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

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 manages the firm's YouTube channels. Prior to joining Pure, Andi was Media Operations Manager for a San Diego-based financial services firm with [...]

Published On
October 24, 2023

Why does Becca in Florida’s advisor “poo-poo” her strategy for funding 529 plans for education? Keith, commenting on Spotify, wants to know about reimbursing yourself without penalty from a 529 plan for the scholarship amount used for education, and Wendy way up north in New York wants to know if she should use retirement funds to pay for college and home renovations. Plus, what are the pros and cons of starting Roth conversions for Renee in Wisconsin, and is she on track for retirement? Will the IRS penalize Dan in Michigan for not paying Roth conversion tax in January? With the 5-year Roth clock, how does compounding interest work when Aaron in Ohio changes custodians? And Kirk in Iowa wonders how the Affordable Care Act tax credit works with dependents. 

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Show Notes

  • (00:55) Why Doesn’t My Financial Advisor Want Me to Fund 529 Plans? (Becca, FL)
  • (08:19) Is 529 Plan Self-Reimbursement for Scholarships Okay? (Keith)
  • (10:22) Should We Use Retirement Funds to Pay for College and Home Renovations? (Wendy, way up in north NY)
  • (18:11) Pros and Cons of Starting Roth Conversions: Are We On Track for Retirement? (Renee, WI)
  • (28:58) Is the IRS Going to Penalize Me For Not Paying Roth Conversion Tax in January? (Dan, Milford, MI)
  • (30:38) Roth 5 Year Clock: Compounding Interest on Rolled Over Retirement Accounts (Aaron, OH)
  • (32:19) How Does the Affordable Care Act Tax Credit Work with Dependents? (Kirk, IA)
  • (37:11) The Derails

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Listen to today’s podcast episode on YouTube:


Andi: Why does Becca in Florida’s advisor “poo-poo” her strategy for funding 529 plans for education? Keith, commenting on Spotify, wants to know about reimbursing yourself from a 529 plan for the scholarship amount used for education without penalty, and Wendy way up north in New York wants to know if she should use retirement funds to pay for college and home renovations, today on Your Money, Your Wealth® podcast 452. Plus, What are the pros and cons of starting Roth conversions for Renee in Wisconsin, and is she on track for retirement? Will the IRS penalize Dan in Michigan for not paying Roth Conversion tax in January? With the 5-year Roth clock, how does compounding interest work when Aaron in Ohio changes custodians? And Kirk in Iowa wonders how the Affordable Care Act Tax Credit works with dependents. I’m producer Andi Last, and here to spitball on all of these questions are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

Why Doesn’t My Financial Advisor Want Me to Fund 529 Plans? (Becca, FL)

Joe:  Let’s go to Florida. How about that? “Hey, Joe, big Al, Andi. Let’s talk about how we get money into 529s. First, I have income. I maxed out contributions to my TSP. I do backdoor Roth contributions each year. Don’t have any debt, blah, blah, blah. I’m totally comfortable with my financial situation.”

Al: Okay, good. So done. All right. We’re done.

Joe: Next question. “I recently inherited $600,000 and am considering putting $50,000 as a lump sum each to my two kids in a 529 plan. The kids are 6 and 8 years old. I currently have an automatic contribution setup to my Vanguard that puts $1,000 each per month into the 529. The current balance of each of these accounts is $50,000. But I would like to stop this small addition each month and just put $50,000 each and be done with it. I ran this idea past my tax advisor and he completely poo-pooed it.” I hate that term.

Al: I don’t think I’ve ever said that.

Andi: Is it as bad as delicious?

Joe: It’s up there.

Al: Well, Florida. Maybe that’s how they talk.

Joe: Maybe?! He didn’t like it. It sounds like his tax advisor was like, this is a very bad idea.

Al: I really don’t like it.

Joe: “Basically he replied with the following. Number one, college is losing its benefits.”

Al: Okay.

Joe: So don’t go.

Al: Don’t go, Okay. It’s a waste of money.

Joe: All right. “Number two. I should be concerned about my retirement planning for myself. Very well be the case. Number three, losses are not deductible in a 529 plan.”

Al: True, but usually markets go up over the long term.

Joe: “Gains elsewhere can be used against education costs.” All right.

