Grow Your Wealth Tax-Free & Retire Sooner: YMYW Best of 2024 - 511

Summary

Podcast Summary: Grow Your Wealth Tax-Free & Retire Sooner: YMYW Best of 2024 - Episode 511

Your Money, Your Wealth (YMYW) hosted by Joe Anderson, CFP® and Alan Clopine, CPA of Pure Financial Advisors, delivers an engaging and insightful episode revisiting the best of 2024. In Episode 511, titled "Grow Your Wealth Tax-Free & Retire Sooner: YMYW Best of 2024," Joe and Big Al tackle listener questions, share expert tax strategies, and discuss retirement planning with a touch of humor. Below is a detailed summary capturing all key points, discussions, insights, and conclusions from the episode.

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Introduction and Episode Overview

[00:00]
Andi Last, Executive Producer, kicks off the episode by welcoming listeners to the 2025 season and introducing Episode 511. She highlights the episode's focus on revisiting favorite topics from 2024, such as strategies for building tax-free retirement income, tax diversification, and early retirement planning. Andi encourages listeners to engage with previous episodes and access personalized retirement spitball analyses through the podcast's website.

Listener Question: Tom from Strawberry Plains, Tennessee

[01:10] – [14:18]
Tom shares his semi-retired status at 63, with his wife at 57, discussing their financial portfolio which includes:

• Rental Income: $1,600/month from rental properties.
• Debt-Free Assets: Own house worth $400,000 and a paid-off Nissan Pathfinder.
• Retirement Accounts: $1.3 million in IRAs (including Traditional and Roth accounts), $25,000 in a brokerage account, $80,000 in savings, and a $50,000 HSA.
• Income Strategy: Planning to move $100,000 annually from Traditional to Roth IRAs and considering retirement abroad in Asia with planned annual expenses of $120,000 adjusted for inflation.

Notable Quote:
Joe Anderson [01:59]: "We're completely debt free as in own nothing on our house valued at 400,000 in the Nissan Pathfinder's paid off."

Discussion Highlights:

• Big Al's Analysis [04:12 – 14:18]:
  • Evaluates Tom's distribution rate (~6.7%) and concludes it may work if his wife continues to work until 65, supplementing income with Social Security at 70.
  • Tax Diversification: Emphasizes the importance of balancing taxable, tax-deferred, and tax-free accounts.
  • Retiring Abroad: Suggests considering countries like Thailand for lower cost of living but advises visiting the preferred retirement destination beforehand.

Quote with Timestamp:
Big Al [06:30]: "A lot of people like Thailand, and I've heard the cost of living is a lot cheaper there."

Listener Question: Theodore from North Seattle

[07:00] – [15:21]
Theodore, aged 61, discusses his and his wife’s retirement plans:

• Professional Background: Both are elementary school teachers with substantial pension plans.
• Retirement Accounts: Combined total nearing $2 million across IRAs and Roths.
• Income Strategy: Planning to retire in the summer at 62 with a pension of $38,000. His wife will continue working until 65, earning $70,000.
• Asset Allocation: Heavy investment in stocks with plans to convert Traditional IRAs to Roth IRAs.

Notable Quote:
Theodore [07:00]: "We have emergency fund of 80,000 in savings and an HSA totaling 50 grand."

Discussion Highlights:

• Spousal Roth IRA Contributions [11:04 – 15:21]:
  • Clarifies IRS rules on Roth contributions for non-earning spouses.
  • Joe Anderson [12:06 - 14:18]: Explains the concept of Spousal Roth IRAs, allowing contributions based on the earning spouse’s income.

Quote with Timestamp:
Joe Anderson [12:16]: "If she has earned income and you're married to her, then you can put money into a Roth. It's called a spousal Roth IRA or spousal IRA contribution."

Listener Question: Ricochet J. from Colorado

[16:45] – [44:04]
Ricochet J., from Colorado, presents a complex retirement scenario involving high incomes and substantial retirement savings:

• Financial Profile:
  • Income: $315,000/year from part-time work, $250,000/year from spouse’s full-time job.
  • Retirement Assets: Over $5 million across 403B, 457 accounts, Roth IRAs, brokerage accounts, and home equity.
  • Expenses: Current expenses are $22,000/month, expected to decrease to $17,000/month post downsizing.

Notable Quote:
Ricochet J. [32:27]: "We have currently retirement savings of $285,000, $125,000 in Roth IRAs, $85,000 in a rollover IRA and $75,000 in our Roth 401."

