the one time you still came in and you had a trash can next to you and you said, Al, you’re gonna have to talk more than you normally do.

Joe: Had the flu.

Al: That’s not what I heard.

Andi: With a sidecar.

Joe: The flu, that was many moons ago.

Al: That was a while ago.

Joe: Yeah.

Al: That, and we recorded live back then.

Joe: Yeah. That was almost 20 years ago.

Al: Yeah. Yeah, you’re right.

Joe: All right. I’ve done all my financial planning on my own. Alright.

Al: Okay.

Joe: From all I read and heard, the preferred sequence of withdrawals is to pull money from my taxable assets and leave the tax deferred for last. I understand the logic for this approach. However, as I learn more, I’m concerned about RMDs in the future, especially should one of us predecease the other, would it be prudent to start taking IRA money first, approximately $50,000 a year and lead the mutual funds for last? In my opinion, this may be a better way to reduce future taxes on my RMDs. Your opinion is appreciated. Thank you. I’m a regular listener. I do not wanna miss your spitball. Can you email or text me when the question is answered in what episode? Thanks again. Okay. I’ll remember that. Use this all the time, but hey, can you please just email me or text me because I have not listened to this show and I listened once I wrote in, I did it wrong. I got the four questions. Here you go.

Al: Yep. Got it. Alright.

Joe: So I don’t know, he’s reading, he is doing this stuff on his own and he is a regular listener and he’s asking this question,

Al: yeah, probably hasn’t listened enough, but

Joe: probably not. Probably not.

Al: This is the opposite of what we would tell you to do.

Joe: The exact opposite.

Al: So you would probably wanna, yeah,

Joe: I think that’s the advice though, right?

Al: You want to defer, defer, defer, defer. and that was written by people from my profession, CPAs. Deferring is better than paying.

Joe: Yes.

Al: Defer, defer, defer. And that’s generally a pretty good idea except for required minimum distributions, and that happens at age 73, soon to be age 75. That’s when you have to take money out of those IRAs and 401(k)s. And if you kept deferring. Then you might have a pretty big required minimum distribution if you did a good job saving. And that’s the problem. And in this particular case, there’s Joe a million and a half in tax deferred. You wanna start getting that money out, whether it’s a Roth conversion or using that money to live off of, you start getting that money out so you’re not killed by RMDs later.

Joe: Well, because here’s the issue that I see with the G-Man in Nurse Ratched is. He’s taking 2% onto the portfolio total.

Al: Yeah, exactly.

Joe: He’s got a million and a half in traditional IRAs, $600,000 in a brokerage account. you pull two, let’s say if it grows at five, you still have a 4% growth rate. That 1.5. By the time he turns 70 in a, I mean his RMDs are gonna continue to increase on him because he’s not taking enough outta the portfolio. If he does what he’s read to do, then that 1.5 will be like 3 million. 3 million. And his RMDs will be a hundred, 2000 20,000 on top of everything else he has. Yeah. On top of another 90 or 95. So you’re looking at 200, 2 50. That’s right. 2 25 of income. That’s right. You’re going to be potentially in a higher tax bracket.

So yeah, you wanna look at the taxes now, taxes in the future, and then figure out. All right. Does it make sense? If you wanna pull from the mutual funds first, that’s fine. But don’t leave it deferred. Take the money outta the retirement account and convert it because you’re gonna be in very low tax brackets there as you’re taking money and you’re wasting that 10% and 12% tax bracket.

That’s what we see often is that’s the advice that people are hearing. So they’re taking from the mutual funds, they’re living off of that. They might have Social Security. You have a little bit higher fixed income than most. But you’re still in a low tax bracket. If you just took from the mutual funds, your capital gains are gonna be tax free because you’re still in the 12% tax bracket, right?

I would have the extra distributions that you need, the $40,000 a year, take it from the mutual funds, but then I would also convert the retirement account to the top of the 12 or the 22. Yeah, I agree with that.

Al: Yeah. and Joe, I mean, we’ve heard this several times where people, they retire and their taxes are very low.

Oh. Oh. ’cause they haven’t take, haven’t taken their Social Security and they’re just living off their savings and they’re not pulling money outta their IRA, they’re go, what you guys talking about? there’s no taxes in retirement. And then they hit 73 required minimum distributions kick in. And that’s, and Social Security, it’s a different story.

Andi: For those of you joining us for the first time, or those who have caught the show but didn’t really CATCH the show, our website YourMoneyYourWealth.com is packed with free resources. You can Ask Joe and Big Al on air for your own Retirement Spitball Analysis, just so long as you give us your deets, and read the latest blog posts from the Pure Financial Advisors team on topics like alternative investments coming to your 401(k), whether US stocks are overpriced, and the rise of AI. See when Pure’s free retirement workshops are happening next in your city. Download guides on everything from withdrawal strategies to Medicare, tax planning to Social Security. Or binge-watch YMYW TV all the way back to 2014. Yep, Joe and Big Al have been making fun of finance for a long time. When I mention “free financial resources” every week, this is what I’m talking about. Check it out, and tell a friend.