Al: Like capital gains, I guess.

Joe: Yeah. But you pay tax on it.

Al: Yeah, you do.

Joe: Okay.” I thought I had this brilliant idea to max out the 529 plans, and I admit, I was puzzled by my advisor’s response. Each of his points makes some sense to me, especially number four, which I understand to mean that I could use, dump, large,

Al: I could just dump.

Joe: Oh, that I could just dump.

Al: Yeah.

Joe: Where did I get to use…? I don’t know. I gotta get glasses. “I could just dump large sums of money into say, VTSAX and use those gains to pay for college costs down the road. Interested in your take on the wonderful dilemma I have. Becca from Florida.” Well, the tax advisor poo pooed this. Number one, college is losing its benefits.

Al: No.

Joe: Are you out of your mind?

Al: It’s like table stakes for many jobs. In fact, you need a master’s and sometimes more plus a certification. Like, in our industry, you need at least a bachelors and a certified financial planner designation.

Joe: I mean, all sorts of colleges, let’s say trade schools and everything are not losing their benefits.

Al: I tell you what, it sounds like a grumpy tax advisor.

Joe: Number two, I should be more concerned about retirement planning. Okay. I agree, but we don’t know Becca’s situation inFlorida

Al: No and she says she’s totally comfortable with it.

Joe: She just inherited $600,000

Al: So if we take that at face value, if you’re good, Then yeah, go ahead and fund a 529 plan.

Joe: So she maxes out her TSP, she does a little backdoor Roth each year. She has no debt, blah, blah, blah. Totally comfortable. Totally comfortable with my financial situation.

Al: Sounds pretty good.

Joe: Add another $500,000 on her totally comfortable situation. Alright, you can put $50,000 into the kids’, 529 plans. Let’s explain what they are. So it’s a college savings account that will grow 100% tax free if used for college education.

Al: Correct.

Joe: If you do not use it for college education, then the earnings are taxed and you get a 10% penalty.

Al: Right.

Joe: So you want to make sure that you are, I guess, strategic enough not to overfund these plans. Because you could lose some value. However, with the SECURE Act, people can now put some of those overfunded 529 plans into Roth IRAs that will continue the compounding tax free growth that then you could use for retirement.

Al: Sure. And you can always change beneficiaries if one kid needs it more than the other, or maybe for future grandkids. Now they’re only six and eight, so that’s a little ways down the road. Nevertheless.

Joe: She can have another kid or two.

Al: Or you could change yourself as beneficiary and why don’t you know, you retire and go back to college. Learn some stuff.

Joe: Give it to your tax advisor.

Al: So he’ll understand, or he or she will understand

Joe: the benefit of college.

Al: I’m going to go out on a limb. This sounds like a crotchety older male CPA.

Joe: Okay. Losses are not deductible in the 529 plan. Do you think this tax advisor also sells investments?

Al: I’m guessing. Yeah,

Joe: Maybe

Al: It’s like, why don’t you invest more with me?

Joe: So, all right. So let’s say if you invest in stocks. That is, outside of a retirement account, gains are taxed at capital gains, which is a lower rate than ordinary income. And then, if you have losses, you can tax lost harvests. You can sell and buy something else and use those losses against future gains. So, it could be fairly tax efficient.

Al: But only future gains. It’s not deductible against salary or pension or interest or dividends or rental property income.

Joe: There is no tax deduction.

Al: No, it’s only used, it’s only net with other capital gains.

Joe: And then gains elsewhere can be used against education costs. Yeah, but you’re going to pay taxes on those gains to pay for education costs.

Al: So gains come in the way of interest, dividends, or capital gains, which are all taxable.

Joe: 529 plans tax free.

Al: Yeah, that’s right.

Joe: I like her idea.

Al: Yeah, I do too. Well, I was going to ask you, you’ve got young children. What are you doing?

Joe: I’m going to take Becca’s advice and not talk to her tax advisor.

Al: Get a different advisor.

Joe: I think hers was a brilliant idea.

Al: So for me, I 100% agree. Becca, this is exactly what you should do. I’m taking this at face value that you’re comfortable with your own financial situation. And as Joe just said, you inherited $600,000. So what if you give $100,000 to the kids, you’ve still got $500,000 more than what you had before.

