07.29.25 Ask An Advisor With Wes Moss

Summary

The Clark Howard Podcast – Episode Summary Title: Ask An Advisor With Wes Moss
Release Date: July 29, 2025
Host: Clark Howard
Guest: Wes Moss, Fiduciary Financial Advisor, Team Clark

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Introduction

In this episode of The Clark Howard Podcast, Clark Howard is joined by his fiduciary financial advisor, Wes Moss, to delve into the topic, "Are You Richer Than You Think?" Additionally, they explore the intriguing Net Unrealized Appreciation (NUA) rule and address several listener-submitted financial queries. The discussion provides valuable insights into personal wealth perception, retirement planning, and optimizing investment strategies.

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Are You Richer Than You Think?

Timestamp: [01:04]

Clark and Wes begin by challenging listeners' perceptions of their own wealth. Wes introduces the concept of the "rich ratio," which compares monthly income to monthly needs. If your income exceeds your needs (a ratio over one), you're considered "rich" in practical terms.

Key Points:

• Rich Ratio Explained:

  • Formula: Income ÷ Needs
  • Example: If you need $5,000/month and earn $6,000/month, your rich ratio is 1.2, indicating financial comfort.

• Median Income Insights:

  • U.S. Median Household Income (2019): ~$75,000 annually.
  • California Median Income: ~$111,000 annually.
  • Georgia Median Income: ~$92,000 annually.

• Wealth and Happiness:

  • Money contributes to happiness up to a certain point, after which returns diminish.
  • Studies from UCLA and the University of Pennsylvania support this plateau effect.

• Rich Ratio in Practice:

  • Having six times your salary saved by age 50 places you ahead in the financial landscape.
  • Savings habits, investment contributions, and having a financial buffer contribute significantly to feeling "rich."

Notable Quote:

"Your rich ratio is what you have coming in every month is your income. A lot goes into that divided by what your need is." – Wes Moss [03:15]

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The NUA Rule Explained

Timestamp: [20:57]

Wes Moss introduces listeners to the Net Unrealized Appreciation (NUA) rule, a lesser-known tax strategy beneficial for those holding significant company stock within their 401(k) plans.

Key Points:

• What is NUA?

  • Stands for Net Unrealized Appreciation.
  • Applies primarily to company stock held within a 401(k).

• How It Works:

  • Traditional Rollover: Taxes are paid on the entire amount at ordinary income rates upon withdrawal.
  • NUA Strategy:
    • Pay ordinary income taxes only on the cost basis of the stock.
    • Pay long-term capital gains taxes on the appreciated value when the stock is sold.

• Tax Benefits:

  • Potentially significant tax savings by leveraging lower capital gains rates versus ordinary income rates.

• Applicability:

  • Most beneficial for individuals with large positions in company stock within their retirement accounts.
  • Not widely applicable, typically relevant in specific scenarios.

Notable Quote:

"NUA is like a financial coupon lost in the junk drawer that can save you a ton in taxes." – Wes Moss [24:46]

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Listener Questions

1. Kevin from Ohio: Brokerage Account Necessity

Timestamp: [08:36]

Question:
Kevin is approaching 50, has multiple retirement accounts including Traditional and Roth IRAs, 457B plans, and anticipates not receiving Social Security. He wonders if he and his wife need a brokerage account since they aren't planning to retire early.

Wes's Response:

• Flexibility & Optionality:

  • Having a brokerage account provides additional flexibility in managing tax brackets and withdrawal options during retirement.

• Current Position Advantage:

  • With robust retirement accounts, a brokerage account isn't strictly necessary but can be beneficial for added investment flexibility.

• Recommendation:

  • While not essential, opening a brokerage account could offer peace of mind and additional avenues for investment.

Notable Quote:

"It's not about the amounts coming in and going out. It's about that ratio." – Wes Moss [07:00]

2. Glenn from Texas: Target Date Funds vs. Diversified Portfolio

Timestamp: [12:53]

Question:
Glenn seeks advice on whether to stick with target date retirement funds or manually create a diversified portfolio, suggesting selecting a fund with a later retirement date to achieve higher equity exposure.

