Could You Lose Half Your Retirement Income to Taxes? - 572

Summary

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Podcast Summary: Your Money, Your Wealth – Episode 572 (March 10, 2026)

Main Theme:
This episode dives into maximizing retirement income and minimizing the role taxes play in eroding your wealth. Hosts Joe Anderson, CFP®, and Big Al Clopine, CPA, use listener questions to explore advanced investing strategies (like 130/30 long-short funds), the timing and logic of Roth conversions, Social Security claiming strategies, non-qualified deferred compensation plans, and avoiding costly tax mistakes for affluent retirees and their heirs. The tone remains light and humorous while not skimping on practical, technical advice.

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Key Segments and Insights

1. 130/30 Long-Short Fund – Is Advanced Active Management Worth It?

[03:33–11:03]

Listener Scenario

• Carl and Jane (fictional names) have $8M in assets: $2M in traditional IRA, $1M Roth, $5M brokerage.
• Their advisor suggests a "130/30" long-short investment product for (purported) tax and performance advantages.

Hosts' Explanation and Debate

• What is 130/30?

  • Big Al: “That means 130% of your portfolio is in long positions, and then 30% is in short positions and they cancel each other out…it’s kind of like active stock picking on steroids.” (05:00)
  • Joe: “Everyone listening to this show is ‘long’…when you short a stock, you’re actually taking a loan…so you can potentially profit when the price goes down.” (06:07)

• Tax Impact

  • Joe: “They’re very tax efficient though, because of the short—you’re getting losses on it.” (09:31)
  • Big Al counters: “Short-term gains are always ordinary income taxes, and higher turnover from active management can mean bigger tax bills. Might actually be best in a retirement account due to that.” (09:14)

• Complexity vs. Simplicity

  • Al: “Me personally, I wouldn’t do it, but I get why there’s an advantage. I’m fine with market returns. That’s just me.” (10:39)
  • Joe (joking): “I like it. Would you do it? As soon as you hit $8 million, then maybe.” (10:57)

Memorable moment:

“No one has a crystal ball. No one can tell what’s going on. Be careful and do your due diligence on what actually the investment is, how it works, and who’s doing it.” – Joe Anderson (07:40)

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2. Should We Bother With Roth Conversions If the Kids Will Just Inherit?

[12:41–23:38]

Listener Scenario: Tyrone & Tova

• Both work, solid six-figure incomes, large pensions totaling $225k/year.
• $2.2M in pre-tax retirement, $1.2M Roth, $800k brokerage, $85k savings, only spending $150k/yr.
• Faithful Fidelity Advisor pushes Roth conversions—but they don’t need the money for themselves. Is it worth the trouble/tax today if the goal is for the kids to inherit?

Hosts' Analysis

• Al: “You’re going to have the biggest tax problem that you’ll ever see.” (18:16)

• Joe: “This is one of the clearest cases of Roth conversions I’ve seen in a while.” (19:22)

  Why?

  • Projected RMDs in late 70s could push total income to $450k–$500k/yr, sending them into the highest brackets.
  • “Every dollar you make, 40 cents goes to the IRS.” (22:34)
  • Kids inheriting pretax accounts get squeezed by 10-year withdrawal rules at their peak earnings, too.

• Psychological Hurdle

  • “If you do a tax projection just one year at a time, you’ll never do a conversion…But if you look at projections over thirty years, you will make completely different decisions.” – Big Al (23:38)

Memorable moment:

“The $2.2 million on your statement—you don’t have $2.2 million, Tyrone. You don’t. You have one and a half, that’s it. Because 40% of it is going to Uncle Sam.” – Joe Anderson (22:27)

• Practical Advice
  • Don’t stress about selling brokerage assets to fund conversions.
  • Start slow if it’s new: “Start with a $20,000 conversion. I don’t care.” (21:55)
  • Bottom line from Joe: “Start doing conversions tomorrow.” (23:25)

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3. Balancing Roth Conversions, IRMAA, and Social Security Claiming

[27:16–36:48]

Listener Scenario: Mark in San Diego

• $4.7M net worth: $2.5M IRA, $500k Roth, $1.4M taxable, $350k cash.
• Annual spending $150k; $40k dividends from taxable.
• Wife wants early Social Security (age 66, ~$38k vs. $50k if delayed to 70); he’d like to wait.
• How to balance Roth conversion strategy with the risk of triggering IRMAA (Medicare surcharges) and Net Investment Income Tax now, vs. larger RMDs and taxes later?

Spitball Analysis

• Joe: “If I was Mark, I would do conversions and tell my wife to delay Social Security.” (33:16)
• Al: “I would let my wife take Social Security if she wants to. It just means there’s a little bit less conversion.” (36:22)

How Much to Convert?

• Both lean towards filling up the 24% bracket (~$350k taxable), not fretting over small extra taxes (IRMAA/net investment).

• “Don’t trip over dollars to pick up pennies.” (35:28)

• “Net investment income tax is 3.8% on your dividends, interest, and capital gains…That $1,500 of extra tax is 0.4% of a $350,000 conversion. Put it in perspective.” – Big Al (34:29)

• Takeaways:

  • Big RMDs coming—use these years to maximize conversions, even if IRMAA bumps up for a bit.
  • Consider rethinking “dividend-focused” taxable strategies for more tax control.

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4. Non-Qualified Deferred Compensation (NQDC) Payout Planning

[38:15–48:43]

Listener Scenario: “Boat Drinks”

• 58, high earnings (~$700k/year), $1.7M traditional 401k, $100k Roth, $450k NQDC over multiple tranches, special needs child, possible pending layoff, uncertain industry.
• Needs a payout/distribution strategy before hitting a tax wall and wants to optimize Roth conversions.

NQDC Explained & Strategy Notes

• “It’s not like a 401k where you’re limited…You can put as much as you want…The goal is so you don’t have too much income in any one year to push yourself in a higher bracket.” – Big Al (43:59)
• “These are assets of the company…If the company goes bankrupt, it goes bye bye.” – Joe Anderson (45:00)

Distribution Planning:

• Ideally, spread payout over 10–15 years for tax purposes (if company stability allows).
• “If you think the company’s not doing well, you might want a quicker payout than you thought—3 years, maybe.” (46:41)
• Coordinate NQDC withdrawals with Roth conversions and other income to control brackets, especially if using this as a “bridge” before Social Security.

Cautionary Note:

• Double-check company solvency. “It’s not guaranteed like a regular ERISA pension plan.” (47:41)

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Notable Quotes & Memorable Moments

• "Sometimes the hardest part of the plan isn’t the math. It’s the head trash that makes us feel like we always need to be doing more." – Andy (11:29)
• “If you run a cash flow or Excel spreadsheet looking at your income and then look at tax tables…if that number doesn’t bother you, then don’t do it.” – Joe (25:48)
• “Money is money. It doesn’t matter if it’s deferred, if it’s in a brokerage account or if it’s in a Roth account.” – Joe (32:44)
• “I’ve seen people have five or ten NQDC tranches…and suddenly you have five payouts in a single year, so just be aware.” – Big Al (47:12)

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Fun & Personality

• Banter about the origins of “Carl Sanberg” and “Jane Adams” shows; humor about speeding up podcasts; jokes about “beer love” vs. “boat drinks” and “anchor babies.”
• Al heading to Thailand—discussion veers into movies and James Bond’s “vertical island.”
• Joe gets philosophical on buying your “partnership” back from the IRS through Roth conversions.