Roth Conversions vs Concentrated Stock: Which Comes First? (Mike & Carol, FL)

Joe: Totally. We got greetings, Joe, Alan, Andi, love the podcast. Have listened all the way back since 2019 so far while driving and working out. Great job on the show. Much appreciated. Love the spitball and how you think about retirement income strategies and Roth conversions. Call us Mike and Carol from Florida.

Andi: Brady Bunch.

Joe: Ah, but they didn’t live in Florida, did they?

Andi: No, but Mike and Carol, I mean, it seems like that’s California.

Joe: Where was the house?

Andi: Good question. Let’s see.

Joe: Yeah, I think it was, it had to have been California.

Andi: yeah, the house itself is in Studio City in LA.

Joe: Yeah. I don’t ever remember them talking about.

Al: certainly not Florida. Yeah.

Joe: Yeah. I just remember when they went to Hawaii, remember that?

Al: I don’t.

Joe: Really? They found the little taboo Bobby did, or Cindy, one of them.

Al: I, don’t think I’ve seen that one.

Joe: Oh, well there you go. Now you got, I got something.

Andi: Man, Joe watched Little House on the Prairie and, the Brady Bunch. And what was the other show that we just recently found out that Joe watched? Oh, Seinfeld. Your tastes in TV is a is surprising to me. We’re learning things about you.

Joe: Brady Bunch then years later, Little House.

Al: And that’s shifting now. No. You don’t watch those shows anyway.

Joe: No, that was purely my mother.

Al: You were forced to watch ‘em.

Joe: Yeah. So if I wanted to watch tv, it was Little House on the Prairie. Yeah. and my mom was huge-

Al: Huge fan?

Joe: Of the Brady Bunch.

Al: Yeah. Yeah. So then how about the Waltons? did she watch that?

Joe: Yeah. Goodnight John Boy.

Al: Yeah. All that stuff. Yeah.

Joe: So, yeah, Leave It to Beaver.

Andi: Oh, wow,

Al: I remember that one.

Joe: Well, yep. Eddie Haskell. And Beave, and, yeah. What was-

Al: Wally?

Joe: Wally? Yeah. Okay. All right, let’s go. But let’s get back to Mike and Carol. He’s 56 years old, semi-retire physician, making 180, $200,000 per year working part-time. I’m divorced. Have three grown kids all post-college and well employed, getting remarried later this year. My beautiful 49-year-old fiance, Carol, makes about $70,000 per year. Also has three kids from a previous marriage all fully launched. We are Florida residents and we will use my beach condo as our main residence. I also have a summer lake home in the mountains out west. Now I get the Mike and Carol reference. He’s got three. She’s got three.

Andi: Six kids. They’re literally the Brady Bunch.

Joe: Oh my God.

Andi: I wonder if the girls are all blonde and the guys are all dark haired.

Joe: I don’t know. There were four men living all alone.

Al: Yeah, that’s right.

Joe: Until the one day.

Al: Oh, you remember the theme song?

Joe: Then when Mike got this beautiful 49-year-old Carol.

Al: That’s right.

Joe: okay. I drive an older Toyota and Hondas purchased used as Sienna minivan at each home respectively for when the kids’ friends guests visit. my daily driver. My daily driver in Montana, MT. Is a 2013 Honda Ridge line pickup in Florida. My daily driver is a 2000 Lexus sedan with 44,000 miles on it. PS I smile every time I park it in the doctor’s parking lot because all the Teslas in European luxury. So he’s driving a little PS right? POS pickup truck there. My functional and practical vehicle ever. My summer drink of choice is, no idea. Capparina, ka capper?

Al: kiper?

Joe: Help. Andi?

Andi: I’m guessing it’s Caipirinha.

Joe: Capirinha.

Al: That’s what I get too probably, yeah, let’s go with that. Caipirinha.

Joe: I don’t know. Just got me intrigued. What hell is it? It’s gotta be like a liquer of some sort.

Andi: Let’s see.

Joe: is that Capari? No, that’s not-

Andi: it’s a Brazilian cocktail, with Cachaca, sugar, lime, and ice. So, yeah. let’s see, how is it pronounced?

Joe: Okay. Okay. Well, I enjoy almost as much as thinking about Joe pronouncing it on the air. Thank you very much for that Mike

Andi: Caipirinha.

Joe: He had to pick like the most obscure thing possible. He probably never drank it. He just was Googling. Let’s try this one. Yeah. In cooler weather, I enjoy old fashioned in. Some Luxurio, Luxjardo cherries.

Andi: Luxardo definitely a little bit easier. Luxardo.

Joe: Yeah, not for me. Not for me. However, I’m not too picky and most anything you offer will likely be one of my three favorite drinks.

All right. Or he looks free. Got it. Yeah. So KA and Old Fashioned or free? Yeah. Carol prefers the little Chardonnay. No pets travel too much. Current assets, $1.2 million floor in a condo, two and a half million dollars. Lake Home Only debt is $300,000. Mortgage remaining at 6%. Combined liquid assets, $300,000 in a brokerage account.

