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- [00:00]
A
Hey gang. I've recently been thinking about how to make my home feel more functional, especially my work area. So I have turned to Wayfair. And let me tell you, it was a game changer. I found lighting for my desk that really has helped me when I wake up early. And you know how early I wake up, gang. And shopping was a breeze. I filtered by exactly what I wanted style, checked out the reviews. I even used the Wayfair verified to make sure everything was top quality. What sets Wayfair apart is how fast and simple everything comes together, from furniture to home accents. Everything feels thoughtfully curated and actually fits my style. And now Wayday is the sale to shop the best deals in home. We're talking up to 80% off with fast and free shipping on everything you need. Head to Wayfair.com April 25th through the 27th to shop Wayday. That's W A Y F A I R.com Wayfair Every style, every home. Today's episode is brought to you by Alma. A year from today, who do you want to be? It's a simple question, but when you really sit with it, it can feel big. For me, therapy has been a huge part of getting closer to that version of myself. But finding the right therapist wasn't always easy. Many of us don't know where to start, feeling overwhelmed by options and worrying about the cost. That's why I'm really encouraged about what ALMA is doing. ALMA is on a mission to simplify access to high quality, affordable mental health care. They've built a network of over 20,000 therapists nationwide and you can browse their directory without even making an account. You can filter by things like specialty, background and approach to find someone who really fits you. Plus, 99% of Alma therapists accept insurance and and people save an average of 80% on sessions. They even have a free cost estimator so you know what you'll pay up front. You don't have to figure it out all alone. The right therapist can make all the difference. A year from today isn't that far away. Get started now@helloalma.com money that's helloalma.comm m o n E Y. Welcome to the Jill on Money show. It's Wednesday, April 8th, and we're here talking to you about whatever is on your mind financially. If you've got a question, all you need to do is go to our website, jillonmoney.com in the upper right hand corner there is a contact us button. When you click that button, a form Pops up. It's the email that we receive. And yes, we do emails. We read them on the air because it's. It is part of our way of making sure that shy people are served by this program. However, if you're not so shy or you trust that we will be able to protect your anonymity, maybe by changing your name or your location, well, then just check the box. And Mark will do everything else because he is, in fact, the best executive producer in the whole wide world. While you're on the website, don't forget to subscribe to the weekly newsletter. It comes out on Fridays on. Also check out all of the other content that lives on the website. It may be our blog or our other program called Money Watch, or videos or Resources, all sorts of stuff that lives there. Okay. Today we are talking to Carol, who joins us from the Midwest. Hello, Carol. What can we do for you?
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B
Hello, Jill and Mark. I have a question about whether I should do a Roth conversion with my traditional ira.
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A
To convert or not to convert? That is the question. Okay, so first of all, tell us about yourself, Carol.
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B
Okay. I am 69 years old. I retired a couple years ago. I'm in fairly good health.
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A
Great.
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B
One son, he's about. I think he's 25.
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A
Yeah, I like that you say, I think. I think he's 25.
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B
Yeah.
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A
Is he launched?
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B
He's launched, but he needs a little. Sometimes a little help. He's still figuring things out.
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A
You've launched him, but every so often you have to kind of drive the dinghy over and just get over there and be like, here's a few bucks to help you with something. Yeah, but you're not doing, like, you're not doing an ongoing amount. Like, you're not saying, oh, well, I pay for his rent.
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B
No.
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A
Okay, so you retired a few years ago. Are you entitled to a pension?
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B
I do. I get a pension and I'm taking my Social Security.
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A
What's your monthly income?
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B
Well, annual, 70,000.
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A
Okay, that's great. Do you. Are you married?
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B
No, I've been divorced for about 25 years.
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A
Okay.
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B
Happily divorced.
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A
I love those people. They're like, no problem. All good. Okay. So does the pension and Social Security, the 70 grand a year, does it cover most of your expenses?
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B
It does, but I. I like to. I always seem to live just within my means, so there's not, like a ton of money left over.
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A
Okay. Do you have a retirement account in addition to your pension? Because you're talking about converting, but. So what kind of account we have? Do we have.
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B
I have a. So I. All my life, I invested in my tax deferred 401, and that is now in a Vanguard IRA. And I. That's basically, I put all my eggs in one basket.
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A
Okay.
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B
I have a very small high yield savings of about 15,000, but that's pretty much it.