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Episode Breakdown by Timestamp

• 130/30 Product, Long/Short Explained & Tax Implications: [03:33–11:03]
• Roth Conversions & Inheritance Dilemmas (“Tyrone & Tova”): [12:41–23:38]
• Mark’s Tax Problem: Social Security Timing, Roth Conversions vs. IRMAA: [27:16–36:48]
• Boat Drinks: Deferred Compensation Withdrawal Planning: [38:15–48:43]

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Takeaways for Non-Listeners

• High net worth and income often create huge future tax risks (especially from RMDs).
• Roth conversions are vital for many affluent savers, even if it means “paying tax now”—future rates, surcharges, and legacy factors can make deferral costly.
• Don’t obsess over small surcharges/IRMAA if it distracts from bigger, long-term tax savings.
• Advanced investment products (like 130/30) may provide value for some, but complexity and ordinary income taxation are risk factors—do your due diligence.
• Non-qualified deferred comp is powerful but can become a tax time bomb if not coordinated and is company-creditor exposed.
• Simplicity, forward projections, and considering your future tax trajectory are crucial.

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Transcript

[Andy]

Carl And Jane have 8 million bucks and their advisor is suggesting a 1 30, 30 long short investing strategy. Joe and Big Al spitball on whether this is a smart tax move or unnecessary complexity and whether they would do it themselves. That's today on youn Money, you Wealth podcast. 572 +. Tyrone and Tovah think they may never even need their retirement accounts. So do they really need to bother with Roth conversions if the kids are going to inherit the money anyway? Or could skipping the conversions mean losing half their retirement income to tax? Mark in San Diego is juggling Roth conversions and Social Security timing without blowing up his tax bill or the income related monthly adjustment amount for Medicare or net investment income tax. And Boat Drinks has a big non qualified deferred compensation plan. How can he structure payouts before it turns into a tax nightmare and before he potentially gets laid off? If you're watching us on YouTube right now, please do us a favor, subscribe to the channel and leave a comment below with your thoughts on today's episode. It really helps us out when you. I'm executive producer Andi Last, and here are the hosts of youf Money, you, Wealth, Joe Anderson, CFP and Big Al Clopine, cpa.

[Joe Anderson]

Let's go to. Where are we going here? I don't know where we're going.

[Big Al Clopine]

Carl Sandberg.

[Joe Anderson]

All right.

[Big Al Clopine]

Oh, yeah. You know what?

[Joe Anderson]

That's the name of my junior high school.

[Big Al Clopine]

Is that right?

[Andy]

Really? So do you know the whole backstory on who Carl Sandberg was?

[Joe Anderson]

Absolutely not. You said junior high. I went to Sandberg.

[Big Al Clopine]

That was just the name of it.

[Joe Anderson]

That was the name of my junior high.

[Andy]

Yeah, well, it was named that because he was a Pulitzer Prize winner poet and he was also the biography of Abraham Lincoln. He wrote that.

[Joe Anderson]

Oh, he did.

[Big Al Clopine]

Okay, well, there you go.

[Andy]

Like the definitive one, I guess.

[Big Al Clopine]

Now your life is complete.

[Joe Anderson]

It is.

[Big Al Clopine]

No way.

[Joe Anderson]

It is. It is.

[Andy]

And Carl Sandberg in this email, his wife's name is Jane Adams and she was even a bigger deal. She was the first female public philosopher in the US she was the first, first American woman awarded the Nobel Peace Prize. She was the founder of the social work profession in the U. S and she co founded the aclu.

[Big Al Clopine]

Wow. Wow, aren't you full of good information, Andy?

[Andy]

Just call me the librarian.

[Joe Anderson]

That is, that's quite the. The resume.

[Big Al Clopine]

Yeah, it is.

[Joe Anderson]

The vc.

[Big Al Clopine]

Okay, so.

[Andy]

So these emailers are setting you up to know who they are.

[Joe Anderson]

Very, very smart people.

[Big Al Clopine]

So we are dealing. Yeah, we're dealing with important, smart, very well accomplished

[Joe Anderson]

and then the first thing that comes out of their mouth is. Your show is my favorite podcast. How could that be?

[Andy]

And it's the only one he doesn't speed up and listen to at 1.25.

[Joe Anderson]

What is this guy? What is he drinking? All right. It's the only one I don't speed. All right. At 1.25.

[Big Al Clopine]

Remember when our buddy used to listen to books at two times?

[Joe Anderson]

Five times, Yeah. I read five books.

[Big Al Clopine]

I read five books over the weekend. I don't remember a thing I did in my sleep. Got through an encyclopedia set,

[Joe Anderson]

but cut through the whole Britannica.

[Big Al Clopine]

I'm so smart now. Except I can't remember anything.

[Joe Anderson]

Oh, that's a true story.

[Big Al Clopine]

It is a true story. I don't know if it's 10x, but it was at least 3 or 4. Someone that we know pretty well.

[Joe Anderson]

Yes. All right. You all deserve to be played at your natural cadence. Thank you. I'm trying to understand my CFP's recommendation of moving some of our money into a 13030 product. Okay, 13030 product. I like this already.

[Big Al Clopine]

Yes. This is a different question.

[Joe Anderson]

Yes. We're currently doing some direct index separate managed account, and he's offering this an even more tax favored way of investing. We have about $8 million in investable assets made up of $2 million in traditional IRAs, a million dollars in Roth IRAs, and a $5 million brokerage account. Damn good for you.

[Big Al Clopine]

Yeah, well, they're important, Dylan.

[Joe Anderson]

Killing it. Okay, so our Social Security payments and a small pension will be about $90,000 a year at age 70. Carl and Jane are both 56. And Carl has one foot, will be retired at age 60. Jane likes white wine. Carl likes bourbon. Oh, Carl.

[Big Al Clopine]

Yeah.

[Joe Anderson]

So can you help me understand the benefits or downsizing of doing a 130? 30. And if you think we'd benefit from using this product. Thanks for all the great work. Best. Carl Sandberg forgot to include our spending. Sorry. We spend about $400,000 annually in 20, $25.

[Big Al Clopine]

Okay, 400.

[Joe Anderson]

All right.

[Big Al Clopine]

All right.

[Joe Anderson]

Well, you got 8 million. Might as well spend it.

[Big Al Clopine]

Yeah, might as well, right? Well, that 130. 30 product, I had to look it up. I never heard of it. Maybe you know what it is, but I didn't. So let me explain it. That means 130% of your portfolio. Hear me out. Is in long positions, and then 30% of your portfolio is in short positions and they cancel each other out. So you get basically the same with a hundred percent portfolio. So you Got extra long. Then you have money. Right. That. Maybe that's a way to say it. And then you have short positions that go the other direction. And the idea is this, is that if. If your manager is good at picking the winners, maybe they also are good at picking the losers. And why not benefit? Because when you short a stock, you make money if it goes down. Right. If it's a long, which is what it usually is, then you make money when they go up. But you short a stock, you make money when it goes down.

[Joe Anderson]

Yeah. So maybe see it a different way. Is that. And this is where it gets a little bit complex.

