06.10.25 Ask An Advisor With Wes Moss

Summary

The Clark Howard Podcast – Episode: "Ask An Advisor With Wes Moss" (June 10, 2025)

In this engaging episode of The Clark Howard Podcast, host Clark Howard sits down with Wes Moss, a fiduciary financial advisor, podcast host, radio host, and author. Together, they delve into critical financial topics, answer listener questions, and provide actionable insights to help listeners achieve financial freedom. Below is a detailed summary capturing the key discussions, insights, and conclusions from the episode.

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1. Introduction to the Episode

[00:50] Clark Howard welcomes Wes Moss to the show, highlighting Wes's diverse roles and expertise in financial advising. They briefly touch upon the hectic nature of summer as Wes manages his roles as a father of four.

2. Corporate Earnings: Importance for Investors

The first major topic of discussion centers around corporate earnings and their significance for investors.

• Understanding Corporate Earnings

  • [02:07] Wes Moss emphasizes that earnings are a paramount metric for assessing a company's financial health. He explains that while numerous metrics exist—such as revenue, net income, and margins—earnings often take center stage for both individual companies and the broader market.
  • Notable Quote:
    Wes Moss [03:15]: "If there's anything to look at for the growth of the US equity markets, it really comes down to earnings and the growth of earnings."

• Earnings Growth and Market Performance

  • Wes illustrates the relationship between aggregate earnings of the S&P 500 and market indices over time, noting that growth in earnings generally correlates with rising stock markets.
  • He differentiates the impact of earnings on individual stock investors versus index fund investors, suggesting that while individual investors should monitor earnings of their specific holdings, index fund investors benefit from overall market earnings trends.

• Earnings Per Share (EPS) Clarification

  • [05:21] Clark Howard seeks clarification on whether EPS refers to net earnings, to which [05:31] Wes Moss responds affirmatively, explaining that earnings typically represent net profits after expenses.

3. Audience Questions: Proxy Voting

A listener from New York, Clint, poses a question about proxy voting for shareholders.

• [08:48] Clint's Query:
  "I hold seven different stocks in a Fidelity non-retirement account and receive secure emails requesting my proxy vote prior to the annual company meeting. I always vote as the board recommends. Is this a good practice?"

• Wes Moss's Response:

  • Wes explains that proxy voting allows shareholders to cast votes on company matters, akin to voting in national elections.
  • He highlights that while individual votes may have limited impact compared to large institutional investors, participating in proxy votes is a way to exercise ownership rights and influence company decisions.
  • Notable Quote:
    Wes Moss [09:23]: "Companies do listen now, the boards are usually going to get their way because they're lobbying big owners, but you should vote if you have an opinion."

4. Audience Questions: Social Security Strategy (6270 Strategy)

Doug from Pennsylvania asks about optimizing Social Security benefits using the 6270 strategy.

• [11:34] Doug's Query:
  "What do you think of the 6270 Social Security strategy where the higher-earning spouse waits until 70 and the lower-earning spouse claims at 62?"

• Wes Moss's Response:

  • Wes supports the strategy, explaining that it allows the higher-earning spouse to maximize their benefits by delaying until 70, while the lower-earning spouse can access benefits earlier, providing immediate cash flow.
  • He mentions the additional benefit of income insurance, where if the higher-earning spouse passes away, the lower-earning spouse inherits the higher benefit amount.
  • Notable Quote:
    Wes Moss [12:02]: "It's an optimization strategy... it gives a little bit of income insurance because nobody knows exactly when the clock's going to expire."

5. Best Advice Segment: Financial Tips for Beginners

Clark challenges Wes to offer quick advice for someone starting their financial journey.

• [15:02] Wes Moss's Advice:
  • Wes passionately advocates for the Roth IRA, citing its benefits of tax-free growth and withdrawals.
  • Notable Quote:
    Wes Moss [15:02]: "Roth, Roth, Roth. The Roth IRA is the number one thing I want you to do because it forces you to live on less than what you make."

6. Discussion on the Rule of 55

Returning from a brief interlude, Clark and Wes dive into the Rule of 55, an often-overlooked provision allowing early access to retirement funds without penalties.