Wes's Response:

• "Target Date Hack":

  • Selecting a fund with a later target date can provide a more aggressive asset allocation.

• Customization:

  • Understanding the underlying asset allocation is crucial.
  • Regularly review and adjust based on personal risk tolerance and retirement goals.

• Pros & Cons:

  • Pros: Simplicity and automatic adjustment.
  • Cons: May not perfectly align with individual risk preferences.

Notable Quote:

"Glenn is the perfect Clark Howard listener because he just hacked the target date system." – Wes Moss [14:22]

3. Aaron from Ohio: Vanguard Mutual Funds in Different Brokerage Accounts

Timestamp: [15:05]

Question:
Aaron inquires about setting up recurring contributions to a brokerage account using Vanguard mutual funds and ETFs, and whether transferring these funds incurs extra fees with brokers like Schwab or Fidelity. He also asks about Vanguard's recently expired tax-avoidance patent.

Wes's Response:

• Tax-Efficient Investing:

  • Vanguard’s dual offerings of mutual funds and ETFs enhance tax efficiency.
  • The expired patent allows other mutual fund companies to adopt similar strategies.

• Brokerage Fees:

  • Transaction fees may apply when purchasing mutual funds through different brokers.
  • ETFs typically have lower or no transaction fees, making them a preferable choice for cost-conscious investors.

• Recommendation:

  • Consider utilizing ETFs to minimize fees and maintain flexibility.

Notable Quote:

"The lower friction option is usually the ETF." – Wes Moss [16:30]

4. Michael from Florida: Pension Plan vs. Self-Managed Investments

Timestamp: [26:17]

Question:
Michael's wife, a teacher in Florida, must choose between a pension plan and a self-managed investment plan. They wonder if the guaranteed pension benefits outweigh potentially higher returns from investing independently.

Wes's Response:

• Longevity Consideration:

  • Evaluate how long the spouse plans to remain in the teaching profession.
  • Longer tenure increases the value of a pension plan.

• Financial Stability:

  • Pension offers a stable, predictable income stream, which can complement other investments.

• Strategic Combination:

  • Balancing pension benefits with personal retirement savings can optimize overall retirement security.

Notable Quote:

"If you think that she's going to be a teacher for a long time at like, let's call it 25, 30 years, then you've got this cool financial situation where you have a pension." – Wes Moss [27:45]

5. Nathan from Louisiana: Railroad Pension and Retirement Timing

Timestamp: [28:59]

Question:
Nathan, a 35-year-old locomotive engineer, asks whether to treat his railroad retirement pension as a bond fund to focus his investments on growth-oriented ETFs. He also seeks advice on whether to retire at 60 or delay retirement to age 70 to maximize retirement income, akin to delaying Social Security.

Wes's Response:

• Pension as a Safe Asset:

  • Treat the railroad pension as a conservative, stable income source, similar to bonds.

• Investment Strategy:

  • With a stable pension, more aggressive investments in other accounts can be justified.

• Retirement Timing:

  • Unlike Social Security, delaying railroad pensions beyond the standard retirement age does not increase benefits.
  • Recommend retiring as soon as eligible if relying on the pension, without waiting for increased payouts.

• Insurance and Benefits:

  • With continued insurance coverage from the union until Medicare eligibility, health coverage gaps are mitigated.

Notable Quote:

"You've got a very stable, you're going to get something very much like Social Security once you retire." – Wes Moss [31:10]

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Conclusion

Clark and Wes wrap up the episode by encouraging listeners to submit their financial questions and highlighting the importance of understanding personal financial metrics like the rich ratio and leveraging rules like NUA for optimal tax efficiency. The episode underscores the significance of personalized financial planning and informed decision-making to achieve long-term financial well-being.

Final Thoughts:

"We think that our listeners are probably better off than they might think, richer than you might think." – Wes Moss [07:00]

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For more insights and personalized advice, listeners are invited to submit their questions at www.clark.com/askclark.

Transcript

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[Unknown]

Foreign.