Joe: Right. And she’s totally comfortable with their situation.

Al: Seems pretty good to me.

Joe: If I had an extra $100,000. Hopefully I don’t inherit someday.

Al: Yeah, one of these days.

Joe: One of these days. You know, I’d put money into a 529 plan. I was like Becca’s first choice. I’m putting a few hundred bucks a month into the 529 plan. I have a two year old and a seven year old. So it’s like, all right.

Al: I’ll tell you what. If I would have had an extra $100,000 when my kids were six and eight, I would have done the same thing.

Joe: Right, for sure.

Al: I didn’t, so. I didn’t do it. I totally agree. Becca, go with your gut. You’re correct.

Is 529 Plan Self-Reimbursement for Scholarships Okay? (Keith)

Joe: All right. We got Keith, he writes in. You want to give some background, Andi, on this?

Andi: He actually left this comment on Spotify. And so you can do that now. You can actually comment and leave what you thought of a particular episode. And so on episode 446, Michelle had asked a question about moving excess 529 plan money into the Roth. And then Keith actually said on Spotify, aren’t you able to reimburse yourself for the scholarship amount used for education without penalty? So that is his comment on Spotify.

Joe: So aren’t we supposed to like write the comment back in versus answer it here now on the show?

Andi: You’ll have to talk to compliance about that.

Joe: So we’re not allowed, but we can

Andi: but we’re answering this question on the show.

Joe: We can answer the comment on the show, but we can’t comment back via writing. Is that the rules?

Andi: You got it.

Al: He’s probably waiting for his comment on Spotify. So, sorry about that. Hopefully you’re listening to this episode.

Joe: Probably not.

Al: But Keith, actually you are right. So, in other words, when you take money out of a 529 plan when it’s not used directly for education, it’s considered a non-qualified withdrawal subject to penalties. However, you can do a non-qualified withdrawal up to the scholarship amount, right? And that comes out penalty free. You still have to pay tax on any earnings though. So just be aware of that, but there’s no penalty. So that is a correct statement.

Joe: Okay.

Al: There you go. Right.

Joe: There you have it.

Andi: If you’re trying to understand the ins and outs of college savings – especially if you’re also putting away money for retirement – you don’t want to do anything that’s going to jeopardize your financial future, or your kids’ education. I’ve put some free resources in the podcast show notes for you. First, watch Joe and Big Al’s Money Saving Tips for Funding College on YMYW TV, or our webinar on using 529 plans, Coverdell accounts, prepaid tuition, and other strategies to pay for education. Then, download our free guide on the ABCs of College Funding to learn more about all your options. Click the link in the description of today’s episode in your podcast app to go to the show notes and get started.

Should We Use Retirement Funds to Pay for College and Home Renovations? (Wendy, way up in north NY)

Joe: We got Wendy way up North NY.

Al: Way up there, like upstate New York.

Joe: Way up. All right. “Hi there. I love your show. First things first, I drive a 2019 Subaru, but we are not besties.” Doesn’t care for the besties. No. Doesn’t care for the Subaru.

Al: Not really.

Joe: “She keeps needing repairs, but I love Diet Coke.” Okay. All right. I’ve got two questions. First, I’ve got $90,000 in a Roth IRA. We are older parents.”

Andi: Does it sound familiar, Joe?

Joe: Hey, whoa. Shots fired. “We set up to pay for college. Our twins are now 13. I’m 59. Hubby’s 60.” Okay. When they’re 13, how old am I going to be? We’re pretty close.

Al: I guess that’s about right.

Joe: Oh boy. I’m right there with you.

Al: That’s your demographic right there.

Joe: I’ll be 60 when he’s like 5. “We expect to have another $25,000 total in our 529 plans by the time they are 18. We have about $50,000 total, in UTMA, from my parents. For the Roth IRA, should we keep the money in the Roth IRA or move it to another investment option? Does it make sense to invest it aggressively until they are done with college and use the 529 in UTMA student loans to pay for the college during their college years and then pay out the student loans after college with the Roth money? I was thinking about a 70/30 stock bond split for the Roth. I hope that makes sense. Really appreciate your thoughts. Second question.” Ooh, greedy. It’s a double banger here. “We would love to make some renovations to our home. Maybe about $125,000 total. I plan to work another 10 years or so. 70 is the new 60.” 70 is like the new 50.