$45,000 in an HSA $1.6 million in traditional retirement accounts. $500,000 in a Roth and $800,000 dusted in an employee perform performance plan, and two and a half million dollars privately held company stock with very low cost basis, which I’m planning to liquidate as able in adding that to the brokerage.

No pensions or annuities. All right. I plan to take Social Security starting at 70, $60,000 a year. Carol will receive $20,000 a year starting at 62. I intend to work part-time as I am now for another three to seven years. Carol will likely continue her job until I retire, but not as second longer. LOL. I’m putting $31,000 into my pre-tax, 401(k) and additional approximately $30,000 megatron annually For those of you, keeping score, that’s a little backdoor.

Andi: Mega backdoor Roth. Yeah. Four. Apparently Mike and Carol have been listening for a while. Mega round. we haven’t referenced that in quite some time.

Al: That’s correct.

Joe: So after tax and then dump that right into the Roth? Yep. Combined with my company contribution to reach the four 15 limit that’s around 70 some odd thousand bucks.

Yeah, 70 ish. Somewhere in there. I did the pre-tax to stay out of the 32% bracket when I was single, but once married I may do all Roth if you agree and will be taxed at 24% if I do so. We’ll also max out our backdoor Roth IRAs and another $15,000 a year. Carol worked Carol’s work doesn’t offer retirement plan, but I’m investing, in IC status investigating.

Oh, I’m investigating independent contractor status. I think that’s what he means. Yep. All right. I thought he said investing IC status so she could do a solo 401(k). Alright. We will be into the expansive 24% tax bracket while she is working, and then potentially much lower when we retire in about six to 10 years.

Before we started Social Security, we plan on spending $180,000 in a year in retirement. Okay. How much 401(k) would I convert to Roth And when, if you were me after retirement. And before Social Security, I could draw the $180,000 needed from traditional accounts in the 10, 12, or 22% tax brackets. I could liquidate the $180,000 from my brokerage with the first $130,000 of gains at 0% tax, but only if I don’t take taxable withdrawals from retirement accounts.

That would push some of the gains into the 15% tax bracket. Interested in your thoughts? Should I alternate years? I want to avoid the 30% brackets in wondering if we can stay mostly out of the 2220 4% in retirement, zero, 10, and 12 for retirement withdrawals or conversions in zero to 15% on the capital gains.

If so, does it make sense to pay 24% to convert over the next three to seven years while working? Once we’re taking Social Security, using the remaining traditional money for income, blah, blah, blah, blah, blah. Okay, so he wants a conversion strategy. He’s got some assets. he’s gonna work a few more years.

He’s saving quite a bit of money. he’s dumping a lot of money into the Roth with a Megatron, right? And, so let’s just see what we have in store here for Mike and Carol. Couple things I have questions on. He’s got two and a half million dollars in a privately held stock. Yes. Very low basis. Yes. So if it’s privately held, and he wants to get the stock outta the privately held company, he’s gonna do that all at once and it’s gonna be taxed that year, presumably.

Al: Well, or maybe, you know, some private companies allow you to sell a certain amount of shares per year, so, you know, we, don’t know the details, so it could be that too. What do you think? Well, he said he’s gonna sell it as he’s able, so,

Joe: oh, do you think it’s just a certain dollar figure? Maybe amount each year? There’s only some liquidity events within the company,

Al: maybe, you know. Hard. Hard to say, but it’s funny how you went right to that. So did I. It, to me, that’s the most important thing, that whole case. You look at the private company stock, two and a half million compared to his liquid assets 5.7, which by the way is fantastic, great job saving. but that’s 44% of your net worth. That’s a lot. I, to me, that’s my, that’s the biggest consideration here is diversifying, getting outta that. ’cause private companies sometimes they keep doing well, sometimes they don’t. And this is. Almost half of your net worth, or at least liquid net worth tied up in this one stock.

So I would be more concerned about liquidating it as you could. Roth conversions are still quite important, Joe. I mean, he’s already got 1.6 million. He’s only 56. I mean, that could double twice, Right. Because if he could get the two and a half million dollars down. You could live off of the non-qualified dollars. And then you do the conversions in the 10 or 12% tax bracket. I think that’s right too. I think that’s the priority is trying to get diversified in the private company stock. Really? Yeah. Or you pull out. but I, that’s where he’s being. Most of his money though too.

Joe: I know. And he’s got very low basis.

Al :I would imagine it’s, yeah. And there very low. there’s a reason why he’s got this much money. ’cause he picked the right, company. So I get that too. But, all I’m saying is what sometimes what makes you wealthy is not what. Keeps you wealthy throughout retirement. Just think about this. If that two and a half million, something happens to the company, and I’ve seen that happen before, that’s why I’m bringing this up. If something happens to the company and this two and a half million goes down to a lot lower figure, does your lifestyle change? And it probably does. So you gotta consider that.

Joe: Well, alright, so let’s see how much it would change because he wants to spend $180,000 a year in retirement.

