05.12.26 Ask An Advisor With Wes Moss

Summary

The Clark Howard Podcast

Episode: Ask An Advisor With Wes Moss (May 12, 2026)

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Overview

This special "Ask An Advisor" edition brings together Clark Howard, personal finance expert and consumer advocate, and Wes Moss, financial planner and radio host, with producer Krista DiBiaz moderating. The trio tackles a variety of listener questions about major life purchases, retirement strategies, and tricky tax dilemmas, all while keeping the tone lively and accessible. The episode is geared toward empowering listeners to make smarter financial decisions, with Clark and Wes offering both practical tips and philosophical reflections on balancing saving with enjoying life.

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Key Discussion Points & Insights

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1. Should You Ever Buy a Boat?

(Starts at 02:22)

Listener Question: Emmanuel from Florida asks if buying a boat can ever be financially smart, or if it should only be considered a lifestyle expense.

Main Takeaways:

• Boats Are Lifestyle, Not Investments:
  • Clark: "There is no dollars and cents investment in you having a boat." (03:40)
  • Boats, unlike cars, depreciate extremely rapidly.
• Buy Used to Avoid Major Depreciation:
  • Clark shares personal experience: bought a tritoon boat new for $85,000, later bought used for $18,000: "The original owner lost over 60 grand using it." (05:01)
• Always Get Used Boats Thoroughly Checked:
• Consider Price-Per-Use (PPU):
  • Wes: "I like to think of things as PPUs or price per use... Take $25 grand for your used boat, divided by, say, 50 uses. That's $500 per use. Can you stomach that? Is it worth it?" (08:18)
• Test Drive the Lifestyle:
  • Both recommend renting boats or RVs before buying to see if you truly enjoy the activity enough to justify the cost. Clark references someone who bought a $700k RV and used it only once. (09:14)
• Financial Health Comes First:
  • Clark: "If it diverts you from beefing up the money you have in retirement accounts, the boat becomes risky." (08:45)

Notable Quotes:

• Clark: "If you think about how cars depreciate, that ain't nothing compared to how a boat depreciates." (03:41)
• Wes (on Clark's shirts): "For you, Clark, it’s probably this shirt because I’ve seen you wear it literally 500 times." (07:06)

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2. Roth 401(k) vs. Traditional 401(k): When Does It Make Sense?

(Starts at 10:36)

Listener Question: Patrick from NY asks if it makes sense to pay taxes now with a Roth 401(k) if he expects to be in a much lower tax bracket in retirement.

Main Takeaways:

• Today’s vs. Tomorrow’s Tax Rates:
  • Wes: "It's always a question about today taxes and your rate versus tomorrow." (11:08)
  • For many Americans, effective tax rates remain similar in retirement due to savings and Required Minimum Distributions (RMDs).
• Debt and Future Tax Uncertainty:
  • Clark: "There's a number that I keep focusing on... $40 trillion, as in the US accumulated debt... I believe there's going to be a point we're going to be forced into [higher taxes]." (12:44)
  • Clark is concerned that low current tax rates are unsustainable.
• Hybrid Approach:
  • Both suggest sometimes splitting contributions between Roth and traditional 401(k), especially when unsure about future rates. (17:27)
• Behavioral Savings Boost:
  • Clark: "Now they have effectively boosted the amount of money they're saving for retirement [by switching to Roth]." (17:14)
  • Saving post-tax can psychologically increase savings because people tend not to reduce their percent contributed.

Notable Quotes:

• Clark: "You keep doing the Roth because for you to make your financial planning decision on the basis that you're going to be paying 12%, because today it's 12% is not realistic in my book." (16:00)
• Wes: "If you can't make a decision, you do the political answer. You just... do half and half." (17:48)

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3. State Taxes and Roth Decisions

(Starts at 17:53)

Listener Question: Pete in Massachusetts points out the downside of paying state tax on Roth contributions if you plan to retire in a no-income-tax state.

Main Takeaways:

• State Taxes Matter—Not Just Federal:
  • Wes: "If your state is 6%, then you’re really paying 38% [federal plus state]." (19:22)
  • It’s important to think not just about your current rates but your likely retirement location and associated taxes.
• Strategy Shift for High Earners:
  • Clark: "When you get to higher and higher incomes, then the answer changes to traditional. And... if you’re expecting you’re going to retire in an income-tax-free state then... the man from Roth says do traditional." (20:29)

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4. Optimizing HSA Withdrawals in Retirement

(Starts at 25:00)

Listener Question: Bill in Connecticut asks when he should start withdrawing from his HSA for tax-free income after years of saving and logging medical receipts.