Al: Yeah, I’ve heard you say that.

Joe: “We would love to make some renovations. Alright, we already went there. Okay, I currently make about $175,000 per year. We have $730,000 in my TSP. I can withdraw it without penalty when I’m 59 ½, which will be in January 2024. Does it make sense to take a HELOC, then withdraw enough from the TSP each year to make the HELOC payments? I know I don’t have to pay taxes on the TSP withdrawal, I contribute 5% to the TSP to get the full 5% match, so I want to keep doing that. I don’t think our budget can manage a HELOC payment without using my TSP funds. We don’t have other significant savings to pay for the renovations between my pension, our Social Security, and TSP, most of which we plan to convert to Roth. I think we can afford to retire at 70, even with taking some of the TSP out to pay for the renovations. We’d rather do the renovations now and enjoy it.” I get it.

Al: Yeah, me too.

Joe: Okay. So they want to enjoy it now and in retirement. And then wait until age 70 to retire. Thanks for your thoughts.”

Al: Okay. So we got two questions. Very different questions. How about the first one?

Joe: This is a budget question. We got to get a little bit tighter on the purse strings here, I think. She makes $175,000 a year. What does hubby make? Because there’s a ton of income here. And so it’s like, all right, here we’re going to spend our Roth money to pay for college. We’re going to start using our retirement money to pay for renovations. We’re going to be doing this and we’re going to be doing that. So I would first take a little bit of a step back to figure out, okay, well, where’s the cash going? What’s going on here? I get it. You’ve got twins.
They’re right. Twins.

Al: Yeah. 13.

Joe: If they’re boys, they probably eat like you wouldn’t believe. So it’s like, okay. What is, what does her husband make? What does Wendy’s husband make?

Al: Yeah, there’s a lot we don’t know. So all we can do is answer these questions at face value.

Joe: Okay, so there’s a pension, there’s going to be Social Security. If she makes $175,000, and there’s another spouse that makes, I don’t know, $25,000. There’s $200,000 of income coming into the household, which is probably in the top, what, 4/5%? And if she lives way up North New York. It’s not in the city. So those dollars might stretch a little bit more. So I’m getting a little bit worried here, understanding that. All right. Well, yes, I get you want to do renovations. So, but taking money out of your retirement account to do renovations, taking money out of your retirement account to pay for college. Some of this stuff is that you can always take a loan out for college. You can’t take a loan out for your retirement. So we probably need a little bit more information. At least do a back of the envelope kind of spitball here.

Al: Well, I agreed, right? Because if you’re going to take money out of your retirement for something other than retirement, then let’s make sure you’re okay. And basically what you’re saying is you think you’re okay. I’d want to kind of know.

Joe: Verify that.

Al: Yeah, verify that to make sure you can do that. If you can, great. I’m all for enjoying life now when, if you can, right? But it always scares me a little bit when you’re taking money out of retirement plans for non retirement type expenses, like college, right? Like home improvements. So just be careful. I mean, we don’t know enough to be able to answer either of these questions that well, but I mean, I guess in terms of your ordering, yeah, you use the UTMA and the 529 plans to pay for college. I mean, that’s essentially what they’re for. So yeah, that makes sense first.

Joe: And then student loans after that, I like that

Al: Student loans after that.

Joe: But I wouldn’t touch the Roth to pay out the student loans.

Al: A Roth is such a nice thing to have in retirement tax free income. To keep you out of higher brackets, if you’re kind of near, I mean, we don’t know what your pension is, Wendy. I mean, maybe it’s a lot. Maybe this is a moot point because you’ve got a big pension and maybe you’re just fine, but we can’t even, we don’t really know. It’s just that when you’re using, like I say, when you’re using retirement funds for something other than retirement, take a pause, right? Take a step back and say, are you sure?

Joe: What Wendy needs to do is take a look at what they are spending? And then forecast that out over the next 10 years. And say…

Al: And then look at all the sources of income. Right? Do a distribution rate on your short quality or your savings and see, is it 4%? Is it something a lot higher? Way lower?