[Big Al Clopine]

Yes.

[Joe Anderson]

The long. Everyone that's listening to this program is long.

[Big Al Clopine]

Yeah.

[Joe Anderson]

You invest in a mutual fund, you buy a stock, you buy an etf. Right. You're long in that position. When you short a stock, you're actually taking a loan.

[Big Al Clopine]

Right. That's a good way to say it.

[Joe Anderson]

Right. So I'm taking a loan, and I'm buying stock XYZ for $50 a share. And then that $50 a share goes to $30 a share. So I lost $20 per share on that. But I didn't own it. I didn't buy it. It was just a loan. You lent it to me. So just holding it, and then guess what? Then I'm going to buy it at 20 or $30 a share. So I made the money on that spread of what that loss is.

[Big Al Clopine]

Yeah. And the. And the person on the other end of that has to buy it.

[Joe Anderson]

Correct.

[Big Al Clopine]

At that higher price.

[Joe Anderson]

Exactly. Buy it at 50 and I get the proceeds at 30.

[Big Al Clopine]

Yeah. Great deal. If.

[Joe Anderson]

If it goes down. So that's called a short sale.

[Big Al Clopine]

Yes.

[Joe Anderson]

And so what they're doing is that they're long 130 and short 30. Because they don't own the 30 on the short.

[Big Al Clopine]

Yeah.

[Joe Anderson]

So you. It's kind of. All right, well, here you could still make money in the overall portfolio, but you get these losses.

[Big Al Clopine]

Yeah.

[Joe Anderson]

I love the strategy for part of the money I've looked. We just had a question on this, too, with the guy wants to do the long short fund. But you want to be careful and do your due diligence on what actually the investment is, how it works, and who's doing it.

[Big Al Clopine]

What's their track record?

[Joe Anderson]

Yeah. Who's managing it? What's the track record? But from a tax planning perspective. Yeah. You will probably get a little bit more losses because they are shorting stocks that they believe is gonna go down. No one has a crystal ball. No one can tell what's going on. But because you're 130 on the up, I mean, it still kind of washes some of that stuff out a little bit.

[Big Al Clopine]

Yeah. So here's what my crack research told me.

[Joe Anderson]

Okay, good.

[Big Al Clopine]

It said this is something that may be appropriate for high net worth individuals.

[Joe Anderson]

8 million.

[Big Al Clopine]

I think that, I think it qualifies. Yeah. Check someone who's comfortable with active management. So a lot of investments these days are passive, meaning they, they try to replicate S&P 500 or some, some kind of index. Active means the fund manager is buying and selling stocks that they think are going to outperform. So that's what active management is. Passive is kind of hit the industry in a big way. I'd say more investments are passive these days. But anyway, so if you, if you're comfortable with active and then you're also comfortable with. Tracking error means that you're not necessarily going to follow the market because it may be better, it may be worse. It just, it depends how that fund manager did.

[Joe Anderson]

Right. They're buying and selling stocks, they're not buying the entire market. So tracking error is that. All right. If I'm trying to track the S&P 500. So I'm mirroring that S&P 500. So I look here, the S&P 500 is up 12%, but this fund is up 4. That's tracking here because they're buying and selling stocks all over the place that might not be in the S&P 500. Yeah.

[Big Al Clopine]

Now I would say, Joe, it's probably not super tax efficient because when you have short sale losses, they're always, always ordinary. Even if they, even if you held them. Short term losses, short sale losses there are ordinary. Plus an active fund is going to have higher turnover.

[Joe Anderson]

They're very tax efficient though, because of the short. You're getting losses on it.

[Big Al Clopine]

If, if it works, if you get

[Joe Anderson]

a really positive return and there's a lot of trading, if there's short term gains.

[Big Al Clopine]

Yeah.

[Joe Anderson]

Ordinary income, short term losses, you're not paying tax on short term losses.

[Big Al Clopine]

No, but if you short it and the market and that stock goes down, that's actually a gain gain. So it's, it's ordinary is what I'm saying. And then because of that.

[Joe Anderson]

But if you short it, if it goes down, if you make money.

[Big Al Clopine]

Right. But if you, then you sell it, it's ordinary income is what I'm saying.

[Joe Anderson]

Got it?

[Big Al Clopine]

Yep. Yep. If it goes up, you lose money and it's the ordinary loss. Yeah. So because of that it may be most appropriate for retirement accounts because it's not super tax efficient. But it depends upon the manager.

[Joe Anderson]

I mean, was your crack research?

[Big Al Clopine]

That was chatgpt.

[Joe Anderson]

Okay. All right.

[Andy]

So Carl says something about it being a 13030 product. So this isn't. This is something that's already prepackaged.

[Joe Anderson]

Yes. It's a manager that's managing the separate

[Big Al Clopine]

managed account in this style.

[Andy]

Got it. Okay.

[Big Al Clopine]

Yep. Me personally, I wouldn't do it, but I get why there's an advantage. I get why some people would want to try it. I'm fine with the market returns. That's just me.

[Joe Anderson]

There you go. I don't know. I like it.

[Big Al Clopine]

You like it? Would you do it?

[Joe Anderson]

Yeah. Yeah, I would.

[Big Al Clopine]

Okay. As soon as you hit 8 million, then maybe.

[Joe Anderson]

I need. I need a long way to go to have Carl Sandberg's type money. But he's got $8 million. Can he retire?

[Big Al Clopine]

Well, if he's spending 400, he's going to retire at 60, so I didn't run the math on this. By the time he retires, I think he'll have enough to have a 4% distribution. Plus that doesn't even include his fixed income. So yeah, I think so.

[Andy]

Would you do it? Is it worth it? Are you doing enough? Sometimes the hardest part of the plan isn't the math. It's the head trash that makes us feel like we always to be doing more. Jumping on a complicated sounding strategy, Chasing hot stocks, panicking during market drops, Trying to time the market following what everyone else is doing. These are all emotional wrong turns that can get really expensive over the course of your financial life. If you have a love hate relationship with money, you need to watch this week's YMYW tv. Joe and Big Al break down all the biases that trip us up. They identify the four money personalities that secretly drive our financial decisions. And most importantly, they share the tools for keeping your emotions from costing you any more of your money. Click or tap the links in the episode description to watch YMYW TV and to download the companion emotionless investing guide. It'll show you the most common emotional investing traps that derail portfolios and the disciplined strategies that can help you stay invested and focused on long term results. It's yours free courtesy of your money, you, wealth and pure financial advisors. When you grab that guide, use the dropdown on the form to let us know that you heard about it on the podcast.

[Joe Anderson]

We so this was an email that came in. No name. No name.

[Big Al Clopine]

It's Tova it's in the body of the evening.

[Joe Anderson]

Tyrone. Tyrone and Tova. All right. I've been a fan of this show for years and I listen while I exercise. All right, Come on, get one more rep. Let's go.

[Big Al Clopine]

You can do it.

[Joe Anderson]

You got it. You got this. You're getting jacked. Who needs upbeat songs when retirement planning gets the heart racing? Thank you for your consideration to my questions. I have two spitball questions for you. My wife Tova drives a 2022 Toyota RAV4. And I, Tyrone, I drive a 2003 Toyota Highlander. Get to see Tyrone right now, just at the gym, ripping curls out. He's going to go. Maybe it's back in pies today. Dustin tries tomorrow.