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A
Okay, so you have a high yield savings of 15,000, like, and you have a bank account that has a few bucks in it.
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B
Yeah, very few.
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A
Okay. And the IRA rollover at Vanguard, how much is in there?
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B
About 900,000.
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A
Okay. You own your home?
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B
Yes, I do.
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A
How much would you guess it's worth?
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B
I guess about 500,000, maybe more.
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A
And is there a mortgage remaining?
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B
No, it's all paid off.
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A
Okay. And you want to stay there?
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B
Yes, I plan to stay here, yes.
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A
Okay. All right. So are you pulling any money out of the IRA account right now, or is it just you know, sort of chugging along?
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B
It's chugging along, except if I find that I want to take a little vacation and I don't quite have the money, I'll nibble at it here.
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A
Yeah, why not? Come on. Aren't you entitled?
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B
I know that's.
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A
Jeez. But you don't have another account. You don't have another brokerage account, and there's no big cash account that you would use to pay the tax that would be due if you were to convert. Is that what I'm understanding?
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B
Yeah, that's correct.
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A
Okay, so don't even. Don't sweat this. You're not going to do a conversion. You're not a conversion candidate. Because it really only works if you actually are able to pay the tax that's due from an account that's not a retirement account. So if you said to me. Let's just flip it around. If you said, like, I had 100 grand in a rollover and 800 grand that's in a brokerage account, then we would absolutely have you do that. But in this case, here's a different idea for you. Did you file your taxes yet?
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B
I did.
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A
Okay. Do you remember what your income was? Like the bottom right hand corner, do you remember what that income was? Was it that 70ish?
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B
Yeah, I have it right here. Taxable income was $67,000.
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A
Okay. So here's what I think might be more interesting for someone in your situation. Two choices. One is that, you know, you say, look, I need more money out of this account every year. I really do. Because you want to have, like a more. You really should have a high yield Savings account that's a little bit richer. You own a home. If something had to happen, you don't want to pull money out of the account at the wrong time. So what I absolutely would do is at least consider taking 30 or $35,000 out from that tax deferred account, that IRA rollover at Vanguard, maybe 30. I would take out an extra 30 grand every year. And you know what? For the first year or two, I might just stick it in my high Yield savings account. Very boring. Have it available. Pay your tax that's due now. It's two years from now, you're 71. You got four more years before you need to take money out through your required minimum distributions. I'll give you two choices. Tell me what sounds interesting to you. You might say, well, okay, I'll just keep doing, staying at the top of the 22% income tax bracket as long as I can. I'll pull out the third, because right now the bracket goes up to $105,700. You keep pulling that money out for the next four years. You have extra money. Maybe you even have a brokerage account at Vanguard in addition to what you have in the rollover. Alternatively, what you could consider is to say, hey, I don't want to be forced to take as much money out when I'm 75. So I think what I'll do is I will take more money out in those four years or even in these next six years and consider paying more than the 22% bracket. The top of the next bracket, which is 24%, I will go up to about 200,000. So what you could do is you could get more money out, but you'd have to swallow paying that tax rate of 24%. Now, it's not a terrible bet because, you know, listen, we do need to get this account down in value before you start taking your distributions, right? By the time you're 75, when you think about it, whatever's in there, you're going to start, you're going to have to withdraw at, say, I don't know, a 4% withdrawal rate. Let me just look at my little chart. Standby for a second. Let me just look at this. I think it's four. Yeah, it's about 4% in terms of, like, when you have to make your required minimum distributions. So, I mean, it doesn't mean that that's terrible, but, like, you know, if there's a million dollars in there, if you don't pull enough money out and it keeps growing faster than what you're taking out, you'll have to pull 40 grand out. And when you're 80, it turns out to be more like 5% of the total. So getting it down, even any amount, if you could just get it down by a couple hundred thousand dollars, I think it'll be better for your required minimum dist contributions. And even if it just is at that 22% rate, I think it's better to do it that way. I'm not sure if that's going to, like, be compelling to you or not, but I don't think converting is the smartest thing for you right now. Just because you don't have the money to pay for the tax it's due in one way or another, the money's got to come out. All right? Now, it may come out in 20 years through required minimum distributions, or you can control what tax bracket you're paying that tax at. That's what I'm saying is that if you pull it out now, let's say you pulled 30 grand out and you just said, I'm going to put it in my high yield savings account. Now, instead of 15 grand, I have a little bit more money there. I know it's not growing that much, but that's the safe thing to do, right? So now you have 45 grand. Next year, you file your taxes and you say, okay, what portion of that 45 grand? And you tell do you file with an accountant or a tax preparer or do you do it yourself?