[Clark Howard]

Welcome to Ask an Advisor. I'm Krista Dibiaz. I'm her fiduciary financial advisor, Mr. Wes Moss of Team Clark. And today, Wes, you're going to talk about are you richer than you think? I hope so.

[Wes Moss]

How rich our audience is, our rich ratio.

[Clark Howard]

Yeah. And then after that, you're going to talk about the NUA rule. I have to admit it.

[Wes Moss]

I'll let you just take that one. You can talk.

[Clark Howard]

I have no idea what that is. I've never heard of it. Again. I'm going to learn, I know I'm going to learn at least one thing on this podcast, but I bet you it'll be a lot more than one thing.

[Wes Moss]

It's pretty rare, but if you have a 401k and you work for a company that's publicly traded, it might very well apply to you.

[Clark Howard]

Okay.

[Wes Moss]

Wow.

[Clark Howard]

All right.

[Wes Moss]

We think, let's start with this, I'd say more fun topic, I guess I would title this are you richer than you think and what your rich ratio is. I think that we often in America and I'm just thinking about some of the questions we've gotten over the last half a year. People will say, well, I don't have a whole lot, but I have this. And I think, wow, that's still a lot of money. Particularly when you're looking at the Federal Reserve has a website that I guess they do it once a year, but they track and you can go back in time and look at it where we are today relatively recently of just median savings, median net worth and average and median by age category. And those numbers they take into account a lot of people don't have any savings in America and they're just living paycheck to paycheck. And they're not even thinking 401k, 403b, 457. So we also have to remember, and I think that the folks listening to this, we've never done a study on the net worth of Americans who listen to financial podcasts, but I bet it's pretty high because you're thinking about it. And if you're a younger person, if you're in your 20s listening to us today, I'd put good money on the fact that by the time you're 60, you're in a lot of money. It's really about the longevity. It's the length of this journey we're on.

[Clark Howard]

Get rich slow.

[Wes Moss]

And the folks that ask questions in their 60s and they say, oh, I've only got, you know, 2 million, 3 million, 5 million. Because they've been doing this for 20, really 30, 40 years. Meaning the sport of saving, if you will invest.

[Clark Howard]

Oh, sport, I like it.

[Wes Moss]