Joe: Right. She makes $175,000 a year. She has $730,000 in the TSP. Right. So she’s 60 or 59. So at 60, it’s like 10 times income?

Al: Yeah. However, pension could cover that.

Joe: Right. Well, TSP, she probably, I don’t know if she’s got a government pension, maybe that covers $100,000 of income in retirement. There’s other social security sources and maybe the fixed income will cover it if she pushes her retirement out to age 70. She could be right on the money. We need more information to make sense of

Al: And when people are looking at this, a lot of times they forget to inflate their expenses by inflation rate, maybe just use 3% as a starting point. In other words, $100,000 today in 10 years, it’s going to be a lot more than that, probably $135,000. So just remember that when you’re inflating your investments with rates of return. Yeah, that looks good, but your expenses have to go up with inflation. Then you compare those two with each other.

Joe: Given what her income is, I think she could be fine, but she’s gonna have to cut. I would rather her cut out in other areas versus taking assets from retirement.

Al: Yeah, that you may need.

Joe: I know that didn’t help. She doesn’t love the show anymore.

Pros and Cons of Starting Roth Conversions: Are We On Track for Retirement? (Renee, WI)

Joe: Renee from Wisconsin writes in and she’s like, “I love the show. Thank you so much for your entertaining way of looking at retirement personal finance. My husband, 53 and I, 54, live in Wisconsin with our 7 year old son Scotty, back in the Midwest. You’re not the only late starter, Joe.” All my crew’s coming out, large. Let’s see. Got a 7 year old at 53. That’s pretty close. We’re getting there.

Al: This is another one right on target.

Joe: We have 2 mixed breeds of dogs. Okay. They’re 12 and 14 and we drive a 2013 RAV4 and a 2019 Honda truck. We enjoy our Miller light, but also partake in some Door County wine after we put our son to bed on the weekends. Our situation, Hubby earns $120,000 a year and has spent his career in public service. So we have a pension of about $5,000 a month at his age, 57, in which time we intend to get a new career making at least $60,000.” All right. A little double dipper.

Al: Good.

Joe: “When he officially retires from everything at 63,” so he works another few years there, “On top of the pension contributions, he puts $350 a month into a traditional IRA since we have above the Roth IRA earning limits. I have worked full time since graduating college and intend to work until I’m 64. I do not have any pensions, but I’m saving through my 401(k) plan. Over the years, I currently make $132,000. I’m putting 18% into my employer’s Roth 401(k). I qualify for the maximum non Roth match of $5,000 per year. We are just shy of $500,000 in retirement investments. Currently, here’s where we stand with the retirement savings between the two of us.” $500,000.

Al: Yep. That’s great.

Joe: “Coming up with our retirement expenses is a challenge for me, but when I look at net pay per, Al’s advice and what we save, I’m estimating that we would need around $120,000 per year. We both will qualify for social security and we’re thinking about having hubby take it at 63 and me at 70 as the higher earner. I’m hoping you can spitball this to see if we’re on track to cover our anticipated expenses based on the retirement ages mentioned. Also, we’ll love your spitball pros and cons of starting some Roth conversions. We’re just leaving the funds as is since most of our current retirement contributions are going to Roth. Thanks, Renee.” All right, cool. Thank you, Renee, for the question. $500,000. 54 and 53. Wanna retire at 57. He’s got a pretty handsome pension there. $130,000 a year in expenses.

Al: And she’ll work 10 years. Okay. So $500,000 with her savings, she’s saving $24,000 a year based upon 18% of 132 plus employer match 5k. So here’s another one. Tell me what you got. $500,000. Tell me what you’re saving, with a match of $29,000. Perfect. For 10 years, I used 6% to be conservative. You could use seven if you want to be more aggressive. That’s $1.3 million. So that’s what you’ll have in 10 years.

Joe: So you’re Roth IRAs, Roth 401(k), 403(b), everything else, take a look. You grow it at 6%, adding your $29,000 a year, plus the employer match.

Al: Yeah, exactly. Get a financial calculator or a friend of yours that knows how to do this calculation. If you have the calculator and you know what you’re doing,

Joe: Or just write in.