[Big Al Clopine]

I got that image too. Yeah, I'm right with you.

[Joe Anderson]

All right. We hardly ever drink. Of course not, Tyrone. You're at the gym. You're at the gym. Listen to this garbage. But when we do, we enjoy liqueurs. Okay. We have two children. 2419. They're both in college. 24 year old will graduate next May. But the 19 year old, my anchor baby, still has three more years to go. What's an anchor baby?

[Big Al Clopine]

I'm guessing that means he's sort of tied to his job until the. The anchor baby gets done with college and self supporting. Okay, I think that's what it means.

[Joe Anderson]

Is that what any. Any other comments?

[Andy]

That is what it means. There is another meaning. That means that they immigrated to the United States and had a child is also a term for an anchor baby. But I don't think that's how it's met here.

[Joe Anderson]

Got it. Okay. Okay. Still three more years to go. Once the 19 year old finishes, we can finally pull up the anchor.

[Big Al Clopine]

Okay.

[Joe Anderson]

There you go. I should just continue to read. And it should be smooth sailing into retirement for Tova and me. According to our Fidelity Advisor and their tools, we will not need to use our retirement account money at all. However, I wanted to get your spitfall opinion. See, Tyrone knows where to go.

[Big Al Clopine]

Yeah.

[Joe Anderson]

Fidelity Advisor, right?

[Big Al Clopine]

Or want to double check or your

[Joe Anderson]

money or wealth Second opinion. No offense to Fidelity Advisor.

[Big Al Clopine]

I'm sure he or she's great.

[Joe Anderson]

Wonderful, wonderful human being. If we do not need this money, what are our options for the retirement accounts? Okay. Our Fidelity Advisor is pushing Roth conversions. But we have never done them. Are they really necessary? If the kids will inherit the money anyway. In addition, we would need to sell shares from our brokerage account to pay for the conversion. Which means we would also owe capital gains tax. That does not make Much sense to me. We're also aware of the widow and widower tax issue that comes with kicking the can down the road. We are somewhat prepared to deal with those consequences. Okay, number two, can we stop making monthly contributions to our 403 accounts? Instead, enjoy our money now by using it for fun things.

[Big Al Clopine]

All right.

[Joe Anderson]

I feel like we already have plenty. When I'm gone, there'll still be enough for Tova, maybe even for her to buy a new husband or a boyfriend who can cook. Wow, Tyrone.

[Andy]

So nice of him to be thinking ahead for her.

[Joe Anderson]

Look at that, honey. You get a little boy, buy yourself

[Andy]

a boyfriend or a husband who can cook. Wow.

[Joe Anderson]

Once again, thank you for your spitball answer. Here's our information. I am 64. Wife is 56. My salary is $150,000 a year. The wife's is 120. Retirement is looking at June of 2026. I knew they would have a giant pension. Pension is $154,000 a year, and hers is 71. Must be educators.

[Big Al Clopine]

Yeah, that'd be a good.

[Joe Anderson]

Administrators.

[Big Al Clopine]

$225,000 total.

[Joe Anderson]

$225,000 total.

[Big Al Clopine]

He's got a 403, so that would seem.

[Joe Anderson]

Yep. I bet he's an administrator at a school.

[Big Al Clopine]

At college, maybe.

[Joe Anderson]

Yep.

[Big Al Clopine]

Yep. All right.

[Joe Anderson]

Smart. Very smart individual there.

[Big Al Clopine]

Yep.

[Joe Anderson]

Social Security, me age. Ooh, double double dipping, too. It's probably not the school district, then maybe hospital.

[Big Al Clopine]

Oh, there you go.

[Joe Anderson]

Okay. God. His pension is the same amount of his salary.

[Big Al Clopine]

I know. It's actually higher.

[Joe Anderson]

It's 154,000 for his pension and he makes 151,000.

[Big Al Clopine]

Yeah.

[Joe Anderson]

Maybe this year he's working a little bit less than he had and that's

[Big Al Clopine]

why he's retiring this year.

[Joe Anderson]

Yes.

[Big Al Clopine]

Why not?

[Joe Anderson]

Yeah, why not? Let's get out my pension more than my salary. All right, so he's got Social Security as well. $53,000. His wife is going to be 25. So they got $2.5 million in pre tax. One million two hundred in Roth. Brokerage account is 800. Savings is 40,529. Account is $85,000. Total assets is $4,500,000. Call it. You're spending $150,000 a year. He's got a 30 year mortgage. He had 2.65, 25 years remaining. All right, so $150,000. Tyrone, you make $150,000.

[Big Al Clopine]

Yeah.

[Joe Anderson]

You're good. Way good. You're going to have the biggest tax problem that you'll ever see.

[Big Al Clopine]

So I Concur. And I think he's not too worried about that.

[Joe Anderson]

He doesn't care.

[Big Al Clopine]

Yeah, I'm spending.

[Joe Anderson]

He's worried about paying taxes out of his brokerage account.

[Big Al Clopine]

That's right.

[Joe Anderson]

Versus jumping up to the 50% tax bracket, which on his 403 account is going to happen.

[Big Al Clopine]

So let's, let's explain why. So right now there's 2.2 million in deferred. And your, your wife, Toba, is she going to work a little bit more? So that's going to grow a little bit from her contributions. But more importantly, by the time you have RMDs, this could be double. This could be 4 million or 5. Yeah. Even. Let's just say it's 4. Right. So your first year of an RMD, it's about a 4% RMD distribution. 160,000. So you're going to add $160,000 of income to the 300,000 of fixed income. So now your income is 460,000.

[Joe Anderson]

Call it four hundred and fifty to five hundred thousand dollars.

[Big Al Clopine]

So you don't think it would make sense to do some Roth conversions in lower brackets to help avoid some of the bigger brackets? This is one of the clearest cases of Roth conversions I've seen in a while.

[Joe Anderson]

Yeah. Yeah. If you don't care about taxes, then don't do it. But it sounds like he is sensitive to taxes because he's like, it doesn't make sense. I'm gonna have to pay taxes on my brokerage account. It's 800,000.

[Big Al Clopine]

I didn't want to pay taxes today.

[Joe Anderson]

Yeah. But when he gets older, he's going to be, you know, when you get older, you get a little bit more angry. He's going to be really angry.

[Big Al Clopine]

He is going to be angry.

[Joe Anderson]

He's going to write, he's going to call us back.

[Big Al Clopine]

He's going to write us again and say, you should have been stronger on that recommendation. Yeah.

[Joe Anderson]

Working out here, I'm getting jacked, but I don't want to pay taxes. And then now I find myself just losing half of all of the money that I worked so hard to save. Yeah.

[Big Al Clopine]

And furthermore, that four or five million dollars that you pass away. Right. And then that money goes to the kids and they have to withdraw it in 10 years. And they're probably going to be working and making some decent money at that time. Imagine what that does to their tax bracket. So it's not just the kids. It's you because of your RMDs. When you have this much Fixed income. And you've got a lot in a retirement account and you've got the means to pay the taxes in a brokerage account. This is a classic case of where you want to do conversions because of the brackets you're going to be in at age 75. It's pretty crystal clear to me.