Maybe it's like it's a mild combat sport. It takes a lot over time and it never gets super easy. Now when you're rich, supposedly, maybe it does get a little bit easier. I saw a comedian the other day that somebody yelled from the audience, you know, how much. How much money do you. Are you. How rich are you? And he said, well, I have hundreds of money. Which is exam or was his answer. But he said, I think that it's that if I had more money, I would change my lifestyle and do something different if I'm rich. That's not the case. And I'm a big believer of this. Money does bring happiness, but only up to a point. And then we get diminishing marginal returns. And there's all sorts of studies around this. The Woodrow, I think UCLA did one of the early studies that got a lot of traction. University of Pennsylvania has done lots of studies around wealth and money and happiness, and I've done many. And to me it's abundantly clear then we don't have a lot of money heading into retirement. Our happiness levels are pretty low because we're nervous and we're scared about money and we get to a point where we have some money, I see that happiness levels are kind of in more of a neutral zone. But once we get to a million dollars and it's still a lot, I get that. I've gotten pushback on both sides. I've heard Wes back my first book, the median Happy Retiree checkpoint was getting to 500,000. People would say, that's so much. That was a little 15 years ago. That's so much I can't believe. You have to get to that point. And then people have said that's not nearly enough. So they're all personal. These numbers are personal to you and your spending. But I still see that ratio is that we want to get to at least a million in retirement assets saved. And the happiness levels rise at that point and they rise a little bit more at an even higher category, but not tremendously so. It's. I think of it as a plateau effect. We've got to get a certain amount. Then more money doesn't really add to much more happiness. The question is, when do you feel rich? Joe Rogan said he didn't feel. And this guy makes, I don't know, it's $120 million a year. His net worth is 100 plus million. I don't know what it is. Plenty of money. But he said he the first time he felt rich is when he went out to a nice dinner. And what didn't had zero guilt about what he spent on dinner. That's one way to look at it. So relative, I think of it as what I've written about over the years is your rich ratio, which is essentially your rich ratio is what you have coming in every month is your income. A lot goes into that divided by what your need is. So if your rich ratio is over one, you're rich. I mean, in most people's book, meaning that if you need five grand a month to do all the things you want to do and your investments and your Social Security, maybe a pension, or bringing in six comfortably, then you're over one and you're rich. You can do whatever you want to do. What's another $2,000 a month or 3,000? Is it going to change your life? It might not. So by any stretch, I look at it as that that's a great rich ratio. Now, if you're bringing in 20 grand a month, you're half pretty awesome. But if you need 25 to pay all your bills, then you're under 1 and you're not really that rich. You might have tons of money coming in, but you're running in a deficit. And that's an uncomfortable place to be too. So it's not about the amounts coming in and going out. It's about that ratio. And I think that to me is what makes the most sense. The other way to look at it is that. And I pulled some statistics around median income. The median income, household income in 19 is about 75,000 household income. So this is two people working now, not every family both be at work, but is two people working. That's the median income. In California, it's 111,000 per year. In Georgia, it's around 92,000. So those are just some of the median amounts in the United States. The other thing you can think of it as some benchmark it this way, if you have six times your salary saved at age 50, you're way ahead of the game in America. Meaning that if you're making $100,000 a year and you're 50 and you have six times that or 600 saved, you are way ahead of the game. So a couple other signs that you maybe you're a little richer than you might think or giving yourself credit for not living paycheck to paycheck you're able to save. We talk about, oh, you've got to put 15% in your 401k minimum, get your free match. We say that is that it's almost like a have to. But if you can do that, pretty good shape. Yes, you're in really good shape. And I think the other one is, so if you're able to invest, you're in a really good spot in America. A lot of people are not even able to do that. And then if you've got any sort of financial buffer, if you've got dry powder and you can look at your investments and say, I've got a year's worth of spending, even though we want three years, you're starting to build up a war chest of money that'll keep you relaxed and reduce the anxiety around not having enough. Still, no matter what asset category you're looking at, some people are still worried about running out. So I think that our listeners are probably better off than they might think, richer than you might think. But just ask yourself, when's a period of time where you feel like you have enough money? I like Joe Rogan's answer. When I paid for dinner and I didn't feel any guilt about how much I spent. That's pretty cool.

[Clark Howard]

That's awesome. Okay, question time. This one came in from Kevin in Ohio. Hi, Wes. I often hear about the three bucket strategy, but I'm wondering if my wife and I need to worry about having a brokerage account. I'll turn 50 in two months and my wife is 43. I have a traditional IRA and a Roth IRA. And I also have a traditional 457B and a Roth 457B. I work for a state university and will have a pension when I retire. I will not have Social Security because I've paid into a state pension my whole career and don't have enough credits. My wife has a Roth IRA and will have Social Security. I plan to retire at 65 and my wife will probably retire at 67. I understand a brokerage account is a bridge account for those wanting to retire early. So I wonder if my wife and I really need one since we're not retiring early.

[Wes Moss]

There's a lot to this. And I was like scribbling this down quickly because he said Roth. He said, said Ira, said Roth. Said 457. Said 457. Roth, Roth, 457.

[Clark Howard]

He's got a lot of accounts, a.

[Wes Moss]

Lot of different accounts. And you're young. Kevin is how old he was.

[Clark Howard]

He's turning 50. I love it. And they have their plan. They know when they're going to retire. I admire people who are like really have the forethought and planning under their belts. I don't necessarily have that.

[Wes Moss]

And his wife is 43.

[Clark Howard]

Right.

[Wes Moss]

So she's. That's a long way off from retirement. But you're completely right. Three bucket approach. For most people, it's just giving us flexibility to be able to control our tax bracket when we get to retirement. One, two, it gives us optionality of when we can pull money out. And three, even though you may have a plan to. Now, if you're a. He was a professor, he works for.

[Clark Howard]

A state university, so probably a lot.