Al: Yeah. Well if you take that out, you’re looking at about, well, let’s say. Three, 3.2 million.

Joe: He needs four and a half million dollars at $180,000 at a 4% distribution rate. he’s gotta bridge the gap to Social Security. Social Security’s gonna give him what? 60? $80,000. So he needs a hundred. So he needs three and a half. Call it, that’s including tax. So if he loses two and a half, he’s gonna be tight. It’s gonna be pretty tight. the double home on Montana. All these little minivans in the capari, whatever the hell he’s drinking. He’s gonna have to go to-

Al: Yeah. The fancy drinks

Joe: Yeah. You know, just to suffice that. Or that two and a half could go to five easily. It could, yeah. But I, think you would, if there’s certain dates or trigger dates when you can sell the stock or who’s buying it, are, the, you know, the employees of that particular company, the principal’s buying it back, is there, you know, some sort of capital partner involved that is buying some of the stock back.

I would try to be thinking about a, distribution or liquidation strategy within that. Where you feel comfortable because that’s your liquidity to live off of while you do all sorts of other tax planning. because he’s gonna get bit hard on the tax on that too. He’s got right net investment income tax, he’s gonna have capital gains tax.

It’s gonna push him up depending on how he gets that money out. I mean, so I, I think that’s probably a bigger problem than he has. Than doing a Roth conversion. We talk about conversions all the time, but he’s, this is almost like a big retirement account, right?  It’s almost, his tax is high just because he’s stuck with a high capital gains rate, depending on how much that he has to pull out. He could be taxed at 20% plus the net investment income tax.

Al: Yeah. Call it 25% plus state, well, he lives in Florida, so this date, yeah,

Joe: so he’s in the 25% roughly tax bracket where he’s thinking about converting in the 24. He potentially will pay more tax on that stock than he would from his retirement accounts. But that’s the thing. If the stock, if something happens to the company, then he doesn’t pay any tax, then I don’t know what’s better. It’s true. it’s zero.

Al: Well. I’ll tell you. So I, and we’re sort of discounting, talking about Roth conversions, we’re sort of focused on the private company stock. Yes. Roth conversions for sure. You got 1.6 million and you’re only 56. So the rule of 72 7% interest rate, it’s gonna double every 10 years. So it could be like $6 million when you retire. 4% of that is kind of the beginning, RMD, and then it goes up from there. What 240,000 would be your RMD on top of all your other income?

So, yeah, no, it’s a big deal. But let’s just, if it were me, I would be a little bit more concerned about the private company stock, having a distribution, liquidity that, you know, that. That’s within the bounds of the company, what they allow you to do. So you can diversify more, take some of that off the table.

I get it may go up to 5 million or more. I get that, but it also could go down to 500,000. I’ve seen that enough times that’s why I’m saying this. just be a little bit careful. But on top of that, when you get that settled, by all means I would be converting into the 24% all day. And if you sell some of the stock, you’ll have more cash to pay the taxes on the conversion. So that would be another benefit there.

Joe: Yeah, I don’t know if I’m a hundred percent on board with that because he has to spend, he wants to retire in seven years. He’s continuing to save $70,000 even though he is doing the megatron.  He’s in a high bracket now, so he is adding a lot of money to the pre-tax, but then from age, call it 65 to 75, that’s 10 years that he wants to spend 180,000.

Al: Well, but he’s in the same tax bracket then as now. Yeah. ’cause he is, that’s what he’s making currently, so, no, I agree. I, you know, it’s, you could say maybe to the 22 I like the idea of Roth conversions. I just would focus more on the private company stock diversifying if it were me.

Now that’s not knowing anything about the company, so I’m kind. Talking about this blindly in, in a sense, But I’ve just, like I say, I’ve seen this happen to others, so I just want you to be careful.

Joe: Yeah. and I think your conversion strategy coincides with the distributions of the private company because then you have to map this thing out depending on what the tax is gonna be on that. Like  he said, you don’t want to take retirement distributions on, depending on how much money that it can get outta that private company. Because that’s just going to, you know. Potentially increases capital gains rate. I think I do agree with his thinking, which is you kind of do one or the other, right?

A: Yeah. You flip flop every other year or maybe depending upon when you can sell and what makes sense to sell. I think you kind of focus on one or the other.

Joe: Yeah, I think there’s a lot of mapping that, that you would want to do. I think he’s got a really good problem to have if he got $6 million. He’s got a pretty big, he’s got some tax issues. Yes. But I think at the end of the day,

Al: oh, I think we’d all love to have this problem.

Joe: Yeah. Mike and Carol and the Brady Bunch. Yeah. Greg. Yeah. Marcia, Bobby. It’s Peter. I forget the other girl’s names. Jan. J. Jan, Cindy. Yep. I remember Cindy now. Yeah. Jan’s another one. Yeah, I got it. Okay. Remember she lost a lot.

Andi: Marsha, Marsha, Marsha.

Al: got it. Okay.