• Understanding the Rule of 55

  • [25:33] Wes explains that the Rule of 55 permits individuals who leave their job at or after age 55 to withdraw funds from their 401(k) without the typical 10% early withdrawal penalty.
  • Key Conditions:
    • The withdrawal must be from the 401(k) of the job from which the individual has recently left at age 55 or older.
    • Not applicable to IRAs unless rolled over into a 401(k).

• Practical Applications

  • Wes shares scenarios where the Rule of 55 can provide financial flexibility, such as accessing funds earlier for unforeseen circumstances without incurring penalties.
  • He advises on strategic rollovers and the importance of planning to maximize the benefits of this rule.
  • Notable Quote:
    Wes Moss [26:50]: "If you qualify for it, you can start tapping your retirement money at 55 without the 10% penalty. Great."

7. Audience Questions: Rules-Based Funds and ETFs

Scott from New York inquires about the viability and costs of rules-based funds and ETFs compared to traditional index funds.

• [27:27] Scott's Query:
  "Are rules-based funds and ETFs still considered passively managed? Their expense ratios are typically three times that of Vanguard's. What do you think Jack Bogle would say about these higher costs?"

• Wes Moss's Response:

  • Wes acknowledges that higher fees in rules-based or factor ETFs can be justified by the additional strategies they employ beyond mere index tracking, such as screening for specific financial metrics.
  • He cautions investors to scrutinize the factors these ETFs focus on and to ensure that the higher costs align with their investment goals.
  • Notable Quote:
    Wes Moss [31:15]: "They do matter. They do matter... I would use some of these factor rules-based ETFs as it gives me great comfort knowing that I'm investing the way I would like for a portion of my assets."

8. Audience Questions: IRAs, 401(k), HSA, and FSA Management

Danielle from Virginia seeks advice on managing her IRA, 401(k), HSA, and FSA amidst changing employment.

• [31:15] Danielle's Query:
  "Can I roll my existing IRA into my new 401(k) to facilitate a backdoor Roth? Also, can I max out my HSA independently since my new employer doesn't offer a high deductible plan?"

• Wes Moss's Response:

  • Wes advises that consolidating the IRA into the new 401(k) can simplify backdoor Roth conversions by avoiding the pro-rata rule, which complicates tax calculations when multiple IRA accounts exist.
  • Regarding the HSA, he explains that since the new employer doesn't offer a high deductible plan, contributions may be limited. However, if Danielle remains eligible outside of employer offerings, she can continue to contribute independently.
  • For the FSA, Wes recommends contributing only if she is confident she can utilize the funds within the year to avoid forfeiture.
  • Notable Quote:
    Wes Moss [34:14]: "If you know you're going to use it, absolutely. Particularly if you're limited on the HSA contributions."

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Conclusion

Throughout the episode, Clark Howard and Wes Moss provide invaluable insights into navigating corporate earnings, optimizing Social Security benefits, leveraging the Rule of 55, and making informed decisions about investment funds and retirement accounts. Their expert advice aims to empower listeners to make strategic financial choices tailored to their unique situations.

Listeners are encouraged to submit their own questions for future episodes at www.clark.com/askclark and to utilize the free resources Clark Howard spearheads—Clark.com and ClarkDeals.com—to further their financial education and savings strategies.

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Notable Quotes:

• Wes Moss [15:02]: "Roth, Roth, Roth. The Roth IRA is the number one thing I want you to do because it forces you to live on less than what you make."
• Wes Moss [26:50]: "If you qualify for it, you can start tapping your retirement money at 55 without the 10% penalty. Great."
• Wes Moss [31:15]: "They do matter. They do matter... I would use some of these factor rules-based ETFs as it gives me great comfort knowing that I'm investing the way I would like for a portion of my assets."

This episode underscores the importance of understanding key financial principles and leveraging available rules and strategies to enhance financial well-being.

Transcript

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[Clark Howard]

Welcome to Ask an Advisor. I'm Krista Dibiaz, here with Team Clark member Wes Moss, fiduciary financial advisor extraordinaire, podcast host, radio host, author.

[Wes Moss]

A lot of stuff. A lot of stuff.

[Clark Howard]

Wear a lot of hats. Dad of four.

[Wes Moss]

Yeah. Which by the way, in the summer is really ramps up.

[Clark Howard]

Oh, I'm sure it does really ramps.

[Wes Moss]

Up when everyone's home.

[Clark Howard]

I loved your whole thing about the list of things you're having your boys do this summer.