[Wes Moss]

Of job security too. So probably if you say you're going to work till 65, sounds like you probably will. But that's still a long way off. It's 15 years and the world changes and not everything's guaranteed. And states can run into financial trouble. And universities, just like anybody or any situation, nothing is guaranteed. So I like the idea of having these different accounts to give you optionality. So it's hard to argue not to have some brokerage money. But this is what's so fascinating about Kevin, your situation is that you may have what's already better than that. Because Kevin, you've got the 457. And the 457 allows you to tap that whenever. Really. If you stopped working early, you could, could be able to get to that without a 10% penalty. Even better, you've got the 457 Roth, which is great, which is being able to tap that money without penalty. Now there is a nuance to the Roth 457. It's not that it's. I believe that the way that there's a ratio of contribution and earnings. So you may owe some taxes on that if you are under 59 and a half. But it doesn't mean you can't access it before 59 and a half. So there's two separate rules going on there. It's a little complicated.

[Clark Howard]

You usually want to wait on the Roth. Right. And do the traditional first anyway.

[Wes Moss]

Well, this is a Roth 457.

[Clark Howard]

Right.

[Wes Moss]

She's got even more flexibility, I think. So the answer here is that of all the people that I've talked to around questions like this, you may be in the category where you really don't need the brokerage because you have the 457 and the 457 roth. And I think he also said he has another Roth. So he. You've got all these Roth, Roth, Roth, Roth. And those are ultra flat flexible, particularly because of 4:57 Roth. So do you need a brokerage? Probably not. Is it a bad idea to have one? Probably not. I think it's not a bad idea. So sure, go. And it sounds like you have pretty steady income and your wife's several years. She's, she's 47 years younger and she still has a long way to go. I don't think you're going to kick yourself for having some after tax money. And if you never. If you're one of these folks that because you have all these other accounts have never done that, I don't think you'll kick yourself for having a brokerage account. So sure, I would start contributing to one as well. But you're in a very good position.

[Clark Howard]

Yeah. And his wife's planning on working 24 more years, so. Okay.

[Wes Moss]

That's a long way to plan.

[Clark Howard]

Glenn in Texas sent this one and hey Wes, I'm really enjoying your financial advice and tips on the podcast. Recently, a caller asked about target date retirement funds versus putting together a diversified portfolio yourself. I know you think of target date funds are too conservative as far as their percentage of stocks versus bonds. But I think there's an easy compromise for those of us that still want a very simple target solution. Could I just compare the asset allocations in target date funds that are five or 10 years after my actual retirement date? So I'm planning on retiring in 2030. I would instead possibly pick the 2035 or 2040 plan to get a higher percentage of stocks.

[Wes Moss]

Glenn is the perfect Clark Howard listener because he just hacked the target date system. That is such a great idea, Glenn. Is that. Yeah, look, the 2030 fund maybe is too conservative for you. Do the 2035 or the 2040. It's a target date hack. Glenn, you're right. And we've never brought that up. Now we don't want to play fast and loose with our retirement, with our retirement arsenal either. So really what that means. So I don't want it to be this square peg, round hole. I'm just, I really don't want to deal with this. I'm just going to pick a further out date. Really good idea. And you absolutely can do it. But here's what you're doing though. When you're doing that, you're looking under the hood and that's what matters, is you're opening it up and saying, wait a minute, this year gives me this allocation and that's what matters. This is great. As long as you're revisiting this every year and you say to yourself, and you have conversations maybe with financial advisor, maybe you're reading about this and you're saying, I really want to be 70% in equities and I want to have a certain amount of that in US and international and the rest in safety. If you know where you want to be, then you just open the hood of a couple different target date years and you're going to find it. And now remember, they change every year, so you've got to just stay on top of it. But for you to look at that once or twice a year just to make sure the allocation under the hood in real life is what matches it up with what you feel comfortable with, then that's the golden ticket on making these things work. But very cool idea.

[Clark Howard]

Aaron in Ohio says, hello Wes, I like being able to set up recurring contributions to my brokerage account. So I'm using index mutual funds over ETFs. I also like using Vanguard mutual funds because they're tax like ETFs. If I want to buy these Vanguard funds in a Schwab or Fidelity account where my donor advised fund will be, do I have to pay Schwaber Fidelity extra? Also, if you have time, hoping you can explain the recently expired patent that Vanguard has on their mutual funds that helps avoid taxes in a brokerage account. Will Schwab or Fidelity be able to do this with their mutual funds too? Thanks for all the great info you provide, Aaron.