Andi: You’ve heard the saying “no regrets,” right? Something we all aspire to. Unfortunately, plenty of retirees do have regrets – big ones. On this week’s episode of Your Money, Your Wealth® TV, Joe and Big Al show you how to avoid the 10 most common retirement mistakes, so you can retire happy and regret-free. You’ll even hear real retirees’ reflections on everything from lending money to fighting boredom. Get the wisdom of the ages without having to learn it the hard way. Then, find out if you’re on track for retirement with a Financial Blueprint. This tool is a free and self-guided check-in to see how you’re doing as you head down the path to retirement. Just input your cash flow, assets, and projected spending, and you’ll get a personalized report showing three scenarios for your retirement success, with clear next steps to improve your plan. Watch 10 Big Retirement Regrets to Avoid on YMYW TV, and calculate your Financial Blueprint for free. The links are waiting for you in the episode description.

What to Do With 90-Year-Old Mom’s $1.9M Annuity? (Mike, UT)

Joe: All right. Let’s keep a trucking. Let’s keep this train going here. We got, let’s see. Mike from Utah. Hello, I’m a long, longtime listener and enjoy your podcast. First the important stuff, drink of choice. My wife, Titos and Mixer. Me, Diet Coke, and Cheap Rum.

All right. Cars. My wife 2024 C-8 Corvette. Wow. Wow. That’s kind of badass. Yeah. Me 2023 Chevy Bolt. Okay. I. Got, so she drinks Tito’s and drives a Corvette.

Al: He’s drinking Cheap rum and drives a Chevy electric vehicle.

Joe: Chevy bolt. He’s, that’s great. I love no pets. Although we dog sit my son’s. Dalmatian Doodle. Dalmadoodle.

Andi: Dalma Doodle.

Joe: Doodle puppy. God, everything’s a doodle,

Andi: which I have to  say they’re pretty darn cute when you mix a poodle and dalmation.

Al: They’re, I never even heard of that combination.

Joe: Everything is a doodle we’re, we’ve got a cavapoo

Al: Which is a cavalier poodle. Yeah, everything’s a doodle.

Joe: The world is gonna be taken over by doodles.

Al: I think so. Yeah. It’s not AI.

Joe: It’s do, it’s not AI. Yeah. Look at this. It’s a dalmatian doodle. Dalmadoodle.

Al: Yeah. Have a dalmadoodle.

Andi: Dalmadoodle. Yeah.

Joe: How about  like a pit bull doodle pitdoodle

Al: that might off the pit bull. May be kinder.

Joe: all right. 2022 or 2002, my father passed away and I became more involved in my mother’s estate. At the time, she had $145,000 in extra cash to invest in the market. She did not need the money to cover our day-to-day expenses, so we thought of a long-term investment approach that makes sense. We also working at the time and did not have a lot of time to keep close enough eye on her investments in addition to ours.

So we decided to purchase a variable, invested in an s and p 500 primary to defer the taxes, set it, and forget it for the next 15 to 20 years. Seemed to make sense at the time. Well, at that time. I’m not sure I understood the concept of step up in cost basis of a taxable account when it is inherited, or I might have selected a different path. Sure. So he dumped it in the old variable annuity.

Al: Yeah. Mike and I guess, I, well, I guess he’ll read further.

Joe: Yeah, it’s just gonna grow tax deferred. It’s great.

Al: Probably did pretty well.

Joe: Yeah. Yeah. Well that insurance company loved it too. Yeah, the agent was super happy. Probably bought you a little bottle of cheap rum. I knew we would’ve have to do something with the annuity. You. She approached 90 years old. Wow. Okay. That’s some longevity there. Wow. Okay. In October, 2025, the contract states we have to annuitize the contract or close it before she turns 95. Annuitizing. The contract does not seem like a good option to me. Well, the good news is the count grew to $1.86 million by late 2024 before I started to make some change. Wow. That’s amazing. $145,000 grew to 1.86 million in 23 years. What’s the rate of return on that?

Al: That’s a lot. I mean, that’s beyond, maybe they added more at different points. that can’t be, that’d be way

Joe: how many years? 26 years?

Al: call it 23.

Joe: 23 years. Zero.

Al: That’s gotta be 12, 50%, 10%.

Joe: That’s not bad. That’s right. Yeah. It was. If that’s compounding for you. Yeah. Yeah. Okay. All right. 10% rate of return over the, yeah.

Al: Okay. Well, it was a bull market in s and p for, yeah.

Joe: The market actually did a lot more than that.

Al: Yeah, that’s true.

Joe: cool. Okay, so now he’s got a little bit of an issue here. He’s got $1.86 million. Mom’s 90 years old, he’s got Annuitizing contract. He’s got a basis of $175,000. There’s 45, wasn’t it? A hundred. 145? Yeah. $150,000. Yeah. So

Al: it’s a lot of tax in there.

Joe: Yeah, he’s got a million,

Al: and it’s all ordinary income.

Joe: It’s all ordinary income.

Al: Geez. No step up.