Al: Yeah, just write in and we’ll take care of it for you. Now, you’ve got to look at expenses. $120 to $130, 000 in 10 years will be, I use the midpoint of 125, but yeah, call it $170, 000 of expenses. So that’s a lot. Hubby’s pension, $55,000. Social security. You don’t say what that’s going to be at 63. So I just put in $20,000. I don’t know.

Joe: Probably more than that because $132, 000.

Al: No, he makes, that’s what she makes. I don’t know what he makes. Oh, he makes 120. Nevermind. Yeah, probably more than that,

Joe: but it’s combined with social security, it’s $60,000.

Al: I’m just doing it without hers right now. Cause she’ll take it seven years later. I just want to see what it looks like right now. Okay. So if I take $20,000, I’ll have a $93,000 shortfall. You could take $30,000, $83,000 shortfall. But you divide that into $1.3 million. It doesn’t work. It’s too rich. So if you use my $20,000 to be conservative, because I don’t know what the number is, that’s a 7% distribution rate. We want you to be closer to 4. So it’s too high. And if you use a 4% distribution rate on $1.3 million, you’re about $40,000 too high in expenses. So, here’s the case where, Joe, it doesn’t really quite work based upon the numbers we have. Now, the 4% distribution rate might even be a little bit high because you’re retiring before 65, however, there’s social security coming for you, which I don’t know what that is, but probably pretty decent. All this is without really knowing the social security numbers, so I may be off by a factor there. But based upon what I see on the surface, it’s a little shy but I also have not factored in making an extra $60,000 a year. See, this is where a financial plan comes into play because it’s too hard to spitball all these different variables. But just my quick analysis says, I think you’re a little bit short.

Joe: I disagree. I think they’re okay.

Al: Do you

Joe: I do, because I have a husband, who is 53 and is gonna work until age 57 and they’re working until age 63 part time. Yep. And then let’s say then, but he’s gonna make another $60,000. His pension is $60,000, so he’s still gonna make $120,000. She makes her $130,000 and they’re saving $40,000 a year.

Al: I know, but she, but they’re spending $125 to $130,000. So she makes 130 also

Joe: and he makes $130,000. Now at age 63, let’s say that he retires fully at age 64.

Al: Yeah. No, he’s retiring at 57. Then it goes to $60,000 a year,

Joe: Yeah. But he has a $60,000 pension. He’s taking the pension plus $60, 000, it still equals his income.

Al: I know. But what I’m saying is the $60,000 I think is going to be needed for their expenses.

Joe: Right. But everything is the same. It’s the same until age 63 is what I’m saying, because he makes $120,000.

Al: I agree with you, 100%. That’s why I ran this out for 10 years.

Joe: The math is run at age 63. So at age 63, you look at $120,000, you push that out, that’s $180,000?

Al: Yeah, call it $170,000.

Joe: $170,000? All right. So I got $500, 000 and then I have $40, 000. And then I have 10 years and you use 6%, right? So I got 1.45, so $1.5 million.

Al: Yeah, I had $29, 000 of savings, but I got $1.3 million, but we’re in the ballpark.

Joe: So he’s saving $350 a month plus the match is what I combined it all there.

Al: I didn’t add his three because that was only going to be probably for the next four years,

Joe: Why wouldn’t carry all the way through

Al: Because I think they may, well, I don’t know. I mean, we’re talking small, right? We’re talking $3,000 a year.

Joe: But still $3,000 compounded over 10 years.

Al: It doesn’t change my numbers.

Joe: It doesn’t hurt. Big Al that’s like chump change. I don’t know. I think they’re closer than you think, but you’re right. The expenses are a little high and if he can work until age 65, 66, reduce the spending by a couple of bucks. I wouldn’t take his social security right away. I would probably push that out. And not take it at 62 and you at 70, maybe you look at both at full retirement age, because there’s pros and cons to both of these. Because if you push out your social security, you’re going to take a lot more of your liquid assets up front. And if you have a bad market, I mean, then it’s the whole sequence of return risk. If you take it at full retirement age, well, yeah, you’re going to have a lower benefit, but you’re also taking less from the portfolio. So I mean, those are game time decisions, I think. And it depends on longevity and all of that, but I think if they could continue to save as much as they’re saving now, and if he works a little bit longer, I think it maps out.