Main Takeaways:

• HSAs are "Super Roths":
  • Both Clark and Wes praise HSAs for tax advantages.
• Delay Withdrawals If Possible:
  • Optimal strategy: let HSA funds grow as long as possible (ideally into your 70s or until medical expenses rise), then withdraw for maximum tax-free compounding.
• "Shoeboxing" Receipts:
  • Wes: "The cool thing about HSA, as long as you have [saved] receipts, you can start taking those withdrawals at a later date when they’re... even more valuable if you’re in a higher tax bracket." (27:01)

Notable Quotes:

• Clark on the 70s strategy: "You hit retirement, your medical expenses go up significantly in your 70s, exponentially in your 80s... then, as you move into your 70s, that’s when you really start pulling that money out." (26:27)

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5. Backdoor Roth and Mega Backdoor Roth Explained

(Starts at 28:27)

Listener Question: Scott in Florida (highly compensated employee) double checks if his backdoor Roth was executed correctly and asks if he should repeat it.

Main Takeaways:

• Backdoor Roth:
  • Non-deductible IRA contributions converted immediately to Roth are common and valid for high earners.
  • Clark’s Quick Explanation: "People become income ineligible to contribute to a Roth IRA... they can do this weirdo bizarre thing called a non-deductible IRA... then... transition that money into the Roth." (32:12)
• Mega Backdoor Roth:
  • Wes explains this advanced strategy for after-tax contributions within 401(k)s, if the plan allows, allowing up to the IRS contribution limit (over $70,000/year, including catch-up). Not many employers provide this option, and even fewer people can afford to maximize it. (30:37)

Notable Quotes:

• Wes: "Not that many people do it... that’s why not that many people really are going to take advantage of the Mega backdoor Roth." (31:12)
• Clark: "You’re going to end up with close to 100 grand... into the Roth, and then that’s going to be tax free money." (32:12)

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6. Roth Conversion "Gotchas"

(Starts at 33:52)

Host Question: Clark, a self-confessed Roth enthusiast, asks Wes: When should someone not do a Roth conversion?

Main Takeaways:

• Tax Shock is Real:
  • Wes: "When the tax bill comes due...people forget all the glory of Clark Howard talking about the Roth. And you know what they remember? $12,000 tax bill." (35:53)
  • Many clients regret conversions when hit with big tax payments.
• IRMAA & RMDs:
  • Clark reminds listeners: forced RMDs can spike Medicare premiums via IRMAA (Income-Related Monthly Adjustment Amount). (36:44)
• Context Matters:
  • It’s not all-or-nothing—balance pre-tax, post-tax, and taxable accounts to provide flexibility in retirement withdrawals. (38:26)

Notable Quotes:

• Clark: "I, uh, might as well have been Senator Roth from Delaware. I’m so into the Roth." (33:58)
• Wes: "It really helps to have lots of different tax buckets to pull from after tax, regular...and free tax, which is the Roth." (38:26)

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Memorable Moments

• Clark’s Wardrobe Humor:
  • Repeated jokes about Clark’s $8 shirts and anti-fashion sense, and cost-effective clothing (07:12).
• Boat & RV Cautionary Tales:
  • Stories of expensive purchases barely used, driving home the "test before you buy" lesson (09:14).
• Playful Banter About Headsets and Sports:
  • Krista's role as “sideline reporter” and quips about sportscaster headsets (01:15–02:19).
• The “Boss” Debate:
  • Amicable bickering over who’s really in charge—Clark or Krista (39:59).

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Important Timestamps

• Boats and Lifestyle Spending: 02:22 – 10:36
• Roth vs. Traditional 401(k): 10:36 – 21:22
• State Taxes and Retirement Planning: 17:53 – 21:22
• HSA Withdrawal Strategies: 25:00 – 28:27
• Backdoor & Mega Backdoor Roths: 28:27 – 33:39
• Roth Conversion Regrets & Tax Realities: 33:52 – 38:26
• Show Recap & Sign-Off: 38:26 – 40:48

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Tone & Style

The discussion is frank, practical, and full of good-humored ribbing. Clark remains resolute about saving for the future and the power of Roth accounts, while Wes frequently brings nuance, realism, and real-world anecdotes about how financial advice plays out in the lives of clients. Krista expertly moderates and keeps things moving.

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Final Thoughts

The episode emphasizes the need for financial self-awareness: examine your motivations, know the true cost of "toys," balance living for today against saving for tomorrow, and understand that personal finance decisions are rarely one-size-fits-all. Both hosts advocate for flexibility—diversifying account types, thinking about future tax scenarios, and always running the numbers before making major financial decisions.

Resource reminder: Listeners are encouraged to submit their questions at clark.com/ask.

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Transcript

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[Clark Howard]

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[Clark Howard]

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[Wes Moss]

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[Clark Howard]

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[Wes Moss]

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[Krista DiBiaz]

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[Wes Moss]

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[Krista DiBiaz]

This should be tons of fun.

[Clark Howard]

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[Krista DiBiaz]

Welcome to a special edition of Ask an advisor on the Clark Howard show. I'm Krista Dibiaz, and I am here with Wes Moss and Clark Howard.

[Wes Moss]

Are you jealous that she's got the headset I've got?

[Clark Howard]

I'm jealous because I love the sportscaster headset.

[Krista DiBiaz]

Yeah, I hate it, but poor Krista. I'm gonna be in and out today. I just thought this would be so fun. You were both here at the same time, and I thought, why don't we do some Q and A? We're both. Both of you answer the questions.

[Wes Moss]

Broadcasting live from the sidelines, Chris Sedibias, our sideline reporter.