Joe: No step up in basis, basically. Okay. He’s in a bit of a panic. Now I see why has set in is she now within five years of having to do something with this money in 2024 and already in 2025, I’ve started to sell some of these funds and move them to a brokerage account and take the tax hit the future Irma charges each year, basically $200,000 across both years with the goal of.

Taking her taxable income to the top of 24% federal tax bracket, four and a half percent state tax bracket. This strategy will slowly reduce the value of the annuity, but not really make much of a dent in the value, especially if the market continues to move higher. I plan to continue to do this for the next three to four years, but realize some large changes have to happen very soon.

For context as of June, 2025, her account balance. R Roth 1.3 taxable 275,000 IRA 290,000 annuity 1.6 million. Her Social Security r and d in the small pension pretty much covers her current living expenses. Annual expenses are approximately $60,000 a year. Eventually, her estate will be inherited by myself and my two siblings.

All of us are in the 2220 4% federal tax bracket. All of us are retired and near retirement in our early sixties. Any other options I should consider would be much appreciated. I enjoy listening to the podcast while hiking, skiing in the Utah Mountains. You skiing, listen to this garbage. Who listens to a podcast while they’re skiing?

Is that like cross country skiing you?

Al: Well, you don’t, you have to pay attention when you’re skiing.

Joe: I’ve never skied. One time

Al: I’d have skied and I always paid pretty close attention. ’cause you know, I, you hit a ski rocks and trees and other people.

Joe: well, I guess he’s not paying attention to us and, oh man.

So this is an interesting case here.

Al: So, well, let’s talk about this. So at age 90, so if she annuitized, I guess that means she’d have to, she’d take an income stream for the rest of her life, but if she dies, does that mean it goes away?

Joe: She could do, I don’t know. I would have to look at the contract.

Al: Yeah, I mean is we don’t know if there’s any residual for beneficiaries or not.

Joe: You could probably do a period, certain 20 years.

Al: Okay. if that’s an option, right? Yeah.

Joe: And then so you annuitize the contract in, let’s say if you do 20 years, then it comes out in 20 years. And at least you get the pro rata because you get the pro, you get a little bit of the basis,

Al: which not much.

Little percent. Yeah. 90%, not even whatever payment is gonna be taxable. Yeah. Okay, well that’s not a bad idea. So if they can do that at some certain, then they’ll get the money and of course they’ll pay taxes on it, but it’ll be little chunks.

Joe: Yeah. You just spread that out over a period of time.

Al: Unless, yeah, something happens to the contract.

Joe: At age 95 where they have to close out the rest maybe, and the rest of it comes out. I don’t know. I mean, each contract is so it’s different. Yeah. But let’s, all right. There’s two things that, that, that would be my first option to say, all right, well, let’s say if I anize the contract, how far can I annuitize the contract?

Al: Yeah. For a sub 30.

Joe: Yeah. Very clear about that period. It’s certain. Not life only. Yeah. If you do life only, you know,

Al: and she dies next year, it’s so yeah.

Joe: A period certain, let’s see how far that you can drag out those payments. yeah. And if he can do so after the age 95 is kind of my first guess, but let’s say if he has to get everything out of there before she turns 95 in five years,

Al: you just have to grin and bear it.

You have to get it out, There’s, yeah.

Joe: is she charitably inclined? Is there, yeah, I mean, there’s some charit

Al: potentially, but yeah, so she, they’d have to pull out 300,000 a year to or more to make this happen.

Joe: And that’s that pushes her above the 24% tax bracket. It does. Yep. Maybe she can get married. That could-s

Al: Now you’re going outside the box.

Joe: Yeah. That could increase her, you know, that those tax brackets,

Al: she could move to Florida so she didn’t have state tax. And get married in Florida.

Joe: Yeah that’s probably not gonna happen.

Al: Nope. Nope.

Joe: Let’s see what else.

Al: I think it, you’re right, I think you’re right. It boils down to what, what’s allowed in the contract. I think your idea’s perfect if you can get a period certain for like 20 years. So in other words, if she passes away, then the beneficiaries, you and your siblings get to continue on the payment through that 20 year period. So say she lives five more years, then 15 more years, it’ll come to you as a payment stream. That’s how that would work. If it’s allowed in the contract.

Joe: Yeah, so then you just have you and your two siblings as the beneficiaries. So then those payments would get split three ways when she passes. You and, you know, your brothers and sisters, which wouldn’t, you know. It. It would still be a tax hit, but maybe it would be a lot lesser.

Al: Yeah. But it depends on who’s in the 22 and who’s in the 24. The person in the 22% tax bracket is going to get more after tax dollars.

Joe: Yeah, But maybe you put them at a lower percentage so it all evens out from an after tax perspective maybe. Yeah. It’s kind of getting to the nitty gritty there.

but you know, this is a problem with annuities. That’s other issue.

Al: I was gonna say, we hardly were talk about it ’cause you usually don’t see these go up that much.

Joe: And then from a 90-year-old of like, alright, now what the hell do I do with this? Yeah. Gotta forget it. You know, it, it worked out well from a rate of return perspective, great.