[Joe Anderson]

Yep.

[Andy]

And in case it's not clear, if your kids inherit the Roth ira, they don't actually have to pay tax.

[Big Al Clopine]

Yeah.

[Andy]

Tax free forever, for life, for you and for your heirs.

[Big Al Clopine]

Good point, Andy. They still have to withdraw it in 10 years, but they don't have to

[Joe Anderson]

pay tax zero tax in the Roth ever. So the pre tax accounts, at 2.2, you know, it's going to hurt a little bit. It's going to be like a little bee sting, you know, and then it's out of sight, out of mind.

[Big Al Clopine]

Little bee sting. Maybe a couple bee stings.

[Joe Anderson]

It could be. But this is a great. I mean, he's sitting really good. And I get it. It's like, you know, does it really matter? I got great fixed income. We don't spend that much. But yeah, you're 64. Just wait till you turn 74 and then you got one year facing down that barrel. You're like, man, I probably should have done something. Take it slow. You don't have to take up. Just start slow. And you've never done it before. I get it. Start with a $20,000 conversion. I don't care.

[Big Al Clopine]

Just to get a sense of what it feels like.

[Joe Anderson]

Yeah, okay. The tax wasn't that bad. And then you go to 50, then you might go to 100, and then you do a little bit more, then you realize, wow, look at all this money in the Roth IRA. That's all mine. This $2,200,000. Here's another way to think about it. The $2,200,000 on your statement, you don't have $2.2 million, Tyrone. You don't. You have one and a half. That's it. Because half of that or 40% of it is going to go to Uncle Sam. You're going to pay 30 some odd percent to the feds. And where does he live?

[Andy]

We don't know. This one was actually sent via email, so he did not give us his location.

[Joe Anderson]

Then you got to pay state tax.

[Big Al Clopine]

Yeah, whatever that is.

[Joe Anderson]

Yeah, 45%. It's going to be a big number. Right. So you take 2.2, take 40% to the IRS on the low side, that's really what you have. And every day that this dollar continues to grow. Every dollar that you make, 40 cents goes to the IRS. Oh, now you made $2, another 40 cents, another 40. You know, another 40%. Another 40%. If you kind of it like that. How do I get my partnership back? Everything costs you a little bit. So I want to buy my partnership back from the IRS. So I'm going to buy it back at 30% versus 40 or 25% versus 40. Look at what tax bracket that you're in today. You make 150,000, your wife makes 120,000. Give the standard deduction, they're in the 22, 24.

[Big Al Clopine]

Yep, yep.

[Joe Anderson]

Right. So I would. Yeah. And if you want to stop saving, stop saving. Right. Have fun with that money. I don't care. You're totally fine from an asset and income perspective here. But I would start doing conversions tomorrow.

[Big Al Clopine]

Yeah. Another way I might say it is this. If you do a tax projection one year at a time, you'll never do a conversion because you have to pay more tax upfront. Doesn't feel right. Doesn't feel like the right approach. But if you look at tax projections over the next 30 years, you will make completely different decisions. Because when you look at your tax bracket at rmd Age at 65, on top of 75. Sorry, on top of all your other income, all your pensions and your Social Security and, oh, by the way, interest and dividends from your non qualified account, that's a big number. Your income could be close to 500,000. Right?

[Joe Anderson]

Yep.

[Big Al Clopine]

Yeah.

[Andy]

As people start to get closer to RMD age, do custodians or anybody send out anything that says, hey, by the way, there is going to be required minimum distributions on this account starting at this time. And this is how much it's going to be. Are people even aware of the fact that RMDs are a thing?

[Joe Anderson]

No, I would say most don't.

[Andy]

That's like crucial.

[Joe Anderson]

We, you know, two CPAs, CFOs of companies came in and they didn't do it. They had no idea that they had RMDs coming until like the. Oh, my God. Our CPA told us that we have to do RMDs this year. And guess what? They were like $300,000. And they were like really smart tax people. But you got the tax code, you got retirement accounts. People think it's retirement. And so, yeah, people are. They just don't know really what. But Tyrone and Tova, they got an advisor, Fidelity. Fidelity. So.

[Big Al Clopine]

And that's why he's saying, do Roth Conversions or she. Because it makes a lot of sense.

[Joe Anderson]

But I don't know what they're showing him if he's not bought in. Yeah, he knows about the widow and widower tax. But if you run a. Just a cash flow or like an Excel spreadsheet of looking at, here's your income, here's your expenses, and then run inflation on your expenses and run. I don't care, 3%, 5%, 6% on the money that's growing.

[Big Al Clopine]

Right.

[Joe Anderson]

And then you look at. All right, at age 75, here's my RMD. And use 4% of what that RMD is on top of what your other income is, is going to show you income you have. And then look at the tax tables to determine how much tax that's going to be. And if that number still doesn't bother you, then don't do it.

[Big Al Clopine]

Right.

[Joe Anderson]

You will pay a lot more in taxes. You could put another hundred, several hundred thousand dollars into either your pocket and spend more money or to the heirs or to a charity or whatever. I get it. No one likes to pay taxes, but I think if you did this correctly, you would pay a lot less taxes over your lifetime.

[Big Al Clopine]

Yeah, that's the key. Right. Over your life. Right. When. When you think of one year at a time, it's a different decision. But when you. When you look at, like if I don't know what Fidelity is doing either. But did they show you. I'm sure they showed you what your assets are going to do over the rest of your life. And it looks good, so I'm not worried. But did they show you what the taxes look like over the rest of your life? That's kind of a different chart. Right. And when you see that you may want to make slightly different decisions today to avoid some of that in the future.

[Joe Anderson]

You should go on the one. 30. 30.

[Big Al Clopine]

Yeah, right.

[Joe Anderson]

I love the 130. 30.

[Big Al Clopine]

Oh, you're gonna do it.

[Joe Anderson]

The first day I've ever heard of it. I'm all in.

[Big Al Clopine]

You're all in. Okay.

[Joe Anderson]

You can talk to my Fidelity advisor.

[Big Al Clopine]

They may not have heard about it.

[Joe Anderson]

We got Mark from our hometown here in San Diego. Hello, Andy, Joe and Al. As a longtime listener and fan, I'm excited to reach out for the very first time.

[Big Al Clopine]

All right.

[Joe Anderson]

Mark can just stop by, too. Stop by. Say hello.

[Big Al Clopine]

Right. Local.

[Joe Anderson]

We're just right down the street. I'm also a strong supporter of your company. Oh, all right. Okay. While I enjoy managing my investments personally, I've recommended several friends to your company. Oh, thank you, Mark. And they all express their satisfaction with their advisors. Your commitment to educating clients through various media alongside your financial management services truly sets you apart from many firms in the industry. Thank you for all you do. Wow. That's a very nice. Andy. You kind of set up here not to break.

[Andy]

I could have deleted it.

[Joe Anderson]

But no, we are truly. We just set ourselves apart, Al.

[Big Al Clopine]

That's very nice of him to say. Yeah, we try our best. We'll put it that way.

[Joe Anderson]

And we're real.

[Big Al Clopine]

Yeah, we are real.

[Joe Anderson]

We're very real.

[Andy]

You are not AI this is not

[Joe Anderson]

AI I was at this conference. Right? It's a financial planning conference.

