Should I Switch to Roth 401(k)?

Summary

Podcast Summary: "Should I Switch to Roth 401(k)?"
Jill on Money with Jill Schlesinger
Release Date: December 27, 2024

In this episode of "Jill on Money," host Jill Schlesinger, CFP®, delves into the complexities of retirement planning, financial management within marriages, and strategic investment decisions. The episode primarily revolves around the listener question, "Should I Switch to a Roth 401(k)?", but also addresses various other financial concerns submitted by the audience. Below is a detailed summary capturing the essence of the discussions, insights, and conclusions from the episode.

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1. Introduction and Community Engagement [00:55 - 02:04]

Jill Schlesinger opens the show by encouraging listeners to engage with the podcast through the website jillonmoney.com, inviting questions via email, and promoting the weekly free newsletter and the subscription service "Jill on Money Live." She highlights the benefits of personalized financial guidance and the growing community of listeners seeking financial enlightenment.

Notable Quote:

Jill Schlesinger: "Maybe we're just helping you figure out what your priorities should be."

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2. Protecting Personal Finances in Marriage [02:14 - 08:44]

Listener: David
Topic: Financial Infidelity in Marriage

David shares his concerns about managing finances separately from his spouse, who has significant credit card debt and IRS issues. Despite being married for 18 years, they maintain separate bank accounts and retirement funds. David seeks advice on ensuring his financial security amidst his spouse's financial mismanagement.

Discussion Points:

• Maintaining Financial Separation: Jill and co-host Mark Tularcio emphasize the importance of not commingling finances to protect oneself from financial infidelity.
• Strategies for Protection: Suggestions include avoiding joint credit cards, bank accounts, and ensuring separate tax filings.
• Emotional Aspect: Acknowledgment of the emotional strain caused by financial deceit within a marriage.

Notable Quotes:

Jill Schlesinger (04:30): "You want to make sure that you never have a joint credit card. You make sure that you don't have joint bank accounts."

Mark Tularcio (05:15): "That's a rough one. I'm not going to comment on what you should do and, like, end your relationship or not."

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3. Early Retirement Decision Analysis [08:44 - 15:43]

Listener: Martin
Topic: Early Retirement Planning

Martin, 60, with a spouse aged 59, seeks Jill's opinion on his decision to take early retirement at 60. He details his financial situation, including assets, retirement accounts, Social Security plans, and health considerations.

Discussion Points:

• Financial Stability: Jill and Mark assess Martin's robust retirement portfolio, lack of debt, and sufficient income streams.
• Health and Longevity: Consideration of family health history influencing the decision to retire early.
• Financial Planning Confidence: Martin's reliance on his financial planner's advice and the sufficiency of his assets.

Notable Quotes:

Jill Schlesinger (09:00): "I really do feel good about Martin's situation. I really do."

Mark Tularcio (11:00): "He's good. He does not have to go back into the workforce and just keep doing the things."

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4. Decision on Switching to Roth 401(k) [09:25 - 09:51]

Listener: Tom
Topic: Transitioning to Roth 401(k)

Tom, age 46, has been contributing to a traditional pre-tax 401(k) for 18 years. His employer now offers a Roth 401(k) option, and he is uncertain whether to continue with the traditional plan or switch to the Roth option.

Discussion Points:

• Tax Implications: The difference between pre-tax (traditional) and post-tax (Roth) contributions.
• Future Tax Benefits: Roth accounts offer tax-free withdrawals in retirement, which could be advantageous if tax rates increase.
• Long-Term Strategy: Assessing current tax rates versus expected rates in retirement.

Advice Given:

• Jill and Mark lean towards advising Tom to switch to the Roth 401(k), highlighting the benefits of tax-free withdrawals in the future.

Notable Quotes:

Mark Tularcio (09:51): "All done. I love that. Yeah, we're all in for the Roth. Go for it, go for it."

Jill Schlesinger (09:25): "What you put in now, pre-tax, eventually you're going to have to pay tax on that money. You put it into a Roth. It's all post-tax money. There's no deduction right now. But when you take that money out down the road, what you see, it's all yours."