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B
I do it myself.
- [11:47]
A
You run it through a little filter and see what would happen if you had an extra 30 grand of income. Because you may want to pay some, you might want to adjust some, you know, maybe pay a little bit of a quarterly tax maybe. I don't know, you may not have to. But I would look at that and I would also be crystal clear that, like, that money should be there. Let's see what the impact is on your taxes next year, and then let's see how it goes. By the way, if you take the money out and you pay it at that 22% bracket, you're not going down a bracket, given what we know now, because you have pension and you have Social Security, you're at least always in the 22 bracket. That's your highest bracket. It's not going down. So we know that at the very least, every required minimum distribution will be at least at 22%. So you're no worse off paying it today than you would be in a few years. And that also by the Way kind of buffers you against the growth of the portfolio, number one. And also like, I don't know, maybe tax rates are going to go up. Mark's going to pop in and be like, just pay it at the 24% bracket. I bet he's going to say, mark, do you believe that?
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C
That's a much bigger window.
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B
Okay, so what he actually was kind of to go into the 24%, if you're willing to.
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A
So the top of the 24% bracket for single filers is 201,007,75. So let's just say, Mark, that Carol says, I got 900 in there and right now I am going to take out $120,000 right now and pay that 24% bracket. Now, keep going for year after year. Should she keep doing it, Mark?
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C
I would, I mean, look, you're probably never going to get all of this converted. So I wouldn't drive yourself nuts by this, but you'd be able to get a good chunk out. Yeah.
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A
And I think that what that does is again, if you feel like, wow, that screws me up and I don't want to go up a bracket, but I understand that. But it's only a 2% change in that. And how the tax. And you have control about you paying it. I don't know if in 10 years that the country is underwater and tax rates all go up that, you know, how do we know that you're not going to be at 24? Maybe you'll be at 30. I don't know.
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B
Right.
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A
So that's the. You pay up today for the security of not being caught by surprise later if rates were to change.
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B
Okay, now the other, other question related to that. So if I do that this year and maybe not 120, maybe 80 or whatever the number is, I, I'm worried about the safe harbor rules. And I know I paid 9,700 in taxes last year. So if I withhold at least that much, I don't have to worry about a penalty.
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A
It's 110% of that much. But I would run that. I would look at your. What software are you using for taxes?
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B
The TurboTax.
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A
I would look at TurboTax and just see what would happen.
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C
And by the way, if you want to avoid even having to think about doing quarterly payments if you're going to take money out, just do it at the end of the year.
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A
Okay, that's true.
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C
And see what happens the rest of this year. I mean, you know, as we speak, the market's down, maybe it goes down even more. It's a good, you know, might be a good year to do this.
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A
But yeah, I mean, I think you have some flexibility here and you don't have to like, cling to one, like year by year. You're not, you're not like, you're making a pact with us and we're going to call you in a year and be like, what'd you do? You know, and you're just saying, like, generally speaking, I'm going to try to get more, more money out of my Vanguard IRA that has not yet been taxed. That's it. And if in one year you have some, you know, you know, you have a strange situation where something falls in your lap or some, who knows, then you can make a decision then at a different decision, it's okay.
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B
Okay. Yeah. I even was thinking if I do maybe a little bit of a raw conversion and a little bit into the high yield, then next year, if I want to do it again, I may have that high yield money to pay those taxes.
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A
Hang on. We're not saying do a Roth conversion just so you hear this. You cannot convert into a Roth the money you pull out. You're not going to convert it. You're just going to take it and you're going to, if anything, you're going to put in your high yield savings account year two, or if you're doing a bigger amount this year, it's going to be in a brokerage account. It's not, not going to be a Roth account.
- [16:16]
B
Okay, and why is that?
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A
Because the tax that would, you don't have the money to pay the tax that's due when you pull the money out. You have to pay the tax that's due once you put it into the Roth. I don't think there's any need to put it in a Roth. You just have it in a brokerage account. You don't have to put it into a Roth. We're not doing a conversion, just pulling the money out, paying the tax that's due and keeping the rest. You're not putting it into a Roth.