[Big Al Clopine]

Yeah. The one you spoke at.

[Joe Anderson]

Yeah, I was on the. I was on a panel.

[Big Al Clopine]

Yeah.

[Joe Anderson]

Okay. Oh, boy.

[Big Al Clopine]

Wow. Did they go to your head?

[Joe Anderson]

No, not at all.

[Big Al Clopine]

Yeah.

[Joe Anderson]

There's a lot of really egos in this.

[Big Al Clopine]

In this space. There is.

[Joe Anderson]

That's the first conference I've been in. 17 years. Wow. I think that's the last one.

[Big Al Clopine]

It's not you. Not. You've never been your thing, has it?

[Joe Anderson]

No, it's just like you get. There's people that just love to go to there and they think they're, you know, the cat's meow. I think that's the first time I've ever said the cat's meow, too. I don't know where the hell that came from.

[Big Al Clopine]

Trying to think, how do I respond to that?

[Joe Anderson]

I was going to say something that probably wasn't appropriate, so I thought that was. All right. That was something that popped in the head.

[Big Al Clopine]

That's pretty. Is that something your mom said?

[Joe Anderson]

I don't know where the hell it came from. I mean, I'm embarrassed that I just said that. My wife is 65 and I'm 64. We're both retired at 59 and now spend our time traveling and enjoy life. All right, good. All right, let's see, what do we got? While my wife enjoys her wine, I prefer the occasional IPA. She drives a 2021 Mercedes GLC. And I found, and I'm fond of my 2009 Infiniti EX35. I'm writing today about the topic you frequently discuss, Roth conversions. In the timing of taking Social Security, this is a very important strategy, and I appreciate the challenge of keeping such topics engaging. So here are the moving parts or here's the money part. Total $4,700,000. $2,500,000 in an IRA, $500,000 in a Roth, 1,000,400 in a taxable, and $350,000 in cash. We have a small pension of $4,000 and our tax bill account generates about $40,000 in dividends and interest we use for our expenses. Interest and dividends are reinvested in both deferred and tax free accounts. Our annual expenses are around $150,000, including approximately $50,000 set aside for discretionary travel. Initially, we plan to take Social Security at age 70. However, my wife is concerned about the future viability of Social Security and is considering taking it this coming January, which would yield about $38,000 annually versus 50,000 at age 70. I intend to wait until my FRA or ideally age 70 to take mine. I'm exploring a Roth conversion strategy while keeping in mind both IRMAA and net Investment income tax. With RMDs 10 years away, it looks like we could convert about $80,000 annually without claiming Social Security, although obviously the conversion amount would decrease if she opts in to take Social Security. Social Security. My dilemma is how much emphasis to place on conversions. Clearly they are necessary, but I also wonder if I should engage her or if I should encourage her to delay claiming Social Security to focus on conversions. I don't want to trigger IRMAA in net Investment income tax, but I also don't want to prioritize avoiding these taxes now only to face them at age 75. Additionally, my plan is to withdraw living expenses from our taxable account, allowing our deferred accounts to continue growing. However, taking some expenses from my IRA would reduce the rmd. Even though I prefer the approach of taking money from the tax bill first, allowing both deferred and Roth to grow. I would greatly appreciate your insight spitball on how to navigate this complex situation. Thanks again for your invaluable work. All right, Mark, okay, what say you take it out of the retirement account? Money is money. It doesn't matter if it's deferred, if it's in a brokerage account or if it's in a Roth account. Right. Money is money. You're going to have an RMD issue. You need to do conversions or spend the money out of the retirement account.

[Big Al Clopine]

Sure.

[Joe Anderson]

I don't like. I think he's got a dividend paying stock strategy. I don't know if I'm a big fan of that right now because I want to control the income that hits my tax return.

[Big Al Clopine]

Yeah, because he's getting about a little over 3% dividends.

[Joe Anderson]

And what's the S&P is probably one

[Big Al Clopine]

which is a little high. I mean, it's good, but yeah it's

[Joe Anderson]

great that you're getting the income, but the income is taxed. And what is qualified and non qualified in regards to the dividends and what type of tax he's paid.

[Big Al Clopine]

Correct, correct.

[Joe Anderson]

Well, first off, congratulations, Mark. You've done a phenomenal job. I think if I was Mark. Yeah. I would do conversions and tell my wife to delay Social Security.

[Big Al Clopine]

How much would you do? Top of the 22, top of the 24. He's looking at the 12% bracket.

[Joe Anderson]

I know. Because he doesn't want to pay IRMAA or net investment income tax. I would go to the top at least in. Somewhere in the 24%.

[Big Al Clopine]

Yeah, I would too.

[Joe Anderson]

I don't know if I'd go to the top of the 24 because that's a giant bracket. That's $400,000 of taxable income.

[Big Al Clopine]

Yeah. When I kind of think about it, with this income and if she takes Social Security, they could do about $350,000 in a conversion and stay in the 24% bracket. I'm not saying you need to go that far, but here's how I want you to think about this. Net investment income tax is going to be 3.8% on your dividends, interest and capital gains. Okay. So you said you have about $40,000, so we'll just say 4%, make it real easy. Right. So that's about $1,500 of extra tax. Ouch. Right. You're never

[Joe Anderson]

going to pick up pennies.

[Big Al Clopine]

But if you converted 350,000, that $1,500 compared to the $350,000 is like a 0.4% tax rate. Now again, I'm not saying you should convert that much. I'm saying that's how you should think about these things. You got to pay some extra IRMAA for a year or two. Okay. So that's just like an extra tax. Does it still makes sense? You look at your RMD now you're in your 60s and he's got 10 years. 10 years. And so the, the money could double two, two and a half million, could be five million RMD could be 200,000 plus Social Security plus your non qualified income. Right. So think about, okay, I guess I'm going to be in what's now the 24% bracket then. So why am I tripping over these dollars or pennies to save the dollars,

[Joe Anderson]

as you like to trip and over dollars to pick up pennies.

[Big Al Clopine]

Got it. Oh, that's.

[Joe Anderson]

Yep.

[Big Al Clopine]

That makes more sense than what I said.

[Joe Anderson]

It's like Here, let me get this penny. And you're not looking at the bigger picture.

[Big Al Clopine]

Yeah, good point.

[Joe Anderson]

Yeah. Either way, you're going to be fine. But if you maximize this for your life expectancy, you definitely want to be thinking about several years and even, just even out the tax, you're going to have low tax years, right? In low irmaa, no net investment income tax. And then guess What? When the RMDs happen, your IRMAA is going to the highest for the rest of your life. You're going to have net investment income tax for the rest of your life. So it's like choose your battles here. Do you want to pay a little bit of irmaa, a little bit of net investment income tax up front to kind of get you out of those higher brackets where you're going to jack up your IRMAA anyway?

[Big Al Clopine]

Yeah. The only thing I would do differently than you is I would let my wife take Social Security if she wants to.

[Joe Anderson]

Yeah, because you know, because you know, it's her money.

[Big Al Clopine]

It's her money. Why not? Right? So it just means there's a little bit less conversion.

[Joe Anderson]

Yeah. You're like, hey, honey, come on, hold on. I know you want that, but we're going to hold on to that and I'm going to take this money and put it into this Roth and then we got to pay a bunch of tax and then.