[Wes Moss]

It's actually turned out to be a really fun project. That's a lot of resistance in the beginning, but a lot of it's been really fun this summer.

[Clark Howard]

Wow, that's great. Today you're going to talk about, first of all, corporate earnings. How much love that topic. Yeah, let's do that. How important are corporate earnings? Should they ruin our day? Make our day or month our year, whatever.

[Wes Moss]

Should we pay attention?

[Clark Howard]

Should we pay attention?

[Wes Moss]

Who should pay attention? Yeah.

[Clark Howard]

And then the rule of 55. You've mentioned it before, but you're going to get into that today.

[Wes Moss]

Yeah, it's a, it's a super important rule that doesn't get a lot of press. It kind of flies under the radar. And I was thinking about it and there's a couple of reasons why I think it does. But we'll bring it to light here. I think our audience, we have a very smart audience and I think they, our audience probably knows about it or at least has heard about it. So we'll dive into that one a little bit too. But let's start with corporate earnings.

[Clark Howard]

Yeah, let's do it. And we'll go to questions as well. And if you have a question, clark.com/ask.

[Wes Moss]

There have been a couple of Questions around earnings. And I think that's why we wanted to do this topic. Question is, should retail investors, not mutual fund managers, hedge fund managers, should you as a retail investor care about corporate earnings? Should you understand, should you know, should you follow corporate earnings? There was a group, there were 300 people at a bar in New York City recently for not a football game, not a baseball game, not a basketball game, but a corporate earnings party for Nvidia. And you start seeing that around. That's the first time I've ever seen a financial news network cover an earnings party at a bar. And maybe that's part of the reason why this topic keeps coming up. And the short answer is, yes, of course we should all care about earnings. And here's why earnings are. If you were to go and try to look at all the different metrics of the marketplace and or companies, you can look at revenue, you can look at net income, you can look at margins, you can look at gross margins, net margins, you can look at wage growth. I mean, there, it's almost an endless list if you're looking at metrics for companies to figure out, hey, how is this company doing financially? And should I own it, should I buy it, should I sell it, should I continue to own it? But really it comes down to. And it's for individual companies and for the market as a whole, earnings are almost. They're not the only thing that matters, but they are the paramount metric that any company looks at, whether you're a private company and then particularly a public company. So the short answer is, yes, of course, we all need to worry about earnings and care about earnings. The other question would is if I own individual stocks, should I be on these earnings calls, Should I look at every single earnings report? Or if you're an index fund investor, I think those are two categories that are somewhat different. You're an index fund investor, you should care about earnings. But if you were owning the s and P500 or the Russell 2000 and you own hundreds or thousands of stocks, then in any in particular earnings call really doesn't have that big of an impact. But the overall market, I really like looking at the overall earnings of the s and P500. And this is very interesting if you track just a line that is earning. So if you go back to the year 2000, the aggregate earnings of the S&P 500 and by the way, earnings is expressed as a total number and then per share. So if a company earns a hundred dollars at the end of the year and there's 10 shares, that it's $10 per share. Or if the company ears $100 and there's a hundred shares, it's a dollar a share. What really matters is that what's coming next, is the company going to earn a dollar and five cents or is the company going to earn a dollar and eight cents? So it's earnings and then earnings growth and that's what the market cares about aggregately. Go back to 2020 or the year 2000. The total s and P combined per share, this is a number we can also track, was about $55 total.

[Clark Howard]

Can I ask a question? I'm sorry. It's very basic, I'm sure, but when you're talking about earnings per share, is that net net earnings, you're always talking about net. Right. Of expenses.

[Wes Moss]

You are. Okay, you're looking at. Well, it actually can be expressed in a couple different ways.

[Clark Howard]

Okay.

[Wes Moss]

But usually you're getting to the bottom line. What are earnings? They're just the, the net profits of a company. Now there's another metric that would be net income. But the earnings number is what essentially the company is bringing in revenue, paying their m. Their main costs, and those are earnings. Now they can be adjusted and you can say, well, we're going to go build another factory, we're going to spend some money for that. But what is the business doing? What is just the overall what's left at the end of the day before I go out and make 10 other purchases with some of those earnings?

[Clark Howard]

Got it, Sorry.