[Wes Moss]

Vanguard really did have a special sauce. They had their traditional mutual funds, index mutual funds, and then they also had for the same indices they have ETFs. So they kind of have the same thing but in two slightly different vehicles and that allowed them to be even more tax efficient, let's say. But their exclusivity on that, to your point, expired a couple of years ago was 2023. So there's no reason that the other mutual fund companies don't do the same thing. Most mutual fund companies that I know of at this point, almost all the big ones that have that where all mutual fund have added ETFs. So now they have mutual funds and ETFs. So I don't know why they wouldn't be able to do it. I think that the real delineation here is regulatory. So it's a matter of when they can get approved. These are think trillion dollar asset management firms and they're going to have to get regulatory approval to be able to start doing that within their funds and etf. So I don't know why they wouldn't. I think it's just a matter of time. That's the short answer on that, Aaron. Secondly, I don't want to answer this for everyone because I don't know what different retail investors fees are depending on your asset levels, depending on who you're working with, whether it's Fidelity, Schwab or some other platform. So they're all. There's a lot of variables here, but usually on one platform a Vanguard mutual fund or a lot of different mutual funds will have a transaction fee still. So that's why the lower friction option is usually the etf. So if you want to have a place where your donor advised fund is one place and you want a certain fund family that may have a transaction fee on the mutual fund side, that's why it's usually better to be switch over to the ETF side because those are transactions. There shouldn't be any transaction fees for ETFs, even though some mutual funds still do.

[Clark Howard]

All right, we're going to take a quick break and when we get back you're going to teach us what the NUA rule is.

[Wes Moss]

NUA that's right. The rule of if you have 401k and company stock, it may apply to you.

[Clark Howard]

Okay, and we'll get to some more questions.

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[Wes Moss]

Welcome back to Ask an Advisor here on the Clark Howard Show. Wes Moss here with Chris Adibias. Okay, so this one, you would think this would apply to a lot of people, but I haven't seen it in practice that many times. Maybe like a half a dozen times in 25 some years. So NUA stands for the rule of Net Unrealized Appreciation.

[Clark Howard]

Okay.

[Wes Moss]

Net Unrealized Appreciation. So think of. Let's say you have a 401 plan and you 401 and you've got it all in company stock. And maybe this is partially wise that you have to have a lot of company stock in order for this to.

[Clark Howard]

Work, which I think you and Clark would not recommend. That you have all of your 401k money in one company stock.

[Wes Moss]

Correct. But if you're in a. Every city in America has a legacy company. Right. So what, you know, Coca Cola has been here in Atlanta.

[Clark Howard]

Yeah.

[Wes Moss]

Forever. So if you were working for Coca Cola in the 70s and 80s and 9 and. And these are companies that usually have a lot of longevity.

[Clark Howard]

My dad worked for PepsiCo forever. Yeah. So in New York. Yeah.

[Wes Moss]

To think about, we're here. Well, so we have a lot of Lockheed Martin folks here, Delta folks, but every big city. Not every big city, but most big cities have one or two or three or five publicly traded companies. Tons of people work there, and they may very well be getting stock. So it only applies to company stock if you have $500,000 in mutual funds in a 401k, this rule doesn't even come up. It only applies to your company stock. So imagine. And here's how it works. Remember, it's about net unrealized appreciation. Well, Nothing inside a 401k is realized anyway. It's all protected by. It's all in the crock pot.

[Clark Howard]

Mm.