[Krista DiBiaz]

Who's your favorite team? Wes Tar Heel.

[Wes Moss]

In what sport? Pro or college lacrosse. They're all owned by one big private equity fund, so.

[Krista DiBiaz]

Pro football, I would say.

[Wes Moss]

I'm a Falcons fan, but I'm also an Eagles fan as well. Okay, Falcons and Eagles.

[Krista DiBiaz]

And Clark's Falcons and Falcons. Jaguars. Right.

[Clark Howard]

Falcons and Jaguars.

[Wes Moss]

Falcons and the Jags.

[Krista DiBiaz]

You guys ready?

[Clark Howard]

Jags are now the Orlando Jags for a while.

[Wes Moss]

Oh.

[Clark Howard]

Because they're rebuilding the stadium in Jacksonville,

[Wes Moss]

so they're technically going to be out of Orlando.

[Clark Howard]

Right.

[Wes Moss]

They're not going to change a name?

[Clark Howard]

No.

[Wes Moss]

All right.

[Clark Howard]

That was really relevant, wasn't it?

[Wes Moss]

Yeah. We're ready, Krista.

[Krista DiBiaz]

All right, we've got a lot of different questions for both of you today. This one came in from Emmanuel in Florida. Emmanuel says, is buying a boat ever financially smart or just a lifestyle choice? I enjoy your advice about avoiding wealth killers, and I've often heard boats fall into that category. I'm trying to balance financial responsibility with enjoying life. I'm 47 years old, currently working and consistently maxing out my 401k and Roth IRA. My financial picture looks like this. $108,000 in my Roth, $232,000 in my 401k, 50,000 in a brokerage account, $46,000 in a money market, about 625,000 net worth. I owe 243,000 on my home and 23k on my truck. After all expenses and savings, I typically have about $2,000 per month in extra cash flow. I'm considering buying a boat knowing it's a depreciating asset and comes with ongoing costs. However, I also value making memories while I'm healthy and able to enjoy it. In your opinion, is there ever a point where buying a boat makes financial sense or should it always be treated purely as a lifestyle expense to be minimized?

[Wes Moss]

Clark, I can't wait to hear what you're going to say on this one.

[Clark Howard]

Oh, am I first on the boat?

[Wes Moss]

Yeah, first man.

[Clark Howard]

So I actually have experience with this boat thing, Wes. We used to have a lake home and there was a lot of energy in my family wanting a boat. And if you think about how cars depreciate, that ain't nothing compared to how a boat appreciates. Yeah. So I want to deal with this in two aspects. One, is it just straight spending lifestyle kind of thing? Yes. There is no dollars and cents investment in you having a boat. Second, people buy boats totally. Unless they're commercial fishermen, they buy boats strictly as an enjoyment, a pleasure craft. As a result, because it's only a discretionary purchase, there's no have to about it. The depreciation on a boat is unbelievable.

[Wes Moss]

It's massive. Yeah.

[Clark Howard]

So we had tritune boat that new was $85,000, had only a couple of hundred hours on the engine and we paid $18,000 for it.

[Wes Moss]

So it was new. It was 85 new.

[Clark Howard]

85. We paid 18.

[Wes Moss]

So the original owner lost over 60 grand using it.

[Clark Howard]

Almost none.

[Wes Moss]

Yeah.

[Clark Howard]

So first, if you're gonna buy something that strictly a lifestyle thing that as I just demonstrated. Yes. Depreciates like nothing you've ever seen. You buy a boat used so that the depreciation has already been absorbed by the original owner. Second, you need to have that boat checked out, the engine checked out and all the rest before you buy it so you're not just buying trouble. But third, if you do decide that old saying that the happiest day of your life was the day you bought your boat. And then the happiest day of your life was the day you sold your boat, which it was for me. I'm not a boater. You lose almost nothing if it's already flattened out. The depreciation curve like the tritune I had.

[Wes Moss]

So I would look at it as I think of boating. I know that people will try to make it a financial question. And it's not really a financial question. It is just a lifestyle question. So it's not even a question. It's a. To your point, there's no asset out there that can depreciate faster than a boat. And more. It's a big, heavy, cumbersome item, and it goes down dramatically unless you're lucky enough or smart enough to be able to buy one that you like that's also used. And that's very possible, too. But even then I see depreciation. So I do have some experience with boats, too. Even a used boat that a good deal will then even continue to depreciate faster. So it's not so much. Don't even think about it as a financial move. It's just pure lifestyle. It's a luxury purchase. Whether it's a $100,000 boat or a $15,000 boat, it's still a luxury. I think of it, though, and Emanuel, I'd look at it as. I like to think of things as PPUs or price per use. And what is the best thing that you can have in the world for price per use for you, Clark? It's probably this shirt because I've seen you wear it literally 500 times.

[Clark Howard]

$8.

[Wes Moss]

$8.

[Clark Howard]

So I have multiples of this because I'm nearly colorblind. I never want to have to worry about having things that match or whatever. So I just wear the same color shirt all the time. Just like the late Al Davis of the then Oakland Raiders.