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5. Using 529 Plans for Personal Loans [11:42 - 12:03]

Listener: A.C.
Topic: Utilizing 529 Plan Funds for Home Repairs and Student Loans

A.C. inquires about the feasibility and penalties of transferring money from her son's 529 college savings account to her own 529 account to pay off a personal student loan and fund essential home repairs.

Discussion Points:

• Penalties and Restrictions: Assessing the tax implications and penalties associated with withdrawing 529 funds for non-educational purposes.
• Alternative Solutions: Considering borrowing from retirement accounts as an alternative to accessing 529 funds.
• Financial Prioritization: Weighing the urgency of home repairs against long-term educational savings.

Advice Given:

• Jill and Mark advise against using the 529 funds for personal expenses due to potential penalties and suggest exploring other funding options.

Notable Quotes:

Mark Tularcio (12:03): "It seems unnecessary to me. You're so close."

Jill Schlesinger (11:42): "Do you want to take that money out of the 529? Alternatively, we have $10,000 in a high yield savings account."

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6. Investment Strategy for Retirees – 10-Year Treasuries [13:10 - 15:43]

Listener: Lewis
Topic: Incorporating 10-Year Treasuries into a Retirement Portfolio

Lewis, a retired individual aged 70, discusses his investment strategy focused on preservation and moderate growth, primarily through a conservative portfolio of stocks, bonds, and cash. He contemplates adding 10-year Treasury notes to his portfolio to match his 5% annual withdrawal rate.

Discussion Points:

• Current Portfolio Health: Lewis's well-balanced and conservative investment approach.
• 10-Year Treasuries Utility: Evaluating the benefits of including Treasuries for steady income versus market timing risks.
• Market Predictions: Jill and Mark express skepticism about significant rate increases, suggesting that timely market predictions are challenging.

Advice Given:

• Jill recommends incorporating 10-year Treasuries as part of the bond portfolio without attempting to time the market.
• Mark concurs, emphasizing the unpredictability of treasury rate movements.

Notable Quotes:

Jill Schlesinger (14:00): "If you could get a 4% or 4 plus percent, that's great too. Do you have any differing opinion on this, Mark?"

Mark Tularcio (15:39): "I don't think that you're going to start bringing up inverted yield curve and this and the other thing. I think it's going to correct on the other side."

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7. Closing Remarks and Additional Information [15:43 - 17:19]

Jill wraps up the episode by encouraging listeners to send detailed financial questions via email, subscribe to the podcast on various platforms, and leave ratings and reviews. She also mentions the role of her executive producer, Mark Tularcio, in managing the podcast's web presence.

Notable Quotes:

Jill Schlesinger (16:00): "Don't forget to give us a lot of the detail because without that detail it's kind of hard to answer those questions."

Mark Tularcio (16:20): "Try to lift someone up. Change your work, change your wealth, change your life."

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Conclusion

This episode of "Jill on Money" provides valuable insights into retirement planning, the strategic benefits of Roth 401(k)s, managing financial complexities within marriages, and cautious investment strategies for retirees. Jill Schlesinger, alongside co-host Mark Tularcio, offers practical advice tailored to individual financial situations, emphasizing the importance of informed decision-making and proactive financial management.

Listeners gain actionable information on navigating retirement transitions, optimizing investment portfolios, and safeguarding personal finances amidst varying life circumstances. The episode underscores the significance of personalized financial planning and staying informed to make the most of one's financial resources.

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Additional Resources:

• Website: jillonmoney.com
• Subscribe: Available on the Odyssey app and other popular podcast platforms.
• Contact: Email questions to [e-mail]

Transcript

[Jill Schlesinger]

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[Mark Tularcio]

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[David]

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[Mark Tularcio]

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[David]

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[Mark Tularcio]

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[David]

Only if you want to shorten your cold.

[Mark Tularcio]

Take it from America's most revered messenger. Shorten your cold at the first sign.