[Big Al Clopine]

Yeah.

[Joe Anderson]

What the hell are you doing? I don't have my Social Security. And now we have this tax bill.

[Big Al Clopine]

Our expenses just doubled.

[Joe Anderson]

Mark, stop listening to those jackasses.

[Andy]

Roth conversions can be incredibly powerful for creating tax free wealth in retirement. But if you do them wrong, they can create a pretty big tax bill and possibly a relationship problem. Download our ultimate guide to Roth iras and learn how contributions and conversions really work to give you tax free gains for life. Even if you're a high earner who can't contribute directly to a Roth. You'll also learn the difference between between a traditional IRA, a Roth IRA and a Roth 401K. And the rules for taking money out of your Roth account so you don't accidentally trigger taxes or penalties, and a lot more. Now, if this is way more moving parts than you expected and you don't want to tackle it on your own, I don't blame you. Schedule a free financial assessment with Joe and Big Al's team at Pure Financial Advisors. Meet in person at one of our nationwide offices or online from anywhere. They'll review your entire financial picture and determine whether Roth conversions help or hurt your Retirement plan. If you decide to move forward with Pure on your team, they'll help you stay on track and they'll handle all those complicated moving parts for you. If you decide not to move forward, that's fine, too. There's no obligation. So why not let an experienced, credentialed set of eyes give you a second opinion on your DIY plan? Click or tap the free financial assistance assessment link in the episode description or call 888-994-6257 to get started and tell

[Joe Anderson]

a friend, boat drinks.

[Big Al Clopine]

Boat drinks.

[Andy]

Do you get that reference?

[Joe Anderson]

Boat drinks? Yeah, I drink on a boat.

[Big Al Clopine]

Well, Jimmy Buffett song, Parrot heads know all about it.

[Joe Anderson]

Yeah, boat drinks. What's a boat drink? Beer.

[Big Al Clopine]

Oh, it's like a little fruit. Fruit drink with an umbrella.

[Andy]

Got was apparently also a recurring theme in the Andy Garcia movie things to do in Denver when you're dead. Did you ever see that?

[Joe Anderson]

No, I have not.

[Andy]

I hadn't either.

[Joe Anderson]

I was gonna say that.

[Andy]

1995.

[Joe Anderson]

Unusual movie for you, Andy.

[Andy]

Yeah. No.

[Joe Anderson]

Okay. Hi, Joe, Al. Andy, you know what I'm rewatching?

[Big Al Clopine]

What?

[Joe Anderson]

Game of Thrones.

[Big Al Clopine]

Are you.

[Joe Anderson]

Yes.

[Big Al Clopine]

You know, we're going to go to Croatia, so I need to watch a few episodes just to get a sense of Dubrovnik and the scenery.

[Joe Anderson]

Yeah. Because I watched like the Seven Kingdoms. It's a new one that's out. That's like centuries before the Game of Thrones.

[Big Al Clopine]

Yeah.

[Joe Anderson]

So I was like, you know what? I'm kind of like,

[Big Al Clopine]

let's redo.

[Joe Anderson]

Yeah, we got a redo. Anyway, sorry about that. Let's get back to boat drinks. I don't know how boat drinks in Game of Thrones. I know, but that's where my brain's at today, man. Thank you for your spitballs. Never miss your great podcast. I drive a 2019 Volvo SUV. Drink of choice, Red wine, Pinot. Occasional beer love. Sam Adams. Occasional beer love. Okay. Occasional beer, Occasional beer love.

[Andy]

A Sam Adams.

[Joe Anderson]

Ah, thank you for that.

[Big Al Clopine]

Yeah, I was. I was wondering about what beer love was.

[Joe Anderson]

Beer love. I was like. I kind of like that.

[Andy]

Feeling the beer love.

[Joe Anderson]

Oh, I'm feeling the beer love right now.

[Big Al Clopine]

Yeah.

[Joe Anderson]

Okay. My question is, let's see. Non qualified deferred cop related. Nqdc. That's what I'm guessing what NQDC stands for.

[Big Al Clopine]

Yeah, you are correct.

[Joe Anderson]

Okay. Feel I haven't planned well in my next year. Election is coming up soon. Have four existing tranches of the NQDC saved, received 450 total and currently set up distribute equally over years 1, 2 and 3 After separation from my job I'm 58 with my wife. We have about $700,000 of gross income all in we live in a very high cost of living area planning as though I will lose my job in the next year or two as the industry is under pressure. Have about $1.7 million in pre tax in the 401 maybe $100,000 in the Roth. Hope to cover significant oh convert significantly to the Roth. We got a special needs child for legacy and retirement after separation the NQDC pension may impact conversions. Obviously I'm thinking of going about $250,000 next year in the NQDC. Do you think he likes typing nqdc

[Andy]

it's a lot better than non qualified deferred comp.

[Big Al Clopine]

Yeah, that's true.

[Joe Anderson]

Okay. To reduce the tax hit in 2026 and ag save in shore up period before Social Security. All right. We'll have $11,000 pension when I depart. No cola can delay which would add about $300 a month to the pension benefit each year. I delay thought about the non qualified deferred comp strategies. If so on distributions options are annual lump sum up to five years after separation or split up the tranche over two and 15 years after separation. Also can change existing distribution Must delay any of these changes distributions funds past five years from the change date. Okay. And if I'm not employed a year after the change it does not take effect. Would appreciate your spitball. Thank you. Boat drinks Andy know this from a mildly obscure but great movie.

[Andy]

See, I had no idea. I figured that was probably something you might know. And he says NPSA does not own a boat.

[Big Al Clopine]

I just know the Jimmy Buffett song. I don't both good song actually.

[Joe Anderson]

Okay. All right, so a couple things. Let's just for our wonderful listeners, let's explain what an NQDC is.

[Big Al Clopine]

Yeah. Non qualified deferred comp plan. So this is a plan that some companies offer usually to high income employees or and or executives. And it's a plan where you can defer a bunch of your salary into the plan. And it's not like a 401k where you're limited to 30,000 or whatever the number is. Right. You can put as much as you want. You could put 50% of your salary. You could put 10% of your salary and 50% of bonuses or whatever you feel like. You have to make that election usually in November of the year before and then you can go ahead and then have a bunch of your salary Deferred, and then the company holds that money. And typically these plans allow Joe, for payments to be made after you retire. And you pick when the payments start. And typically they're for five years or 10 years. I think here he's saying two to 15 years. And every plan is a little different. So it depends upon the plan. But the thing is, every year when you make the election, you have to decide what your payout period is. And if you want to change it, you can. But then you have to wait five years from that change date to get your first payment from that plan. And you can have overlapping plans. I mean, you can have six of them and two of them pay within three years after you separated or whatever. Right. So yeah.

[Joe Anderson]

So each year you're electing the year before you actually make the income.

[Big Al Clopine]

Yeah.

[Joe Anderson]

So in November. All right, I'm going to guess I'm making 700,000. Yeah, I'm only spending 100,000. I don't want to pay tax on 700. So I'm going to elected defer half my income. $350,000 goes into the deferred comp plan next year. But I have to elect when I want to get that money back at that time.

[Big Al Clopine]

Right. And it's like, how do you know?