[Wes Moss]

Oh, of the Raiders, yes, yes, of the. That same exact black shirt. Now, I think about blue jeans. $50 for a pair of blue jeans, 500 times. It costs 10. I knew you would like. I was going to say $100.

[Clark Howard]

$50 on a pair of jeans? Are you crazy?

[Wes Moss]

Well, hold on.

[Clark Howard]

Who would spend that much on a pair of jeans?

[Wes Moss]

I think jeans are kind of in that range. No. How much are your jeans?

[Clark Howard]

We're going right from here to Walmart, going to Costco, $50.

[Wes Moss]

But hold on.

[Clark Howard]

This is outrageous.

[Wes Moss]

Divided by 500. So you're going to wear them 500 times at least. So what is that? It's 10 cents. Right. So the PPU on a pair of jeans would be 10 cents in Clark's case. Maybe it's one cent. Maybe it's one cent.

[Clark Howard]

Does it get that high?

[Wes Moss]

Do the PPU on the boat. So if it's going to be 20 grand to buy a boat, even if it's used, be realistic. How many times are you going to use the boat? So I'm going to take, and this is how I do this in my head, 25 grand for your used boat divided by, if you're lucky, you're going to use it 50 times. That's $500 per use. Can you stomach that? Is it worth it?

[Clark Howard]

Particularly 40. How old? 47.

[Wes Moss]

He is 47.

[Clark Howard]

47. You need to put more effort moving forward on putting more money aside for your future. You're getting there, but you need more money that you're putting aside than the 300, 625 total. But I'm looking at money and IRA and 401k. Yeah. So late 40s. We're going to call 47 mid-40s or late? I say mid to late 40s.

[Wes Moss]

Mid to late.

[Clark Howard]

So I would say that if it diverts you from beefing up the money you have in retirement accounts, the boat becomes risky. But there is. You just pointed out something so valuable. There is a third way, and that is you rent a boat a few times and see if it sticks. Because I know somebody who bought a Mack Daddy RV that they spent over $700,000 for. How many trips did they take in that RV?

[Wes Moss]

Ten?

[Clark Howard]

One. They thought so much that this was what they were going to want to do and put all that money in one. And that's why you rent an rv. You test drive it several times to see if it's what really fits your lifestyle. And so if you rent a boat a few times, then you have an opportunity to see, yep, this is something I'm going to want to do weekend after weekend after weekend or. Well, I thought that was a good idea.

[Wes Moss]

RVs are famous for that, Clark. You're right. And boats are famous for that. You think you're going to be out there every weekend, you look back on the summer, you say, wow, I used the boat three times. Think about your PPU then. All right, Krista.

[Krista DiBiaz]

Okay, let's go with another question. This one's from Patrick in New York. Patrick says Clark always says a Roth 401k is preferred to a traditional unless you're making hundreds of thousands of dollars in income. I currently make $140,000 per year gross, but I've managed to keep expenses low at $40,000 per year. retirement I'll be in a much lower income tax bracket. Wouldn't it make sense to wait to pay the tax later when I'm in the 12% income tax bracket instead of.

[Wes Moss]

So Patrick in New York, this is always a question about today taxes and your rate versus tomorrow. It's always the question a lot of Americans, if you're making, if you're single and you're making 200 grand or lower, or you're a couple making 400 grand or lower, you're going to want to do a Roth 401K. In your case, you are in that range. But you're likely right. If you are only going to be spending 40 grand a year in retirement, then you may be able to keep yourself in a low tax bracket. Unless your IRA accounts are gigantic and your RMDs at age 73 force you to have higher income, which is something that people don't think about. You may be in a higher bracket than you might think into the future if everything is in a regular 401 IRA. But in your case, it sounds like a bunch is going to be in this Roth 401k, which will end up in a Roth which will end up with tax free income as well. So if you're at that big of a disparity and you really think, and I do see Clark, a lot of families that do maintain really low taxes in retirement and they're in the effective rate, that's 10% right? Federally and you could be in a low tax state or a zero tax state where you stay in that rate. And if you're in the 24 while you're working, then in that case the disparity says that you may not want to do a Roth 401k if it's going to drop that much. But for a lot of Americans, their tax rate stays about the same in retirement. And that's why it's easy to favor the Roth 401.

[Clark Howard]

And so there's a number that I keep focusing on and maybe I'm being myopic, but it's the number 40 as in trillion dollars that is our accumulated debt of the United States. And the path we're on is so severe that at some point we cannot even cut spending enough to deal with this debt. And so what I worry about is we look at tax rates as being static. And right now tax rates and the brackets are historically low. But I believe there's going to be a point we're going to be forced into that could be five years from now, could be 15 years from now, likely less than 20. That the comeuppance is coming because of the enormous cumulative debt we're accumulating in the United States. And we will be forced by financial markets that are so powerful that we're focused right now on the fact that tax rates are crazy. If you're paying them, you're like, are you kidding? You're saying they don't feel low, Clark, they're crazy.

[Wes Moss]

Are you going to say they're low?