[Wes Moss]

A number of financial strength. And if you look at how this has gone for the s and P500 over the last call it 25 years. In the year 2010, it was $83 in aggregate. In the year 2015 it was $106. In the year 2020 was $94. And for 2025, estimates are around two hundred and twenty bucks, depending on where you're looking. So if you look at a chart of aggregate earnings for the s and P500 over time and you plot the actual level of the index, you'll see that they don't follow perfectly, but they look very similar over time. Yes, there's some times when markets dip and earnings stay steady or earnings will dip and markets are above them, but pretty, pretty much those lines eventually converge. So if there's anything to look at for the growth of, let's call it the US equity markets, it really comes down to earnings and the growth of earnings. So if I'm an index fund investor, I care about that a Lot. And I think about that. I talk about it on different radio, on our radio show and in the podcast because ultimately that's what it comes down to, earnings and earnings growth. If we lived in a country where this went from $220 in aggregate down to $100, down to 75, down to 50, we would have a real problem and we would not be in an environment where stocks go up over time. The only reason stocks go up over time is because earnings have gone up over time. And we expect in this country and as investors for that to continue. Now, it's not every company, of course. Some companies will dip in any given year. Some companies go out of business. But the vast majority of companies do a really good job of just slowly ratcheting the business better and better and better. And that's usually expressed in an earnings number. Now, if I'm an individual stock investor, they take on, I would say, a heightened level of importance. So we do want to understand, even if you're a retail investor relative to a hedge fund manager or a mutual fund manager, the companies that you own over time. And it doesn't have to be perfect symmetry every quarter. And most companies are not like that. But over time we want to see earnings growth. You do not want a company that has declining earnings over time. That's. That is usually, not always, but usually a real problem. So the earnings matter to retail investors? Absolutely. Profits matter. That is the absolute core of markets over time. Do you need to obsess over every single quarter? Usually not if you're a buy and hold investor. But you do want to understand that earnings over time are going in the right direction.

[Clark Howard]

Okay, we'll go to some questions now. Clint in New York says I hold seven different stocks in a Fidelity non retirement account and receive secure emails requesting my proxy vote prior to the annual company meeting. I always vote as the board recommends. This seems to be the easy way out. Is this a good practice? There are also detailed and lengthy materials to review. I never do. Who has the time to read through all these documents? Even if I do go over all the materials, I would be even more confused on how to vote. I. I once heard there needs to be a minimum number of shareholders casting votes or the resolutions cannot pass. Is this true?

[Wes Moss]

It's funny. You may get 2 or 3 proxy. So proxy vote is really just like a ballot for a shareholder. Because you own a slice of the pie, you get a vote. Just like being a citizen here in the United States, you get to vote. And proxy is just the term for the piece of paper or electronically. Obviously we can do it now on how we can vote on board nominations, on mergers, acquisitions, anything major that the board has to undertake, they're going to vote for it. But guess what? All the shareholders get to vote too. And if you have seven different stocks, you're going to get maybe seven, maybe 14, maybe 21 different proxies a year. Imagine if you own a hundred stocks, you're going to get hundreds of proxies every single year. So the short answer is they do matter, but it is proportional. So if I'm a mutual fund and I own 50 million shares of a company, well, guess who has a bigger say than me as an individual investor owning 100 shares of a company. So a fund is going to have a whole lot of say so when it comes to that vote because they proportionally own a lot more than they have that many more votes. So can you outmatch five mutual funds that own hundreds of millions of shares of company? The answer is not really. It doesn't really move the meter. However, boards do. What want to hear the voice of the collective ownership group because everyone that owns stock is an owner in that company. So imagine if 1,000 or 10,000 individual owners, even if it's only a couple hundred shares, they want to know what the ownership group is thinking. So I think that does. If you own a hundred shares, does your voice really move the vote? Technically it does. But what is more important, I think is to give yourself a voice to of what you think the company should be doing. I think companies do listen now, the board's usually going to get their way because they're lobbying big owners of this big owners of the stock usually. So I think you should vote, but it's not the end of the world if you don't. You don't need to make a vote on every single proxy. But if you care and you have an opinion about it, by all means. Clint.

[Clark Howard]

All right. And Doug in Pennsylvania says, what do you think of the 6270 Social Security strategy where the higher earning spouse waits to 70 and the lower earning spouse claims at 62? In my specific situation, I earn about a third more than my wife. We both plan to retire and stop working later this year. Me at 67, her at 62. We have enough assets to fund our life if we decide to both wait to 70. But that monthly Social Security deposit would be nice.