Al: I was just taking it at face value. So the next comment is how do you make this work? And how you make it work is working a little bit longer. Renee, maybe you save a little bit more. Maybe you spend a little bit less when you factor all these together. Sometimes working an extra couple of years makes all the difference. What I’m suggesting is that I don’t think it works out on face value, but the tweaks that you need to do to make this work aren’t as big as you think.

Joe: It’s not going to break the bank. It’s just a small little tweak here and there. Make better decisions. Roth conversions, does it make sense? I mean, to kind of put a bow on this? Yeah, maybe, but you’re saving $39,000 a year over the next 10 years and you already have quite a bit of money in Roth. You still want to have money in a traditional IRA to eat up those lower brackets.

Al: The savings is going into Roth. I think they’re fine.

Joe: I think they’re good too. Hopefully that helps.

Andi Remember, to give you a good retirement spitball, the fellas need to know at least four things about your finances: 

1. How much do you, and your spouse, if you have one, have saved for retirement in tax-deferred, tax-free, and taxable accounts? 

2. How much fixed income will you have in retirement – for example, Social Security and pensions? 

3. When do you want to retire? 

And number 4, how much you expect to spend annually in retirement? Don’t forget to give us whatever name you’d like us to call you, and your real location, in case state taxes factor into your spitball. Then tell us where or when you listen, how you found us, and what you drink so Joe and Big Al can really get into your situation. Click the link in the description of today’s episode in your podcast app to go to the show notes, click Ask Joe and Al On Air, and send it on in. Or if you prefer to fiddle with the numbers and spitball for yourself, give our free new retirement calculator a whirl. Go to EASIretirement.com, that’s EASIretirement.com. 

Is the IRS Going to Penalize Me For Not Paying Roth Conversion Tax in January? (Dan, Milford, MI)

Joe: “You guys are awesome.” This is Dan from Milford, Michigan. “Enjoy listening to you every week. Got one quick question.” Yeah, this thing is like six pages long.

Al: No, it’s only one paragraph. This is actually a good one.

Joe: Oh, this is a quick question. “I’m in the years between retirement and Filing for Social Security at age 70. I plan to do Roth conversions early in January next year. I was not planning on having taxes taken out at the time, but will do so when I take an IRA distribution in late 2024.

Is the IRS going to penalize me for not taking the taxes out in January? My plan is to have enough tax taken out of the IRA distribution to meet the tax obligations for the year. Thanks for your spitball on the issue. I love a good Manhattan or an old fashioned but I do enjoy a beer or two on the golf course with friends. A little sip of fireball to celebrate a birdie now and then works as well.

Al: So the question is, So you do a Roth conversion, do you do a withholding then in January, or can you wait till an IRA distribution at the end of the year? And the truth is you can wait as long as it’s withholding, because when you have withholding, the IRS doesn’t know when the withholding went in. You could withhold monies on December 31st, and it still counts as evenly distributed throughout the year. Now, if you don’t have withholding. And are making estimated payments. Yeah, you’ve got to make quarterly estimated payments. But I think as I understand your question, Dan is as long as you have an IRA distribution late in the year and have withholding on that, then that will suffice for the Roth conversion. So you should be fine.

Roth 5 Year Clock: Compounding Interest on Rolled Over Retirement Accounts (Aaron, OH)

Joe: All right, we got Aaron from Ohio writes in, “I’m a teacher and I have a pension at 77% of my top five years when I reach retirement, most likely the pension will be north of $90,000. I had a question regarding Roth IRA, 403(b), and 457. I had a Roth IRA with my former financial advisor but switched to independently handle it myself. I cannot remember the financial institution that was previously held but I opened my new Roth IRA in 2021 with M1 Finance. I transferred all the funds and I am 100% now invested in VTI. I was wondering if the 4 to 5 years the Roth IRA was previously in would be included in the compounding interest of the IRA or if the clock started over with my M1 Finance Roth IRA was open. Now, the IRS does not care if you’re with M1 Finance or if you’re with Robinhood, if you’re with Fidelity, or if you’re with Merrill Lynch. All they care about is when you establish the account. The five-year clock starts January 1st, the year you started, open that account. So if you open the account, even in April, let’s say I open up a Roth IRA in April of 2024, before the tax filing deadline, my five-year clock would start January 1st of 2023. So to give you that type of example, it starts on the first. So it doesn’t matter if I opened up N1 Finance, then Fidelity, then blah, blah, blah, blah, blah. Or if I have multiple Roth IRAs and multiple custodians, the five-year clock starts with the first one on January 1st.