[Clark Howard]

I mean, compared to historical numbers. I mean, if we talked about what federal tax rates used to max out at, it was 91%. And in many, many decades, it was 50%. Right now we're at 37%. And then we have a lot of people. We're talking about people up to single individuals up to, was it 200,000 a year paying 24% and 400,000 for married, 24% or less? And that's, that's jumps to the 32, then it jumps. Yeah, but, but the thing is, we are going to have to come up with a way to generate more tax. Nobody wants to hear the word tax, but we're going to have to because we're getting to a scenario where you look out a decade and we will have crowded out pretty much all government spending by what it's taking right. Just to service the debt. So to look at it is, well, today I'd pay 24. And, you know, two decades from now, I'll be paying 12. I don't know how that happens unless we become Argentina, the old Argentina, and just print money and inflate our way out of it. Nobody wants that. Think about Argentina. Argentina, 100 years ago was as wealthy as the United States and today has a GDP of a low third world per capita income of a low third world country because they never showed financial discipline. So I don't want us to be like, well, think what America used to be. So that's why for me.

[Wes Moss]

So what do you say to Patrick?

[Clark Howard]

I say to Patrick, you keep doing the Roth because for you to make your financial planning decision on the basis that you're going to be paying 12%, because today it's 12% is not realistic in my book. The other thing, and this is where I'm a terrible person. Did you know I'm a sneaky, underhanded, awful person.

[Wes Moss]

Wait, you're not really.

[Clark Howard]

But yes, I am.

[Wes Moss]

No.

[Clark Howard]

Okay, here's why. Okay, okay, so I have a 401k at work. Yeah. And somebody cons me into going from traditional 401K to Roth 401K. And I've been contributing. Let's say, let's just take 8%.

[Wes Moss]

Is this a real story? Are you just making this up?

[Clark Howard]

I'm making this up. No. But this is real life.

[Wes Moss]

Yeah.

[Clark Howard]

So I convinced somebody to go from traditional to Roth, and they've been saving 8% of their pay in the traditional. What do they do when they convert to the Roth? They stay at the same percent.

[Wes Moss]

Yeah.

[Clark Howard]

They don't cut back. So now they have effectively boosted the amount of money they're saving for retirement.

[Wes Moss]

Because it's not pre tax, Right? Yeah.

[Clark Howard]

They go from pre tax to tax after tax. So it makes a huge difference in impact and how much effective money I've conned them into saving for retirement.

[Wes Moss]

You know, the other area here, if you're split on this, Patrick, it's not the end of the world to do some of both. That's the other way to look at it. I mean, again, in what office are you running for?

[Clark Howard]

But that's exactly right. You just. You don't go one or the other. If you're. If you can't make a decision, you do the political answer. You just.

[Wes Moss]

No politics here, Clark.

[Clark Howard]

Well, you know what I mean. It's just like you do half and half.

[Krista DiBiaz]

Okay, another quick one about the Roth and taxes from Pete in Massachusetts. Clark keeps going on and on about the Roth ira, which is a great thing. But what he never seems to mention is for those of us in states like Massachusetts, where there's a 5% income tax, putting money into a Roth. If we're planning to retire to a state without an income tax, maybe paying this tax unnecessarily. We do both. But for those who can't, pre tax may actually be a better option, especially if they plan to retire elsewhere. More money invested means more gain.

[Wes Moss]

Same thing. Tax today versus tax tomorrow.

[Clark Howard]

Yeah, but you also could move to New Hampshire and avoid the taxes you have in Massachusetts. Think how many people have done that who were in their peak earning years in Massachusetts. And they're like, forget this. I'm going across the border to New Hampshire and avoiding those taxes.

[Wes Moss]

Let me ask you this. Do you know the state? Because this. We just had a question. The only reason I realized this is that this just came up. Do you know the state with the highest property tax? Guess.

[Clark Howard]

Texas.

[Wes Moss]

Nope. I think they're pretty average. Think Chicago.

[Clark Howard]

Oh.

[Wes Moss]

Illinois has a 2% property tax. Alabama has a 0.4% property tax, something like that. It's like half a percent in a lot of states. Georgia's, we're kind of more like 1% on average. But Illinois has a 2% property tax for most people.

[Krista DiBiaz]

But the point is, wait, what's the lowest property tax?

[Wes Moss]

Lowest property tax state is.

[Krista DiBiaz]

What do you think it is?

[Clark Howard]

Lowest property tax? I would guess Alaska.

[Wes Moss]

So I think it's Hawaii. Hawaii and Alabama are at the low, low end, but Hawaii gets you all these other ways. You know that. So, but here's what I would say. This is still, we very often we don't talk about state taxes, but if you're in the 32% tax bracket federally and your state is 6%, then you're really paying 38%. That's true. So you've got to think about what will your rate be, not just your federal rate, but to your point, Pete, in Massachusetts, you've got to be doing the math on your state tax as well because that matters. And if you think if today you're in the 32 bracket, so if you're married, filing jointly and you're over for about 400, you're paying 32 on every dollar. Above that, you're paying another 5% in state taxes. You're saying 37. Let's say you move to Texas or Tennessee or a low tax state. When you retire and your state tax goes to zero and you're in, you end up being able to be in the 12 to 15% range then.