[Joe Anderson]

Yeah, so you gotta do some planning here. And it's like, all right, when I've

[Big Al Clopine]

seen people do this successfully, Joe, they've had an Excel spreadsheet and they've got like 10 tranches and they're figuring out this one pays out this. Because the goal is so you don't have too much income in any one year to push yourself in a higher bracket.

[Andy]

Right.

[Joe Anderson]

Because you're getting the tax deduction today. It's all pre tax. It goes in the deferred comp plan, but when it comes out to you, it's all ordinary income.

[Big Al Clopine]

Right.

[Joe Anderson]

So you know, if you take the lump sum, all of that is going to come as ordinary income. So you might lose half of it just to tax. Just depending on what the tax rates are.

[Big Al Clopine]

Yeah, depending upon your bracket and the state tax and all that.

[Joe Anderson]

So if you want to push this thing out 15 years, that's probably going to be the least tax impact because you're going to get smaller payments. That's going to push it out. But here's the big caveat with deferred comp plans is that they're not ERISA based plans.

[Big Al Clopine]

Right, Good point.

[Joe Anderson]

And so he's saying, hey, this company, the industry's not doing well and I

[Big Al Clopine]

may be Laid off.

[Joe Anderson]

I might be laid off. These are assets of the company.

[Big Al Clopine]

Yes. And if the company goes bankrupt, it goes bye bye.

[Joe Anderson]

Yeah. That deferred comp that you deferred your compensation sits in this plan and is subject to creditors of the company.

[Big Al Clopine]

So that's such an important point. So if you think about it, then, So a typical 401 plan, or 403B or whatever it may be, money goes in, you contribute, the company contributes, it goes into a separate account on your behalf. If the company goes bankrupt, it doesn't impact that plan. This is different. This is a deferred comp plan. You're deciding to defer some of your compensation to a later date, which would be after retirement. And the company holds the money, not in a separate account, they just hold the money. So when you're doing these plans, when you're electing these plans, when you're thinking about payout strategies, you always want to take a look at the strength of the company and want to make sure it's going to be around, right?

[Joe Anderson]

Yeah, absolutely. Because it's on their balance sheet and that's why they have all these funky rules.

[Big Al Clopine]

Yeah.

[Joe Anderson]

I want to change this, actually. I don't want to do it over 15 years, I want to do it over five. Sure, you could do that, but you got to wait five years to get to start that tranche payment.

[Big Al Clopine]

Yeah. For the one you changed.

[Joe Anderson]

Yeah, for the one you changed.

[Big Al Clopine]

Now, based upon the fact he says the industry is not doing that well, you might want to get a quicker payout than you thought before years.

[Joe Anderson]

You want to do three years.

[Big Al Clopine]

Yeah, yeah.

[Joe Anderson]

So, yeah, Be careful with the plan. I love the strategy in regards to. All right, you can defer a lot of your income this year, but you have to map it out. You do how much is going to come out where your other income sources are. He's saying this is going to be potentially a bridge for him for Social Security.

[Big Al Clopine]

Yeah.

[Joe Anderson]

So if you don't have any other income, I like this strategy a lot. But if you have other income or if the tranche is too high. Yeah. That's where you get in trouble.

[Big Al Clopine]

Yeah. And sometimes people don't really think about it and all of a sudden they, maybe they have 10, five or 10 tranches and they elect, you know, five year payout in each one. And then in, in like any given year, you have five payouts in five different tranches. And so you have really high income. So just be aware of that. But I, I would say the most important thing is to make sure that you feel the company's strong enough that you're going to get the payments because it's not guaranteed like a regular ERISA pension plan then.

[Joe Anderson]

Yep. And it's funny because the money could be held at a custodian that you know of in that you could be picking funds that you know of. Yeah, but those assets sit on the. The company's balance sheet is the big difference there.

[Big Al Clopine]

Right. All right. Yep.

[Joe Anderson]

Okay, cool. Let's. Good question. Haven't. Yeah, that's a little nqdc.

[Big Al Clopine]

Yeah. Strategy doesn't come up a lot, but it's an important one for people that have it.

[Joe Anderson]

Yeah. What we've done in the past, if he has a lot of non quality or like just brokerage account, you would do that in QDC for a pretty large amount. You could live off of the non qualified dollars and do some conversions. So people that do have a non qualified deferred comp plan and mixing strategies together sometimes works out up quite well

[Big Al Clopine]

and sometimes there are qualified deferred comp plans, which they're less common, but it means then if you get the money, you can actually roll it into an ira.

[Joe Anderson]

All right, cool. I think we're done. Well, that's great.

[Andy]

Thank you.

[Joe Anderson]

You're off to Thailand.

[Big Al Clopine]

I am, yeah. In a couple days. All over Thailand, South Phuket, north Chiang Mai, and then we'll end up in Singapore on the way back.

[Joe Anderson]

Where was the big. Wasn't there a movie that had the hurricane or like a tidal wave I don't watch.

[Andy]

Good thing to bring up to mention just before he goes to that location. I'm sure he appreciates that.

[Joe Anderson]

Was it there a movie or something like that?

[Big Al Clopine]

Well, if there was, it probably was Phuket because that's a bunch of islands.

[Joe Anderson]

It's very beautiful there.

[Big Al Clopine]

Yeah, it's. You know the James Bond movie where it has the vertical island? Yeah, that's Phuket's down there. In fact, they call it James Bond Island.

[Joe Anderson]

Oh, really?

[Big Al Clopine]

And we're gonna go see it.

[Joe Anderson]

Okay, cool.

[Big Al Clopine]

Yeah.

[Joe Anderson]

All right, well, have fun. Be careful. Are you doing a cruise thing?

[Big Al Clopine]

No, no, this is just all land.

[Joe Anderson]

All land. Are you getting like really nice hotels? Airbnb?

[Big Al Clopine]

What's.

[Joe Anderson]

What's.

[Big Al Clopine]

Yeah, a couple. A couple really nice hotels. One in Phuket, one in Chiang Mai and one in Singapore.

[Joe Anderson]

Nice dinners probably.

[Big Al Clopine]

Oh yeah. Or maybe would be street food. I've heard that's really good.

[Joe Anderson]

Okay.

[Big Al Clopine]

All right.

[Andy]

Al's retirement lifestyle. Totally.

[Joe Anderson]

Yeah. Miguel's got. Got that big ass wallet.

[Andy]

That's right.

[Joe Anderson]

Gotta spend some of it.

[Big Al Clopine]

You gotta spend it while you got

[Joe Anderson]

it right while we continue to grind. All right, we'll see you guys soon. Thanks again for the questions and listening to your money.

[Andy]

You all next week on ymyw. How much can Ruben Sailing Shoes in Wyoming spend in retirement without running out of money? Should Leslie and and Ben in Ohio continue converting to Roth after they start taking required minimum distributions? How can Mork and Mindy in Delaware balance Roth conversions, RMDs, the widow's tax and inheritance goals? And if Juan in Brooklyn quits or gets fired or divorces Mary tomorrow, will they be fine financially? Join us, won't you? Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this podcast and does not represent that the securities or services discussed are suitable for any investor. As rules and regulations change, podcast content may become outdated. Investors are advised not to rely on any information contained in the podcast in the process of making a full and informed investment decision.