[Wes Moss]

Or 1k is in the crock pot, Ira. It's in the crock pot stays. But imagine if your company Stock is worth 500k today, but the basis. So the. What you paid for it because it's appreciated over the years is 100. Now, this might be an opportunity for utilizing the NUA rule. So if you were to roll the 500 over when you pull money out, let's just say over time, you're at the 25% tax bracket. 500k times 25 is 125k in taxes. Okay. Mm. Now there's a big difference between your. Well can be a big difference between your income tax rate and your long term capital gains tax rate. This is that arbitrage is where this starts to come in. So what this rule allows you to do, if you've got highly appreciated stock, by the way, that doesn't work if you don't have a lot of appreciation in the stock. But if you know your basis and it's pretty low, what this allows you to do is roll the basis that 100k, roll that out. Well, roll all the stock out into a non IRA you put in a brokerage account. Wait a minute, wait a minute. But the rule of NUA is that you're paying ordinary income on the basis of the stock. So you're paying 25% on the 100K. Okay, that's 25K. Well, how do you get your money out? We still get to sell the stock, but you get to sell the stock at long term capital gain rates which are only 15%. So let's do the math on that. On 400k left, right, we've got 400k times 15 and that would be 60. Mm. So we paid $60,000 and we paid $25,000. Right. So now we're at 85k versus if we just did a regular rollover, 125k.

[Clark Howard]

Wow.

[Wes Moss]

What?

[Clark Howard]

You know, I realize just listening to you over these many months, how much just taxes are so important in your retirement planning.

[Wes Moss]

Tremendous. And as a certified financial planner, I'm not a cpa, I'm not a tax advisor, so I do say these disclaimers which are I'm not providing tax advice. Well, tax advice is when you're, it's about filing your actual taxes. There's a lot of discussion around how do you, how do you efficiently manage your overall taxes when it comes to all of your retirement accounts? And that is a giant part of the financial world. As an advisor, I would say we think of it as an investing centric and it certainly is. But particularly as you work with families who are getting older in retirement, more assets and things get more complicated. Tax discussions are a huge part of it. So NUA essentially says you got to pay ordinary income taxes on the basis. Then over time as you sell your stock and let's say you do it over the course of a couple years, you sell that other 400,000 and you still stay in the 15% long term capital gain bracket because that can go higher. But, but there's a lot of room to stay in that 15 bracket. Then you can have a Pretty nice tax arbitrage between ordinary income rates, long term capital gain rates and save yourself a ton in taxes. So it's kind of like a, this is kind of like one of these financial coupons. It's lost in the junk drawer and all of a sudden I felt wait. Anyway, that applies to me. If you have a highly appreciated stock still in the 401k, think about it.

[Clark Howard]

Okay, we'll go to questions. Michael in Florida says, my wife is a teacher in the state of Florida Retirement System and is in the investment plan which is similar to a 401k. She has the one time option of going into the pension plan. There's a buy in to the plan which wouldn't be a problem for us since we can't afford to pay the fee. What things should be considered to decide which plan would be best for us. The idea of a guaranteed check for the rest of our lives sounds good, but I feel like we may be able to invest our money cheaper than the frs. She also has the ability to purchase a lifetime annuity when she retires, which the FRS says is fee free. We both have Roth IRAs and I have a 401k from a former employer, although we have most money in my wife's investment plan. What should be considered before making this.

[Wes Moss]

Decision, Kevin and how old are they? They're pretty young, right?

[Clark Howard]

He didn't say how old they are.

[Wes Moss]

Yeah, she's probably pretty young because she's having to make the decision of whether to go into the Florida State Retirement plan, whether you go into the pension side or the do it yourself side. That's what you're contemplating here, Kevin, for your wife. It's a hard one to figure out, but here's how it could play out. And I think the biggest variable here in my mind would be how long do you think your wife is going to plan to be a teacher? Because if it's, if it's a short term thing, then the pension is not going to add up too much and if you only do it for a couple of years, it's almost maybe not worth doing that and you might as well just save money in the retirement plan side so that you can it's portable, roll it to an IRA at some point if that makes sense for you, or just keep it in, in the retirement plan. But if you think that she's going to be a teacher for a long time at like, let's call it 25, 30 years, then you've got this cool financial situation where you don't have A pension. So you're saving in your retirement accounts. You're the stock and she's the bond. Because now you can say, well we've got this nice way of looking at retirement planning. My wife's going to have a pension because I think she's going to stay there for the long haul. She's going to stay the and I don't know the exact amount of years you need to in Florida, but let's call it 25 years or so or probably 20, probably 10. But it starts to really get attractive when you hit that 30 year mark. I think I would be considering how much time I think I'm going to do this job. If it's temporary, maybe you just do the retirement plan. If it's going to be a long term commitment over time that pension could be a really nice supplement and a and I'd say much safer and secure way to be approaching retirement, particularly when you've got your savings as well. And you can combine the two together that can make for a really nice combo.