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C
Yeah, you can't put it into a Roth. Cause you don't have earned income.
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B
Oh.
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C
You can only put it into an ira, whether traditional or Roth, if you have the earned income, which you don't. So therefore you would put it into a broker, a taxable brokerage account. Just use, you know, you said you rollover IRAs at Vanguard, so you would just use Vanguard. Just open up a taxable brokerage account. At Vanguard. And just think of it as a, you know, a supplemental retirement account.
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A
All we're doing is like a bet on taxes right now. And I think that the vast majority of the money that's in the rollover you can get out. You'll pay the tax that's due, and you'll pay it on your time horizon. That's really what we're saying.
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B
Okay.
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A
And it doesn't worry. Don't worry about the. I know the Roth is great, but like you said, like, hey, I grew up on the whole using the tax deferred account. You didn't do anything wrong. It's good you got money, and frankly, it works really well. Like, you did a great job. So I don't want you to go back. Ah, I wish I had done a Roth. You know what? There wasn't like, in your career. The Roth wasn't a thing. Right?
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B
Right.
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A
I don't know what you did for a living. I don't know if you were a teacher, a nurse, or whatever did. You had a pension. But, like, it wasn't like every retirement account had a Roth option. It wasn't. That wasn't available.
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B
No, it wasn't.
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A
So you did an amazing job. Come on.
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C
There's no problem here.
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A
This is all good news. You're in great shape.
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B
Scared of those RMDs come in. And so I will listen to your advice and act accordingly.
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A
All right, this sounds good. All right. Carol from the Midwest, I would love
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C
to be scared of RMDs. You know, that's a nightmare I will gladly take.
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A
Yeah, I mean, it's really nothing bad. Nothing bad is happening. Nothing bad is happening. And RMDs are, like. Even in this situation, if you had to spend. If you had to pull 40 or 50 grand a year out so you'd pay tax on it, you're still gonna be fine, even if you never did a thing. Don't be fearful. This is all. You're in great shape. You've done an incredible job. Get that kid launch. Stop leeching off mom for her phone service. I bet he. Is he on your cellular. Cellular service. Admit it right now. Yes or no.
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B
He was, but recently he took it over. He took it over the last couple years.
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A
What a good boy. He is fantastic. All right, give us a holler back if you need anything. Hey, gang. If you are thinking about a Roth conversion or you're just worried about your future required minimum distribution, or maybe you want to just use a qualified charitable deduction. By the way, Carol, I didn't even mention that if you are charitable, you can give money from your retirement account straight away to a charity and it's not considered taxable to you. So consider that also if you're charitable qualified. Charitable distribution is something to also help get some of the money out of a retirement account. So do check that out. But if you have a question about your situation, get in touch with us. Go to jillonmoney.com click the contact us button. Write us a note if you want to come on the air, check the box. It's very easy. Don't forget that you can subscribe to us on the Odyssey app or right wherever you find your favorite podcast, please leave us a rating and review Wherever you listen. And as always, we ask that you please try to lift someone up. Change your work, change your wealth, change your life. Thank you for listening and we'll talk to you tomorrow. Hey gang, now you know that we have not yet gotten into the merch business full time, but I was thinking about how easy it could be after I created these beautiful pullovers at vistaprint. I chose a pullover. But boy, the options are incredible. And what stands out is how vistaprint makes it simple for small businesses like ours to look professional without the headache. Their design tools are so easy to use, and if you need extra help, real people are ready to guide you. Whether you're creating merch, signage, or thoughtful gifts for your audience, vistaprint helps you do it all quickly, easily, and within your budget. It definitely inspired me to think bigger about the podcast, so now we're looking at other items that we could customize. Maybe something like a water bottle. It's so easy. Vistaprint print your possible right now, new customers get 20% off with code NEW20@vistaprint.com
- [21:11]
C
Understanding power requires more than headlines. I'm Peter Hamby, host of the Powers that Be, a podcast from Pak, examining politics, economics, and media. To provide context, analysis and clarity without sensationalism, we ask how power operates, who benefits, and what's at stake. If you want to move beyond breaking news to deeper understanding, join us on the Powers that Be New episodes every weekday. Follow the Powers that Be wherever you get your podcasts.