[Wes Moss]

Would be nice. It is. And it's money today, Doug. I do like the 6270. So what Doug is Asking here is we all know that we can wait and maximize our Social Security till, if we wait till age 70. So it's, it's, in some circles it's blasphemy to start early. 62. Why would you ever take it so early? You have such a reduced amount, it's a third less than it would be if you wait just to your fra or your full retirement age. But remember that Social Security, when you decide to claim you and or your spouse, it's about optimization for your financial situation, not maximization. So this one to me thinking of it this way, where the lower earning spouse takes it 62 and then you wait, you're higher, you're almost splitting the difference. So you're waiting in one respect and you're taking cash flow today in another. And that to me can be an optimization strategy for your plan. The reason I also really like this for couples, particularly the higher earning spouse, is that and if Doug, you're the man in this situation and actuarially your wife will live longer. So there's an argument to be made that if you get to 70 and you have that much higher payment, and I've seen people wait to 70 and their Social Security payments are 4,000, 4,100, 4,200, over $4,000 a month. And even if your spouse has a low Social Security payment, if you pass away, she will then assume what your payment was. So let's say that you've collected Social Security for many years because of inflation. It's all the way up to $5,000 a month. Hers isn't even close to that because she started early. Something happens to you, it's a little bit of an insurance policy for income for her. And she will assume she doesn't get to keep her payment plus yours, but she will assume your higher payment if you pass away. So there's a little bit of income insurance to me and because nobody knows exactly when the clock's going to expire.

[Clark Howard]

Right.

[Wes Moss]

One of our questions, I don't know, a couple weeks ago said I want to try to figure out what to take Social Security. But there's one caveat. I don't know when I'm going to die.

[Clark Howard]

Right.

[Wes Moss]

Just one caveat. Of course, you know what? We of course we don't know when we're going to die. And that's a good thing.

[Clark Howard]

Yeah.

[Wes Moss]

So I like this is a splitting strategy. You're kind of splitting the difference between taking a low payment and waiting and taking a much higher payment. It's an optimization strategy, Doug. And it sounds like in your situation it can make a lot of sense.

[Clark Howard]

Sounds great. All right. Now when we come back, we're going to talk about the rule of 55.

[Krista Dibiaz]

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[Clark Howard]

Clark, I'm going to hit you with a challenge. You. You have 1 minute to come up with the best advice you can give to someone starting out with their life. Go.

[Wes Moss]

Oh man, that's so easy. Roth, Roth, Roth. The Roth IRA is the number one thing I want you to do because it forces you to live on less than what you make, which is core and key to creating long term security, ultimately financial independence in your life. It's such a cool deal. You put money in the Roth ira, it grows tax free, you spend it tax free. Once you're at retirement age, the government leaves you alone. How can you do better than that?

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[Wes Moss]

Back to Ask an Advisor here on the Clark Howard Show. Wes Moss along with Krista Dibiaz here in I don't know if we do. We call this a studio.

[Clark Howard]

It's our studio. Yeah, absolutely.

[Wes Moss]

I'm so used to radio studios that have all the different things. Well, we do have some acoustic paneling on the wall. Acoustic paneling. So we're not echoing this actually, this set.

[Clark Howard]

How much do you think it cost us to build this whole thing behind you?

[Wes Moss]

This thing is really a monitor, so that's got to be at least 50 bucks. Those little plants were probably free. I would say all in $72.50 here.

[Clark Howard]

On the Clark there. How much would it really cost to build out?

[Wes Moss]

Usually it'd be a thousand. I mean over $1,000 because of all this paneling.

[Clark Howard]

Oh, yeah. It'd be multiple thousand dollars, I would think. It wasn't.

[Wes Moss]

It was okay.

[Clark Howard]

We bought this behind us on Amazon and had someone kind of put together. We covered these panels with fabric because. So that way for self upholstery. Yep.

[Wes Moss]

Which a lot of people.

[Clark Howard]

The monitor was. Yeah. I mean, Clark doesn't even know how much it cost.

[Wes Moss]

Well, so what's the answer? How much did it cost?

[Clark Howard]

The total in I think was like $1200.

[Wes Moss]

Wow. Yeah. It could be several, I would think.

[Clark Howard]

And that includes somebody working on it.