[Clark Howard]

Yeah, absolutely. Do traditional. I mean, you know, when we were talking earlier about, you know, splitting it, you know.

[Wes Moss]

Yeah. Half of the political answer.

[Clark Howard]

So when you get to higher and higher incomes, then the answer changes to traditional. And so you throw in state income tax as an additional sweetener on making the decision. So what's your federal rate? Your federal rate is, you know, 32, 35, 37. Those are the three. Yeah, 32 to 35, 37. You get up there, then. Yeah, you want to be doing traditional and then you bring the state tax into it and you're expecting you're going to retire in an income tax free state then. Yeah. The man from Roth says. The man from Roth says do traditional.

[Krista DiBiaz]

Okay, let's take a quick break. We'll come back and I have a couple more questions for you guys to answer.

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[Clark Howard]

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[Wes Moss]

Welcome back to Ask An Advisor. I'm Wes Moss along with the Clark, Howard and Chris to DBAs in their sports caster. I was going to say glasses, but headset sideline reporting asking us questions from the audience that we love.

[Krista DiBiaz]

They're coming around the bend.

[Clark Howard]

What you what?

[Wes Moss]

A horse race.

[Clark Howard]

Do you used to go to horse races growing up?

[Krista DiBiaz]

I went up to Saratoga Springs a few times. I did.

[Wes Moss]

Oh, Saratoga's fun. That's fun.

[Clark Howard]

I never really got the horse racing thing. You know, they run around the track. Well, that I don't get either. But they run around the track for two minutes and then you wait 45 minutes for more horses to run around the track for two minutes.

[Wes Moss]

There's something fun about I think it's when people are drinking mint juleps is what makes it fun. And bet. And betting.

[Clark Howard]

Is that what you were doing as a teenager? You were drinking mint juleps between the races?

[Krista DiBiaz]

No.

[Clark Howard]

The statute of limitations is right out. Krista, you can admit you were drinking under.

[Krista DiBiaz]

I was not. Okay, okay. Here are some questions for you. Bill in Connecticut wrote this one. Bill, my wife and I have been saving in HSAs and not spending the money for our current medical expenses, but we've been logging our expenses and saving receipts. We have about $100,000 saved. We're now semi retired, working part time in low wage but very satisfying jobs. My wife is now starting Medicare. I'm paying $1,000 a month for health insurance. I still plan on contributing to an HSA as an individual for another four years. We're both in fairly good health. Is there an optimal time to start withdrawing money against our past or current expenses? I'm guessing I should leave it for another decade, but maybe I'm just being greedy. And now that we're retired, maybe we should use the withdrawals as tax free income.

[Wes Moss]

What do you think?

[Clark Howard]

Well, I love HSAs.

[Wes Moss]

Yeah.

[Clark Howard]

And this strategy is exactly what what you should do is you accumulate over the years, you invest the money, it grows tax free. It may have gone in pre tax, you get to spend it tax free. And the more years you accumulate investment return on that money tax free, the better. But now in retirement, that's always been the strategy is that you build it up during your income earning years. You hit retirement, your medical expenses go up significantly in your 70s, exponentially in your 80s. So early retirement, if you can afford to pay the out of pockets, you continue to pay the out of pockets. And then as you move into your 70s, that's when you really start pulling that money out. You can do the reimbursements that you have Smartly accumulated your receipts all through the years. That would be my strategy. But you spend so much more time on HSAs. You may have a different idea.

[Wes Moss]

I love HSAs. They are. They're like. They're almost like super Roths for retirement. And, Phil, what you're doing, I think, is kind of. I think of it as shoeboxing because you're saving all your receipts. And the cool thing about hsa, as long as you have an HSA and you're having reimbursable receipts for. For your medical care or medical costs that are pretty wide and diverse too, then you don't have to get reimbursed today so the money can keep growing, keep growing. Now, this is an exercise in real diligence because you're saving your receipts and you're shoeboxing them to some extent. You're saving. You're probably doing it on your smartphone and not in an actual shoebox. But if you have the receipts, then you. In future years, this money gets to compound and compound and compound. And maybe when you're in your mid-70s and now your tax brackets higher because you're taking your RMDs, those tax free withdrawals are even more valuable into the future. And as long as you've kept receipts, you can start taking those withdrawals at a later date when they're again, technically even more valuable if you're in a higher tax bracket. Yeah, it's a good way to do it.

[Clark Howard]

So we agree. We agree on 70s, because medical expenses, current medical expenses could get larger. And you need the money. And you also have had the additional decade of growth of the money.

[Wes Moss]

Exactly. So I think it's a good strategy. I don't think you're being greedy. I think you're being smart, Phil.