[Clark Howard]

Okay. And then an interesting one from Nathan in Louisiana. I'm 35 and a career locomotive engineer for one of the Class 1 railroads. They offer no 401k for union employees but have an ESPP that matches 1/3 up to 6% based on of base earnings, no bonuses or overtime and we sure work a lot of overtime on the railroad. I max this ESPP match and sell the shares after they've asked to transfer the funds into my Roth IRA which is almost entirely in ETFs. My wife is 34 and her Roth IRA is in a Moderate target date 2050 Fund. One does it make sense to treat my railroad retirement pension almost like a bond fund? That would give me permission to dump the more conservative or defensive holdings in our IRAs and go entirely into growth oriented ETFs. And two, in the six years I've been listening to Clark, I've heard him say to delay taking Social Security until age 70 to maximize the income and that breaks even withdrawing as soon as possible around age 82. Does it make sense to retire from the railroad as soon as possible? 60 for me as I'll have my required 30 years of service by age 57. Or should I follow the same advice here and delay retirement? Note, our latest CBAs have started to include language that has the company paying for us to continue being covered by our national union insurance for the gap years until we're Medicare eligible from 60 to 65. Right. So insurance isn't a concern for us.

[Wes Moss]

Nate can you imagine. Think about this. Imagine how hard it is working on the railroad.

[Clark Howard]

Oh, my gosh.

[Wes Moss]

It's a serious job. It's a serious job and you work a lot overtime. It sounds like you don't get paid extra for that.

[Clark Howard]

I think it's just he gets overtime, but the earnings, like the base earnings for the ESPP plan, don't include overtime over time.

[Wes Moss]

Got it in, Nate, the short answer is yes. You're. You're in a unique situation where the railroad has its own pension plan. There's a tier one and a tier two as an employee. And if you're a tier one, the way the railroad Social Security side of pension, it's not Social Security, but it mirrors that. It's very, very similar to the regular Social Security system you end up with. It's a railroad Social Security, if you will. I don't know if I'm calling that the right thing. Then if you're a tier two, you get an actual pension on top of that, like you would get a pension from a company. So now, I don't know where you lie in that work status, but the very simply, yes, I would look at that as you've got a very stable. You're going to get something very much like Social Security once you retire. So it is kind of the conservative part of the option, similar to the teacher question that we just mentioned or that we just went over. So, Nate, what I would think here, it is a conservative. It has a high level of certainty. So I'd treat it as a safe asset. That means you can invest your other money in a potentially more aggressive way. The other thought here is that the railroad Social Security version is a little different on waiting. And when you get to 60, it doesn't help you to delay to go all the way to 70 like Social Security. So they're similar, but not the same programs. So if you do put your 30 years in and you retire at 60, then you would want to take your railroad pension. You would not want to delay it at all. You don't get this bump up in higher annual payments like you would if you delayed Social Security. So I don't know why the rules are a little bit different. Probably because the railroad is a great service to the United States. It's a lifeblood of commerce that took us from the industrial revolution to the greatest economy in the world. It's the railroad. It is still the lifeblood of commerce, getting goods around the country, and it's a really hard job. So maybe that's partially why you can take this amount earlier than Social Security age 60 and I think they should be able to do that. So they are. So I appreciate your work there. You've got the safe safety net type retirement plan going, makes you able to maybe invest a little bit more aggressively and I wouldn't be waiting to take turn on the switch when you hit age 60.

[Clark Howard]

Thank you for all of your questions today. I have lots more for you Wes for upcoming shows and we always welcome your questions at clark. Com Ask.

[Wes Moss]

Send in your questions. They're awesome. Really very cool.

[Clark Howard]

And we will be back next week with a brand new episode. Have a great rest of your day.