But they’re gonna lose. 20, 30%. Yeah. You know, to tax

Al: at least. Yep.

Joe: So, I mean, the good news is that hey,

Al: they got something to, they got,

Joe: you got something to lose.

Al: you get to keep 70%.

Joe: But let’s, but yeah, I don’t know. There. you’re tied up, you’re locked up. The fees, the cost and everything else.

I mean, there, there’s a lot of better options. not saying, Hey, let’s go back 20 years and buy something different or do a different investment. I think he’s, he realizes that it worked out. Now you have to pay the piper. but hopefully you can just pay it out slowly.

Al: Yeah, but I’ll say for our listeners and viewers out there, so a better way would to take the $145,000, put it in a s and p 500 in a brokerage account, it grows over time.

You never have to sell it. She never has to sell. It can keep it, sell whatever she needs at certain points. If she needs the income, keep it in the account. Don’t do anything. She passes away. There’s a full. Step up in basis so the next generation gets it, can sell it the next day and pay no tax. That would’ve been the preferred way.

I think Mike realizes that now. But just if you’re thinking about doing this in a similar situation, it may not be your best choice.

Joe: All right. enjoy the slopes. Skiing in Colorado. When does it start snowing there? Soon? Probably. Huh? November.

Andi: Utah, isn’t it?

Joe: Oh, Utah.

Al: Utah. Same idea though. Probably, yeah, probably November, I’m guessing.

Joe: All

right. Times you’ll be here before you know it. Big Al.

Al: Yeah, that’s right.

Is Gifting Appreciated Assets to Parents Tax-Smart or Risky? (Doc McMuffin, MN)

Joe: We got Doc McMuffin, from my home state of Minnesota.

Al: There you go.

Joe: Hey, Joe, Al Andi. You guys are the best, and this is my favorite finance podcast. Thanks for all the spitballing and laughs. I’m a 41-year-old from Minnesota, and Mr. McMuffin is an engineer, still drinking,

Andi: and she’s a doctor.

Joe: What? Oh, she’s a, I’m a 41-year-old, doctor’s.

Andi: 41-year-old doctor.

Joe: Yes, that’s – what did I say?

Andi: She’s Doc McMuffin you just said she’s a 41-year-old.

Al: Skipped the word doctor.

Joe: Oh, all So she’s a doc and he’s an engineer.

Yeah. That must be a fun cocktail hour. You know, I wish I, I knew them. I could have a drink with ’em. Yeah. So, yeah. Well, well, there you go. She likes to, drinking little chardonnay and IPAs. Mr. McMuffin is still drinking funky weird sour beers. Sour beers. Yeah. No, thank you.

Al: Yeah, I don’t think I’d like that either.

Joe: All right. You just kind knew. 2025 GMC Sierra, and I’m still driving my 2012 CRV. All right. So we got questions about gifting, brokerage account assets to my parents. Okay. So they’re gifting up instead of down.

Al: Yeah. Gifting up a generation.

Joe: Yeah. Okay.

Al: I know about that. I like it.

Joe: Mr. McMuffin and I have an annual combined W2 income of $650,000, so solely in the 35% tax bracket plus Minnesota income tax. My parents are 73. And have about $84,000 in retirement income annually between their Social Security and pensions. Plus this year add an extra $10,000 in RMDs. We wanna gift them $75,000 to remodel the pay on the cabin that they own. 75,000 keeps us under the gift tax reporting limits since there are two of us and two of them. We You wanna explain that real quick, Big Al?

Al: Yeah. Okay. Yeah. So the way it works is you can actually give to anybody that you want to, $19,000 a year. That’s what’s true in 2025. And that gets the index for inflation. So in other words, Doc can give gift to Mom and Dad 19,000 each and so can Mr. McMuffin, 19,000 each. So in this case, two people are giving to two people. So that’s 19,000 times four, which if you’re keeping track as Joe is about 76,000. So she’s right, 75,000 is under that limit.

Joe: Alright? 75 keeps us under that gift. But even if she gave a hundred.

Al: Yeah, so here’s how that works.

Joe: It’s not the end of the world.

Al: No. What happens is you have to file a gift tax return, and all that happens is you get a little bit less credit against estate taxes, which right now it’s, what are we now? 15, 14 million. Each some 14, 15 million.

Joe: It’s a big number.

Al: Yeah. Yeah. I think the big, beautiful act changed that just a little bit. But anyway, roughly 28, $30,000 you can gift or not gift, you can pass to the next generation if you’re a married couple without any estate tax. So there’s a pretty, so all it would happen if you give a hundred thousand dollars, that would be, call it 30,000 over the limit, just 30.

Joe: How many people do you think actually files a gift tax return? Not many, but how many did you do in your days of taxes?

Al: Not too many. Usually no one tells you. but you’re supposed to.

Joe: Got it. Yeah. The honor system.

Al: The honor system, which is true of a lot of our taxes.

Joe: Yes. All right. $75,000 keeps us under the gift tax reporting since there are two of us.