[Wes Moss]

I tried to reupholster a chair once. I would think I was like two years out of college and I'm still shocked by furniture prices. It's hard for me to buy furniture. Furniture and curtains are like a dagger for me when it comes to spending. Even though it's great to have curtains, I'm always so shocked at the prices. And a chair. So in. I think this is a year or two out of college. I got an old chair and a friend of mine, one of my roommate's mom was an art teacher, so she was crafty about reupholstering. And we reupholstered this chair. And the mistake I made was that it was a non breathable faux leather.

[Clark Howard]

Oh.

[Wes Moss]

So it was almost like covering the chair in a balloon.

[Clark Howard]

Oh, my gosh.

[Wes Moss]

So as we put it together, it had no give.

[Clark Howard]

Yeah.

[Wes Moss]

So it almost like it popped and sat on it and it was a total disaster. I'm not gonna reupholster anything after that.

[Clark Howard]

Leave that to the professionals. I've reupholstered chair like cushions like just like on a dining room chair. But even that I feel I didn't do the best job.

[Wes Moss]

All right, so we're going to run into what a great segue into talking about the rule of 55 and upholstering chairs. This is a topic that I think it's overlooked and I think our audience is super smart. And I. And part of the reason I wanted to cover this is we. We've gotten a couple questions about the Rule 55. I think some. One of our listeners or viewers said, hey, can you cover this a little bit more in depth? So I took that as a cue to do that. So first of all, let's start this way. Getting to retirement sooner is just better. And that's my opinion. But it's also based on, well, it's based on real life seeing people being able to retire a year or two sooner or three, and what that does to their life. It also goes back to some of my more recent research. And I don't know if I even. I didn't ask this question, but I'm always looking at kind of state of happiness and where people how they're feeling in their life. And I usually measure it in five different buckets. And what was one thing that came back? Because you're able to tell in this research who's not retired and who is retired. And retirement's defined as a state where you no longer have to work if you don't want to. What was interesting is that there was a statistically significant and large jump for the population that was going from not retired to retired, Meaning that retirement in itself increases the propensity for us to be living better lives. And I guess I've known that mostly, but to see it with a large national survey and statistically significant, I think it just puts more wind in my sails of just saying, look, this is a goal we want to get to, and it helps with our overall sense of well being and our happiness. So that's why to me, I'm such an advocate for this. If we can get to retirement a little bit sooner, it's just better. And this is a rule that does that. The Rule of 55 allows you to access your money at 55 without penalty versus the normal rule that I think most people know, which is age 59 and a half. Now, I think everybody understands and most people know that rule, the 59 and a half rule from an IRA. I can start tapping my retirement money on a 59 and a half without paying penalty. And I think the reason is that it's just a black and white rule for the most part. And it's also a penalty. It's associated with, well, I get a 10% penalty if I do it before that. And Amer, we don't like penalties, we don't like tickets. Who likes a speeding ticket, who likes a fine? And that's kind of what happens if you're 58 and you want to tap money from your IRA and you pull out a big chunk of money. Unless you're using another very nuanced rule, which is the Rule 72T, which we're not going to cover today, you're going to get dinged by 10%. If that same money were in a 401k, then there's a very good possibility that you're able to access it at 55 + which is almost five years sooner. Five years sooner to retirement. Sounds really good to me. And the reason it's a little more under the radar in the IRS code, and I think in being spoken about, is because there are a couple more layers to the rule of 55. So the good news here is if you qualify for it, you can start tapping your retirement money at 55 without the 10% penalty. Great. But one, your plan has to allow for it. Now, even though it's in the IRS code that this is allowed, not every single retirement plan, 401, 403, et cetera, adheres to this. There are some statistics. I've looked this up. I think the Vanguard or someone did a study that said 85% of plans allow for that. So even though it's in the IRS code, not every plan allows for it, but the vast majority of plans do. So that's the good news. It's one wrinkle. The other wrinkle is that you have to have left your job at age 55 or later, and you have to leave behind that 401 at that previous job, and that's the only one that qualifies. It's not. You turn 55 and all 401ks you've ever had in your past history automatically qualify. It's only the one for the job where you made it to the age of 55 and then left at 55 or older. So there's another little ring. Okay, so this is why there's some layers to this. A little. This is some financial tiramisu here. And this is why it's a little less well known. The other caveat is that I get this question. Well, I, I just left my job. Do I qualify? Well, I was laid off from my job. Do I qualify? It doesn't matter. It's. If you leave that job for any reason you choose it, the company pushes you out. As long as you're age 55 in the calendar year you leave and it's that same 401k, then that is very much could be eligible for this early withdrawal, age 55, not 59 and a half without the 10% penalty. There's a couple stories around this. Let's call him Jim in Rome left his job at age 55, had $250,000 in a 401k, but he had a lot of money in other IRAs. Well, there's also something that we can look at called a reverse rollover. Now, one thing you can't do to access his role is leave your job and then all of a sudden roll money into a 401 so you can access it. So it's got to be there. The money from a reverse rollover, which would be taking IRA money and rolling it into a 401k.