[Krista DiBiaz]

All right, this one came in from Scott in Florida. Hi, Clark. I've been a dedicated listener for three years now, usually catching your podcast on my daily dog walks. I only wish I'd found your podcast sooner. I'm 55 and categorized as a highly compensated employee HCE, which limits my standard 401k contributions. Taking your advice to heart regarding Roth accounts, I recently completed a backdoor Roth IRA. Since I have no existing traditional IRAs, only my 401k and an executive deferral plan, I opened both a traditional and a Roth IRA. I made an $8,000 nondeductible contribution for 2025 and converted it to the Roth the same day I filed Form 8606 with my tax return for 2025. I'm hoping I executed this correctly without triggering unexpected tax implications. I'm holding off on my 2026 contribution until I hear your thoughts. Thank you for all you and Wes do.

[Clark Howard]

Wes, you want to take that?

[Wes Moss]

So, Scott, you're an hce, highly compensated employee. You've already done the backdoor Roth.

[Clark Howard]

He wants to know if he should do the backdoor Roth again because he did it for $25,000.

[Wes Moss]

Did he do the mega? Did he say he did the Mega or just the regular?

[Clark Howard]

Just regular.

[Wes Moss]

Yeah. I think that it sounds like he did it right to me. You did it all in one day so you didn't have to worry about any sort of gains. You get a same day conversion from a regular to a Roth backdoor. I would think. Absolutely. It sounds right to me. I would think about. And again, there may be a nuance on the HC on the highly compensated employee. But if your 401k allows for after tax contributions, you could maybe do a Mega backdoor Roth as well in the 401k. So yeah, I think sounds good to me. But I would look into the mega.

[Clark Howard]

So I wanted to ask you about that. How often do employers have the option of what. And maybe you should define for people who've not heard of it, the mega backdoor Roth, because I know somebody who does it and it's like they need a wheelbarrow to wheel all their money into their mega back door.

[Wes Moss]

Yeah. So not that many people do it. I think I read about it a lot, but it's a lot of savings.

[Clark Howard]

No, I mean about employers. How many employers even permit it?

[Wes Moss]

I think that it's not a very hard thing for employers to do. The thing is this. I don't think it's a very big deal for employers to do because they're just allowing up to the IRS full contribution limit, which is something like 71, $72,000. Most people are only saving the max in their 401k, which is 31.5. Or with the catch up, it's more than that.

[Clark Howard]

Only the percent that do that is like a fraction of 1%. Right.

[Wes Moss]

And that's why not that many people really are going to take advantage of the Mega backdoor Roth. Because now you're saying, okay, you max out your 401k and then above that, the limited, the ceiling for the IRS is something like 72. So now you're saving another 30 or 40 grand to get to that limit and you're saving in an after tax in your 401k, then that gets converted.

[Clark Howard]

All right. Let's clarify this though.

[Wes Moss]

Yeah.

[Clark Howard]

All right, so highly compensated employee and they do a haircut on what you can contribute to the 401k. How are you then able to do the mega, even though you've been limited as highly compensated?

[Wes Moss]

And again, you're going to have to ask the plan this, but the contribution limits are. I don't know if the full $72,000 applies to HCA. I'd have to. It's a pretty rare person to do that. So I'd have to.

[Clark Howard]

But at the very least, doing the Roth is exactly what you should be doing. You think about if you're going to work another 10 years you're going to end up with before earnings or on that money, you're going to end up with close to 100 grand that you've been able to put aside into the Roth. And then that's going to be tax free money you're going to have doing the backdoor Roth. And I don't know if anybody needs an explanation of what a backdoor Roth is, so I'm going to give a really quick one and then you can read more about it. But people become income ineligible to contribute to a Roth ira, and when they do, they can do this weirdo bizarre thing called a non deductible ira, which is actually a lousy thing, but it's a very effective vehicle that who knows why there's this loophole that Congress allowed you contribute to the non deductible and in a blink like the same day, you then transition that money into the Roth version. And even though you weren't income eligible, you still were able to do it. Which is shows you how crazy, silly, complicated the tax code is.

[Wes Moss]

Yeah. And it makes it easy. It sounds like Scott. It makes it easy because everything else he has is in the 401k. So it uncomplicates this backdoor Roth.

[Krista DiBiaz]

That's it.

[Clark Howard]

That's the last.

[Wes Moss]

No, let's have one more.

[Krista DiBiaz]

I don't have any more.

[Wes Moss]

Well, then we need more questions from our listeners, our audience.

[Krista DiBiaz]

I know, Send them in. I'm sorry, I didn't.

[Clark Howard]

So I do have one question for you when you have an obsession like I do.

[Wes Moss]

Which one?

[Clark Howard]

The Roth. I mean, I'm, I'm, I might as well have been Senator Roth from Delaware. I'm so into the Roth. So then you get blinders on and you, you don't see the downsides. When is it clear that you have a client who is obsessing with doing Roth 401k? Roth, Ira, Roth conversions. And when they should not be doing those things.