Two of them we’re planning to give them $75,000. Of our most appreciated brokerage account assets, all invested in the s and p 500 index fund. With a $35,000 a basis of $40,000 a gain, I figure we can get the index funds from our brokerage to theirs. They sell them, pay the 15% capital gains as opposed to our 23.8 capital gains, plus the Minnesota capital, gain taxes, and then use what’s left for the remodel.

I don’t think this screws them up for their Social Security taxability since they are already at the max. Okay. And I think it keeps them under Irma increases because they’ll still be under $212,000 from their annual income. All right. It ends up saving close to $5,000 in taxes to have them sell the assets rather than us.

Am I missing something? Furthermore, is it crazy to think this is set up? Hold on. Is it crazy to think this is set up we should keep using?

Andi: I think she’s missing “the” setup we should keep using.

Al: Yeah, I think you’re right, Andi.

Joe: I’m just reading what is written.

Andi: I know. Yeah. I think she’s missing the word “The.”

Joe: The makes sounds like I, it makes me sound like I cannot read, so I get that.

Andi: I don’t think she did it on purpose just to trip you up, but maybe

Al: I don’t think so either.

Joe: like keep gifting them our appreciated brokerage assets. Keep it under the gift tax reporting limit. Then they sell at their capital gains rate and then they gift it back to us. Is that a thing?

Al: I like your accent.

Joe: Yeah. For Minnesota accent.

Al: Yeah. Okay.

Joe: thanks so much for all you do you guys world. Cheers. Doc McMuffin.

Andi: You guys rule!

Al: Awesome. Very good. Well, first of all, Joe, it’s completely fine to gift assets to anyone you want to, like we just talked about. Sure. And when you gift assets, by the way, here’s what happens is whatever your tax basis is, the person that receives the assets, that’s their tax basis. So in, in this particular case, your parents receive the assets. They sell the assets, they pay the capital gains at their rates. No problem. By the way, the $75,000 gift is not a taxable event. It’s just a transfer of a gift. What is taxable though is the $40,000 capital gain, but it’s taxed at the parents rate, which is lower. So there’s absolutely nothing wrong with that. In fact, that’s a really good strategy if you wanna get money to your kids. Or your parents in this matter to get,

Joe: the only thing that’s a little bit unique here is that they’re gifting up instead of down, right?

Al: Yeah. Usually it goes the other way, but,

Joe: and then if you gift down, so this was a strategy as like, all right, well here I’m gonna give it to my kids. They’re in a low tax bracket, or maybe they’re teenagers and they don’t have a tax bracket.

Al: Yeah.

Joe: And then so they had to come up with the kiddy tax, to avoid that strategy of people gifting down, having their kids sell it at zero capital gains rates, and then giving it back.

Al: It’s true. So you, yeah, because of the kiddy tax, you have to, you can give to your adult children, but not your mom.

Joe: But you can give to your parents all day long. There’s no daddy tax or Granny tax.

Al: No, nothing like that. Maybe there should be, I don’t know. But there’s not, so whether you can sort of keep doing this and, do a little gift and then they sell it and gift it back, I wouldn’t do that. I mean,

Joe: Save a couple bucks.

Al: Not that the iris is gonna catch you, but it’s I that if there’re an honor system. No, the honor system, you know, you know, I’m honorable. You know, because here’s the thing. If there’s a reason for you to make a gift and then your financial situation changes, there’s a reason for them to make a gift back to you, totally fine with that.

But if you’re just doing this to reduce taxes, I, wouldn’t do that. That’s not, that’s sort of going beyond the spirit of the law.

Joe: Alrightyy there.

Al: That’s my opinion.

Joe: Papa Al. And I think that’s all we got for today.

Al: All right.

Joe: So, that’s it folks.

Al: Another amazing show.

Joe: Another amazing show in the books. We’ll see you next time. This is Your Money, Your Wealth®.

Outro: Next Week on the YMYW Podcast

Andi: Next week on YMYW, should Dan in Florida contribute to his Roth 401(k) or do Roth conversions? Should FIRE’d up in Chicago contribute to his Roth 401(k) or pre-tax accounts to go FIRE and leave his kids a pile of cash? Big Wallet Barbie and Ken need a Roth conversion and home purchase strategy, and the fellas address a few of your comments.

This is Your Money, Your Wealth, your podcast! If you get a kick out of the show, share it! Your financially savvy (or not-so-savvy) friends will thank you. Subscribe on YouTube and join the fun in the comments, and leave your honest reviews for Your Money, Your Wealth in Apple Podcasts, Amazon Music, Castbox, Goodpods, or any other app that accepts them!

Your Money, Your Wealth® is presented by Pure Financial Advisors. To go beyond the spitball and begin crafting a real plan for your retirement, schedule a no-cost, no-obligation, comprehensive financial assessment with Joe and Big Al’s team at Pure. Click or tap the Free Financial Assessment link in the episode description, or call 888-994-6257. Meet in person at any of our nationwide offices or online from your couch. The Pure team will work with you to create a detailed plan tailored to your unique retirement goals.

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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