[Jill Schlesinger]

With Cold Shortening products from Zycam, the number one cold shortening brand available in stores. Or see where to [e-mail] welcome to the Jill on Money Show. It's Friday, December 27th, and we are here trying to help you make better financial decisions. Maybe less bad ones. Maybe we're just helping you figure out what your priorities should be. Maybe you're getting ready for those financial resolutions. I'm not keen on those, but maybe priorities is better. If you need some guidance, just go to jillonmoney.com click the contact us button. Let us know if you'd be willing to come on the air. Now. While you're on the website, don't forget to sign up for the free weekly newsletter. It comes out every single Friday. And of course, check out our subscription service called Jill on Money Live. You still have one week, just one week, to lock in the $35 fee for the next 12 months. The fee is going up in 2025. Just know that for $35 you will have access to four quarterly live webinars and our back catalog and any other fun content that we want to put up behind the paywall.

[Mark Tularcio]

Check it out.

[Jill Schlesinger]

We'd love to have you subscribe. The community just keeps growing and I love that. Okay, right now, let's get back to you. Here is an email from David who.

[Mark Tularcio]

Writes, I'm reaching out because I love how you simplify financial issues for most to easily understand. I started listening to this pod after you plugged it on CBS Mornings a while back. Thank you. Thank you CBS Mornings for allowing that plug. And David says, I'm about to turn 43 and I've been saving for retirement since my early 20s. Okay, great. In my 20s, I worked in restaurants and the corporate world. However, now I'm self employed and I am saving using a brokerage account each month. Okay. I've been saving my annual max. I wonder what he means by brokerage. I wonder if he means an IRA or. Anyway, we'll figure it out. Anyway, he says, I feel like I'm not making a lot of ground. Mentions the volatility of the market. He also mentions that I've been married for 18 years and self employed for 16 of those. And yet my spouse and I have never mixed our personal business, our personal finances. Spouse is 17 years my senior. Okay. They each have their own bank account and retirement accounts. And David says, I pay for all the bills in the home. But we do own a home together. For my retirement, I'm just focused on supporting myself in my relationship. My spouse struggles with money and has had significant credit card debt and issues with the IRS on and off. And he refuses to adjust his deductions and has to owe money. And so it just, you know, this poor guy, it's like, I love my spouse, I love my husband. I'm not going to leave him. But on the topic of money, he's just not to be trusted financially. And, you know, it sounds like the spouse lies to himself and lies to our listener, David all the time. So David's like, I'd like to know if I'm on track for myself, how do I protect myself from financial infidelity? So a lot of people have this situation. I know it sounds nutty, but it really is more common than you would think. What I can say is that the way to protect yourself is to make sure that you don't commingle your money. You want to make sure that you never have a joint credit card. You make sure that you don't have joint bank accounts. You make sure you're not signing on to something. I presume since you manage your situations separately, that you also are. I don't know this, but I'm hoping that maybe you file your taxes separately. That would be another thing I would do. You just got to keep an eye on everything and it's a bummer, right? It's one thing to lie to yourself or to, you know, but once it's out in the open, to keep doing it. That's a rough one. I'm not going to comment on what you should do and, like, end your relationship or not. You're not going to. Just be careful. All right? This is from Martin, who writes Jill I am a frequent listener to your podcast. I enjoy your show. Here is my question. I took an early retirement offer from my job of almost 37 years back in June. Okay. As of now, I don't really want to go back into the workforce at 60, almost 61 years old. And I'd like to get your opinion on my potential early retirement decision. I always hate when you guys do this. Not because I hate the question, but I wish you'd talk to us or contact us sooner before you actually made the decision. Okay. Martin is 60, is going to be 61 shortly. Spouse is 59. And their monthly expenses are around 6,500 to $8,000 a month. Let's use 8,000 guys. Whenever you give me the range, I'm going to say the higher one. Their adjusted gross income when they were both employed, $300,000. Severance payment is a cash payment that will cover the next 18 months. Okay. When Martin will be 62, spouse is going to continue working through December of 2025. She will have a pension of 4200 bucks a month. She's going to take Social Security to her age 67. $3,200 a month. A lot of longevity in that family in the 90s. And then he says he's going to take early Social Security at 62, the payment is $2,500 a month. He says my health is good, but longevity in his side for men, early 60s. Oh, my brother and father died when they were in their early 60s. Heart disease. Okay. Not great. I'm not going to make an assessment on that. Assets, houses worth $860,000, no mortgage, 401k, 850 grand for the wife. 80 of that is Roth. His 401k, one and a half million dollars. Hmm, pretty nice. And 200 of that is Roth. Other IRA, 250,000. Other Roth's 220 brokerage account, 130,000 CD ladders, 220,000 in those CD ladders. Anyone listening? That CD ladder just means that you have a ladder of timing. Like one year, two year, three year, four year. Also has cash and savings 110 grand. Three kids, all done with college. Self sufficient. That might be the most important thing. Two cars, wills, trusts, all updated. Okay. Social Security for me and my wife and pension will cover most, if not all the monthly expenses when I turn 65 and my wife is 64. My wife's job offers health insurance until 65 for her. So that making any decision to retire early was easy. It's amazing. I've been Away from work for three plus months. I'm busier than ever doing the things I love. I like golfing and working out and playing sports. A big handyman. I'm always helping my kids, my neighbors, as time allows. Any advice other than the early filing for Social Security decision? My financial planner has run the numbers supports my decision for that early filing at 62 due to the longevity issues. Okay, so let's go here. Not sure I'm going to be around so long. Blah, blah, blah, blah, blah. Okay, Mark, I feel good about Martin's situation. I really do. And I think Martin knows that. And it's a funny thing. I think that Martin knows that he's fine. He has a planner who's already done the numbers for him. But when people, when you guys do this, I know that you're just like, please, really like, I want to double, triple, quadruple check. Right? Well, I'm going to give the triple check. Mark, do you want to give the quadruple check?