[Clark Howard]

I don't know you could even do that, honestly.

[Wes Moss]

Absolutely. You can consolidate if again, if it makes sense for your situation and you're doing the analysis and the comparison of the funds and the fees over here, funds and the fees over here. It makes sense for you. And this is one of these situations where it might make some sense. You can then almost as a safety measure to get extra cushion is the way I look at it. Jim in Rome could, let's say at 56, he's still working, he's worried about his job going away and he may get laid off and he might need to access that money. He needs $40,000 a year and there's only 200 in the 401k. Well, he could before. While the sky is blue, things are still good. He could always take. He could choose to roll some of his IRA money into his 401k. And then if he gets laid off or he chooses to leave, he's. Let's call it 5657. That money's in a 401k. And that very likely could be eligible for withdrawals without the 10% penalty. If he's got to pull $40,000 out a year doing that from an IRA, it's a 10% penalty. So that could save him 4,000 bucks a year and early access to, to a big pool of money if you plan it right.

[Clark Howard]

All right. Well, that is very cool.

[Wes Moss]

It is cool. It is kind of a cool role.

[Clark Howard]

If you can swing it right, you can swing it. All right, we have questions here. This one's from Scott in New York. I'm looking to get Wes's thoughts on rules based funds and ETFs. Like dimensional or advantageous? Are these funds and ETFs still considered passively? Managed expense ratios are typically three times the amount of Vanguard, which is. What do you think Jack Bogle would think of these funds since their costs are considerably more than traditional index funds and ETFs. I think of Bogle's costs matter hypothesis versus the efficient markets hypothesis. Do lower costs always win?

[Wes Moss]

I can just tell you, John, Jack Bogle would have a conniption fit may rest in peace if he were asked this question.

[Clark Howard]

So would Clark Howard.

[Wes Moss]

And so would Clark Howard. What? Three times the fee? Three times? Yes, costs matter. You really can't argue with that. They do matter. They do matter. Here's what Scott's saying is that you can own a passive S&P 500 fund or total market index fund and the costs have gotten to be mutual funds. Used to be 1%, not index funds, but. And now index funds have gotten below 0.1 of a percent. A lot of these are 0.02, so they're borderline free. There's almost no cost in some of these. So why would you pay 20 basis points versus zero? 2.2 is actually 10 times more. It's not just three times, Scott, it's 10 times more. Why would you do that? Why are there so many of these and why are there hundreds of billions of dollars in these? Well, there's a couple of reasons. One, when you're in a totally passive index, it's just. It is just that there are no rules. The only rule for most market cap weighted ETFs is that they just follow whatever's in the index as closely as they can. And that's why there's really not a lot of management to do. It's just whatever's in the index is going to be in the fund or the etf. So there's virtually, it can never be zero cost in it, but there's very little cost. But you are then totally exposed to whatever that index is. And there's always, there's some concern, particularly in the last couple of years that there's some drawbacks to that too. There's concentration risk. We know that the top 10 companies in the S&P510 out of 500 make up 30% of the total index because of their size or cap based on the size of these companies. So if you're an investor that wants to do something anything different than that, you're going to have to find an ETF that has some rules around it. And I would call a lot of these ETFs semi passive or factor ETFs because they have factors that they say here are the three factors that we're going to screen for for a stock to make it into our ETF. So again, doesn't take a research team of 500 people flying all over the world visiting companies, but it does take a team to make sure that there's screening for companies that could be again, pretty much any variable. We want to look at earnings growth, roe, EPS growth, EPS stability, beta momentum. There's so many different metrics, but fundamental value dividend growth is one. Companies can't be in our ETF unless they've grown the dividend for five years or 10 years or 20 years. So I do like these semi passive rules based or factor oriented ETFs because they give us some more options beyond just, just the index. I think just the index is great for a lot of people for a big percentage of their money, but it's not perfect for everyone all the time or for their for a hundred percent. So I would try to find the factory ETFs that are based on variables that you believe in. Again, give you some comfort and make sure those costs are as low as humanly possible. But they're going to be a little bit more than a plain passive ETF or index fund or cap weighted index fund. I wouldn't fully discount them. Maybe Clark does, maybe Jack Bogle does. But I use some of these factor rules based ETFs and it gives me great comfort knowing that I'm investing the way I would like to invest for a portion of my assets.