[Wes Moss]

Here's what I will tell you, here's real life, is that people listen to Clark Howard and they feel like they're crazy if they haven't converted into Roth. They feel nuts. I know I should have converted. I'm sorry. Wes, can we just go ahead and get the conversion? Can we do the conversion? Okay, let's do the conversion. Clark Howard says, we'll do the conversion. Okay. And I'll say. And I'll say, okay, let's. We're going to. How much do we want to convert? Well, let's do the tax bucket. So you're in the 24 bracket and you're okay to be. Fill up the 24 bracket and pay 24% on the next. Maybe it's 50,000 or $60,000 worth of conversion. And they say, okay, okay. Well, in real life, remember when somebody's in the 24 bracket, they're really not paying 24% in taxes. They're paying their effective rate, which is probably more like 16 or 18%. So when you do the Roth conversion, because you're filling up these buckets, you are really, truly paying the full 24% to conversion convert. And you can go over the math and you can say, well, here's what it's going to cost to do the Roth conversion. It's going to cost you. You want to convert 100,000. Let's just say 50. But it's 24% of that. What's the number on that? 50,000 times 24%.

[Clark Howard]

12,000.

[Wes Moss]

Yep, it's 12 grand. When the tax bill comes due three months later, six months later, a year later, people forget all the glory of Clark Howard talking about the Roth. And you know what they remember? $12,000 tax bill. Wes, why did we do the Roth conversion? Whoa, whoa, whoa, wait. You really wanted to do the Roth conversion? We talked about the Roth conversion. We even went over the tax. People hate the tax bill that comes with it, whether it makes financial sense or not. They hate it because they're already paying taxes and they're paying more taxes.

[Clark Howard]

Sure.

[Wes Moss]

And that I would just want to tell you, that is the real life story that happens 90% of the time when somebody does a Roth conversion.

[Clark Howard]

So then I would throw. I would throw in an annex, and that is.

[Wes Moss]

I'm gonna have people just call you.

[Clark Howard]

And that is the Irma.

[Wes Moss]

That's the other thing that.

[Clark Howard]

At the other end.

[Wes Moss]

And my Medicare went up, but we planned for that, too. But you can't exactly plan for IRMAA because they're two years behind on what your income is going to be. You can only guess.

[Clark Howard]

So just so you know, when you have money in traditional accounts and you have done a great job saving money in those traditional accounts, when you hit right now age 73 and you're like, well, why do I care? I'm 40 years old. You eventually get to be 73. You were taxed on your Medicare with a huge punitive tax that you have to pay every month. If you start having to pull out money that you didn't want to pull out, but you pull it out, it creates income because of the rmd. Right. Required minimum distribution, then you got to pay all this tax. So I'm always focusing on what things are going to be down the road. And maybe that is another thing where I've got the blinders on that I worry too much. Maybe this is future anxiety disorder. I have tax future anxiety. But I just wanted to ask you, you know, because there are so many listeners and viewers that cross over between the two of us.

[Wes Moss]

Yeah.

[Clark Howard]

And they hear me, Roth, Roth, Roth, Roth. And then they hear you say, well, you know, traditional is better, but it's not all one or the other. Because you have to look at your own personal income and tax situation.

[Wes Moss]

And that brings up the point that I think is so critical, that doesn't get talked about a lot, but is so important for retirement. When you're in retirement, we're 50 years accumulation, and we're hopefully 30 to 40 years of decumulation or distribution. It really helps to have lots of different tax buckets to pull from after tax. Regular, traditional, pre tax and free tax, which is the Roth. And if you have all three of them, then you can really start to manage your income in retirement.

[Clark Howard]

I think that's a good point to quit right there. What do you think, Krista?

[Krista DiBiaz]

I like it. All right, guys, I am going to get us another stool and microphone in case we ever do this again so I don't have to wear this headset.

[Clark Howard]

I want to wear the headset. I mean. All right, we're at the end of the podcast if you still want to watch or listen. This is a Krista stinks. Oh, Krista yanked off my sportscaster headset.

[Narrator]

I didn't.

[Krista DiBiaz]

I didn't physically do that.

[Clark Howard]

Makes me use a stationary mic. And the way my body works. I'm always moving. You know, little kids in elementary school that are always jumping around and they can't sit still. Okay. I'm that kid. As an adult, and so the sportscaster headset just follows me around. And now here I am having to sit here as a prisoner of this mic.

[Krista DiBiaz]

You know, it is called the Clark Howard show, and you are my boss. So if you really want to use this, you can.

[Clark Howard]

You ask anybody who works for either of our companies who the boss is, and I guarantee you 100% will say you're the boss.

[Krista DiBiaz]

No way.

[Wes Moss]

That's.

[Clark Howard]

Oh, yeah, I thought she was. I think. Okay, let's vote.

[Wes Moss]

She is.

[Clark Howard]

Who thinks Krista is the boss?

[Krista DiBiaz]

All right, well, thank you both for doing this. I think this was really fun. I'm. Hopefully you enjoyed this episode. I certainly enjoyed listening to you guys, and I hope we do it again sometime soon. If you have a question for either of these guys, you can go to clark.com ask and indicate who the question is for. And if you want to ask a question, that will be. I'll ask both of them on a future episode, you can indicate that. But you might be waiting a little while because you guys usually aren't here on the same day.

[Wes Moss]

Well, once in a while.

[Krista DiBiaz]

Once in a while. So have a great day. We really appreciate your subscribing to this video podcast, wherever you listen or if you watch on YouTube.