[David]

Yeah, they're good. He's good. He does not have to go back.

[Mark Tularcio]

Into the workforce and just keep doing the things. I wish that I had some handyman projects for you. Tom writes, I'm 46. I'm currently contributed to my 401k at work. I've been doing so for 18 years. My employer just offered Roth as an option and I don't know if I should just keep putting Money into the 401k or use the Roth. And now that is a mark telecio question mark. Presuming that Tom is not in the tippy top highest tax bracket in the worst tax state in the world or in the country. Do you want to start spelling out the beauty of a Roth for Tom?

[David]

Yeah, I mean I would love some more info but I'm going to guess there's. He's been says he's been contributing for 18 years to pre tax. So I'm going to guess there's a large chunk of money in there. You know, I would probably say yeah, make the switch to Roth. What's the benefit? Well, the money you're putting in now, pre tax, eventually you're going to have to pay tax on that money. You put it into a Roth. It's all post tax money. There's no deduction right now. But when you take that money out down the road, what you see, it's all yours.

[Mark Tularcio]

All done. I love that. Yeah, we're all in for the Roth. Go for it, go for it. And let us know if you have follow up questions. All right, this is a question. I'm intrigued by the headlines. So this is from A. Let's see what A's name is. A.C. okay, so this is from A.C. who writes. Hi, Jill and Mark. I love the podcast. Could. Should I take some money from my son's 529 account, transfer to a 529 in my own name, then use that to pay off my own student loans? Each of those steps seems doable. Am I overlooking anything? Would there be any penalties at any step of the time? Okay. AC only has $4,300 remaining on a student loan, and it's 4.5%. It will be paid off in March of 2026, which is coming up. But we could really use that $287 a month right now for some needed home repairs. Okay. The older son's 529 plan balance has 25 grand. He graduates high school in 2029. We only contribute 50 bucks a month as we are trying to prioritize our retirement savings. And we live in a high cost of living state in state schools and scholarships are part of our plan. Can we take some of the money out of the 529? Alternatively, we have $10,000 in a high yield savings account. And though I've paid off the loan with some of that, I listened to enough to suspect you telling me not to lose that liquidity. P.S. your show made me realize we never updated our estate documents after our second son was born. He is now 8. Whoops. Time to update those. We plan to do that in the next few months. Mark, this seems like a very bad idea. What do you think?