[Clark Howard]

Okay. Danielle in Virginia says I started a new job recently and have two questions. I currently have an IRA with about $200,000. That's from a previous employer. Four okay rollovers and a little bit of direct contributions I made in previous years. My new company uses fidelity for their 401k. Can I roll my existing IRA into the new 401k? I'm very close to the Roth income limits and would like to do a backdoor Roth once I'm over the limit, if possible. Possible. Additionally, I had an HSA at my previous employer through April. My new company doesn't have a high deductible option. Can I go back and max out my HSA on my own? I'm also planning to max out the fsa. I'll be able to use it up this year with medical, vision and dental and covered the over the counter purchases.

[Wes Moss]

Well, this one's easy because all we're talking about Here is the IRA, the 401k, the HSA, the FSA, and the proration of the FSA in relation to a 401k and a backdoor Roth rollover. That's all it is. So, Danielle, there's a lot, there's a lot to this one. So let's start. I think the, the easier with the bigger bite of the apple here would be that if you're looking to do those backdoor Roth conversions, it would make it a lot simpler to not have a regular ira. Because when you have a regular IRA standing out there and you're doing one of these back to Roth conversions, then you run into this proration rule of what's already in the IRA versus what you're contributing. So it could make it a lot less messy to take the IRA if that's your primary goal is to just have all 401k money. And this goes back to. We were talking about this on reverse rollovers. You can, you have the option usually to take retirement money from an individual retirement account and roll it into a company retirement plan, 401k, 403b. So I think that would make the Roth conversion potential a lot neater. And that's an easy move to do if you like your 401k plan. So that's 1, 2 from what I could hear on the HSA, the health savings account, which you need to be in a high deductible plan. We have one of these where I work with a high deductible plan and we were able to contribute an hsa but because you were only in one or covered by a high deductible plan for sounded like till April. So that means that she's only got about four months of coverage. It may mean that you can only contribute a prorated amount. So four months out of 12 is a third of the total, which is about 4300. So it may be that you can only contribute 1200 bucks, whatever the math is on that. 4300 times 0.33. Yeah, $1,400 approximately. Now, I don't know if you go then back in a new employer to another high deductible savings plan, I would think that would allow you to increase those contributions as well. But that starts to get a little messier.

[Clark Howard]

But they don't have a plan anyway, as a new employer.

[Wes Moss]

Oh, they don't have a plan.

[Clark Howard]

Right.

[Wes Moss]

Okay. So. Right. So the HSA would then only likely be that prorated amount, from what I can tell. And then the fsa, the flexible spending account that is one of those used, that will lose it. So if you put money in, if you have $1,000 in an FSA and at the end of the year it's not used, you do lose it. I actually have never used an FSA just because of that worry and that issue of losing out on the spending. So I would focus your attention and energy on the HSA versus the fsa.

[Clark Howard]

And if she's already maxed out the HSA and she's saying she will use all the money in the FSA this year, and I would say if you really think you can, you know you're going to have expenses. And if she has to pro at the HSA and she's already contributed her max with the old employer, maybe go ahead and just do the FSA this year if you know you'll be able to use it all, don't you think?

[Wes Moss]

Well, yeah, if you know you're going to use it. Absolutely.

[Clark Howard]

Yeah.

[Wes Moss]

Particularly if she's limited Danielle on the HSA contributions.

[Clark Howard]

Yeah. Okay, great.

[Wes Moss]

One, two punch for healthcare.

[Clark Howard]

Yep. Well, that does it for us today on Ask an Advisor. Thank you so much, everybody. Thank you everyone for tuning in. We really appreciate you and hope the rest of your day is fantastic. Thank you, Wes.

[Wes Moss]

Thank you.

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