Al: Agreed. Spot on.

How Does the Affordable Care Act Tax Credit Work with Dependents? (Kirk, IA)

Joe: We got Kirk in Iowa. He goes, “Hi, I love listening to your show.”

Al: That’s a great way to start. Gets us all charged up.

Joe: “And I hope he can answer the healthcare subsidy question.” Oh, then he just went down…

Al: Wrong show.

Joe: He’s not going to love listening to the show after we answer this question.
“My wife and I have three children. Our medical insurance is currently subsidized through the Affordable Care Act, which gives us a tax credit of 13.84 per month towards our premiums. Our daughter’s getting married next year, which means we’ll be able to claim two dependents by the end of the year. My understanding is the ACA tax credit is based on dependents at the year end. So, it will retroactively drop $917 per month for us all next year. This costs us additional $2,802 to still cover our daughter’s health care from January through June. Is this correct?” I have no clue. “Or does the ACA allow adjustments to tax credits based on changes in family size mid year?”

Al: Yeah, so I didn’t know either, so I looked it up.

Joe: Oh, look at you.

Al: I will tell you, it’s still not clear.

Joe: Super complicated.

Al: It’s not clear, but here’s what I learned. And hopefully, Kirk, this will help at least a little bit. So here from the horse’s mouth is. I’m just going to read this since I don’t really get it.

Joe: Perfect.

Al: I understand a bit. A household can include individuals even if they are ineligible for tax credits. For example, individuals who are not lawfully present, whatever. That doesn’t apply. Shouldn’t have read that. Here’s what I meant to read. Your household size can change during the year. Due to family changes, including the birth or adoption of a child moving out of the house, divorce, legal separation, when such changes take place, you should report them to the marketplace as they may affect your eligibility for subsidies. Family changes can also trigger a special enrollment opportunity. Where you can change health plans. So two things can happen here. One is you can change the amount of your subsidy based upon changes so that you don’t end up owing a big amount at your end. And number two is not only can you do that, but you can actually change your health plan and to get a cheaper plan. And maybe this will work out for you. So yes, the concept is right that they go to the year end, but you can make changes. You know, normally the open enrollment period is November 1st through January 15th. But when you have a change in family or income or something like that, you would qualify for this special enrollment opportunity.

Joe: There you go. Well done Al. Cool. What else? Anything?

Andi: That is all.

Joe: That’s it. All right. Another great show, I think, in the books. Hopefully we get another couple one stars.

Andi: Haven’t had one in a while, so it’s overdue.

Joe: You know, they’re coming. Thanks all for your questions. I mean, we got a ton here in the hopper, so just be patient we’ll get to them. We might have to have a super show at some point just to try to get through some of this stuff.

Al: We might have to do two episodes in a week.

Joe: We truly appreciate everyone writing in. This has been quite the past couple of months of your guys’ questions.

Al: Remember the old days, we kind of, we had to pray for questions?

Joe: We had to bribe. And we had to make some up.

Al: And then your cousin would write a question.

Joe: Yep. All right, we’ll catch you next time. The show’s called Your Money Your Wealth®.

Andi: In the Derails we’ve got Al’s childhood in New York, 70 is the new 50 and 50 is the new 30, “hubby” and “the wife,” drinking with kids, fireball and birdies, so stick around to the end of the episode.

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Your Money, Your Wealth® is presented by Pure Financial Advisors. Click the “Get An Assessment” button in the podcast show notes at YourMoneyYourWealth.com or call 888-994-6257 to schedule your free financial assessment, in person at one of our seven offices around the country or online, at a time and date convenient for you, no matter where you are. Chances are, one of the experienced financial professionals on Joe and Big Al’s team at Pure will be able to identify strategies to help you create a more successful retirement.

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The Derails



Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this broadcast and does not represent that the securities or services discussed are suitable for any investor. Investors are advised not to rely on any information contained in the broadcast in the process of making a full and informed investment decision.

• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC, a Registered Investment Advisor.

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