[David]

Yeah, it's a tough one. I mean, I don't know what these needed home repairs are, but, I mean, I would hate to. I would hate to raid the sun's 529. The balance left on the student loans isn't huge. It's gonna be paid off in time, you know, March of 2026. I don't know. I would just love to avoid that.

[Mark Tularcio]

I would love to avoid it also. Another thing to consider, by the way, is that if you have, like, needed these needed repairs, you could always. Maybe I'd rather. Instead of taking them from the 529, I'd rather borrow it from your retirement account. Frankly, I bet that has a lot more money than the 529 plan, so something to keep in mind also. There's a lot of hoops that jump through in that respect. Yes, it's doable, but it seems unnecessary to me. You're so close. You're so close. All right, here we go. This is from. Let's see, Lewis, who writes. Hello, Jill and Mark. I hope you're enjoying autumn in New York. I appreciate your podcast so much. My spouse and I are retired, age 70 and 65. We've got a mixed portfolio stock bonds in cash. It's worth about $1 million. It is invested very conservatively for preservation and some long term growth. 35% in stock mutual funds, 65% in bond funds and cash. We have enough Social Security and pension to pay our monthly bills.

[Jill Schlesinger]

We have zero debt.

[Mark Tularcio]

We have weathered the storm that started during the pandemic when stocks and bonds tanked simultaneously. That was not a fun year. That was me editorializing. We're using an annual withdrawal rate that is approximately 5% per year of the total portfolio with spending adjustments along the way depending on market conditions. And we are happy with that if blessed with old age. Our goal is to spend most of our resources and leave a small inheritance. We also maintain at least two years of liquid cash investments to steer us through a stereotypical, stereotypical or an atypical bear market. Okay, we have plenty own a home worth about $850,000 which is paid for. We are not worried about big swings in the stock market. I don't care for annuities for many reasons. I love buying Treasuries because of safe, steady, dependable income that is guaranteed by the US government. Recently I've become interested in possibly purchasing a 10 year note if rates ever rise again to match our 5% withdrawal rate. Okay, can I just interject here for a second? I don't think that's happening anytime soon. You kind of missed your window on the 5%, but that doesn't mean you shouldn't do it. I just want to say that you're going to start bringing up inverted yield curve and this and the other thing. I don't think that the 10 year treasury is going to go above 5% again. You know the way that the curves start to move in tandem, meaning the cost of money is more expensive the farther you go out. I think it's going to correct on the other side, meaning that all the rates are going to go down. So here's the question is, do I think it is a wise idea to have 10 year treasuries? Yeah, I love 10 year treasuries. I would make it part of your bond portfolio. One nice idea could be that you say, well, as part of my bond portfolio, what I'll do is I'll maybe sell something that's lost money. If it has, take that loss and then replace it with a 10 year treasury. But I love 10 year treasuries. It is consistent income. It's great. But let's not time the market even when it does come to the treasury market, right? I mean there's no reason to do that. If you could get a 4% or 4 plus percent, that's great too. Do you have any differing opinion on this, Mark? Can we time treasury market? I don't think so.

[David]

I wish. Let me know when.

[Mark Tularcio]

Yeah, exactly. Tell us when and we'll do that.

[Jill Schlesinger]

If you're a shy person and maybe you don't want to come on the air like David, send us an email. But don't forget to give us a lot of the detail because without that detail it's kind of hard to answer those questions. And the one piece of information I always like that maybe you guys seem to forget, is usually you're not telling me how much money you spend. That's a very important part of the process. So don't forget to do that. You can subscribe to us on the Odyssey app or wherever you find your favorite podcasts. Please leave us a rating and review wherever you listen. Our music is composed by Joel Goodman. Mark Tularsio is our executive producer and king of all things web, and we're distributed by Odyssey. 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.

[Sharon McMahon]

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[Unknown]

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