Discussion Highlights:

• Joe and Big Al's Analysis [26:22 – 37:57]:
  • Retirement Feasibility: Assess whether Ricochet can retire based on a 3-5% withdrawal rate.
  • Tax Strategies: Debate the merits of converting brokerage funds to a Solo 401(k) versus maintaining taxable accounts.
  • Big Al [30:33 – 37:57]: Emphasizes the importance of a detailed financial plan and cautions against high distribution rates due to sequence of return risk.

Quote with Timestamp:
Big Al [37:57]: "If you use a three and a half percent distribution rate right now you need seven and a half million, you got five. So you can't really retire right now at this spending level."

Listener Question: Barney and Betty from Northwest New Jersey

[31:00] – [44:04]
Barney presents a playful and exaggerated financial profile seeking retirement advice:

• Financial Extravaganza:
  • Assets: Over $5 million across various retirement accounts, brokerages, and real estate.
  • Income: $315,000/year from part-time work, $250,000/year from spouse.
  • Expenses: $22,000/month currently, dropping to $17,000/month after downsizing and children leaving for college.

Notable Quote:
Barney [32:31]: "I don't know if you guys have gotten a break on this, but I do thanks."

Discussion Highlights:

• Spitball Analysis [35:04 – 44:04]:
  • Retirement Readiness: With $5 million and planned reductions in expenses, Barney is advised that while his distribution rate is high (5.3%), his substantial savings may support early retirement, though caution is urged regarding sequence of return risk.
  • Flexibility in Spending: Highlighting the need to adjust spending based on portfolio performance and changing life circumstances.

Quote with Timestamp:
Joe Anderson [42:30]: "5 million bucks is a lot of money, so you can definitely retire tomorrow. You just have to probably make a..."

Listener Question: Brian from Naperville, Illinois

[51:51] – [57:32]
Brian explores the concept of tax diversification, seeking guidelines on the proportion of assets to hold in taxable, tax-deferred, and tax-free accounts:

• Current Assets:
  • Accounts: $300,000 across rollover IRAs, brokerage accounts, and Roth accounts.
• Question: Seeks general guidelines or formulas to determine target percentages for each account type.

Notable Quote:
Brian [51:51]: "I have seen a description about the proper proportion to be held in these accounts. I understand that this is a complex idea and it will be somewhat different for each individual circumstance."

Discussion Highlights:

• Joe and Big Al's Response [52:41 – 58:01]:
  • Customized Approach: Emphasize that asset allocation depends on individual factors like tax brackets, spending needs, and legacy goals.
  • Practical Steps: Recommend mapping out current assets, forecasting growth, and aligning with retirement income needs.
  • Balanced Strategy: While no one-size-fits-all answer exists, a diversified approach across account types is advocated to manage future tax liabilities effectively.

Quote with Timestamp:
Big Al [53:03]: "No, it's really what's best for you because people are living into their 90s."

Expert Interview: Ed Slott, CPA

[45:37] – [51:11]
The episode features a clip from a conversation with Ed Slott, CPA, a renowned IRA expert:

• Tax Savings with Roth Strategies:
  • Potential Savings: Discusses how strategic Roth conversions can save listeners hundreds of thousands to millions in taxes over their lifetimes.
  • Future Tax Rate Predictions: Argues that future tax rates are likely to increase, making Roth conversions a strategic move.
  • Historical Context: Ed highlights historical Federal tax rates, emphasizing that current rates are lower than in the past, presenting a prime opportunity for tax planning.

Notable Quote:
Ed Slott [47:25]: "It's the whole bet. If you think future taxes are going to go up, the Roth bet, or getting the money out of the IRA and putting it into other tax free vehicles, or even doing charitable planning that will pay off big time for you and your beneficiaries."

Discussion Highlights:

• When to Convert [50:34 – 51:11]:
  • Eligibility and Tax Considerations: Advises that Roth conversions are most beneficial for those with substantial IRA balances and the financial capacity to pay taxes from non-IRA sources.
  • Target Audience: Emphasizes that high savers are at greater risk under current tax laws, making Roth strategies essential for preserving wealth.

Quote with Timestamp:
Ed Slott [50:45]: "Generally not. And remember, a lot of things I'm saying are for people with larger balances."

Promotion of Resources: 2024 Key Financial Data Guide

[15:21] – [16:45]
Andi Last promotes the 2024 Key Financial Data Guide, a comprehensive resource including:

• Tax Brackets and Rates: Current 2024 tax brackets, capital gains rates, and Social Security taxes.
• Retirement Contribution Limits: Updated limits for various retirement accounts.
• Planning Tools: Access to financial calculators and actionable financial planning steps.

Notable Quote:
Andi Last [15:21]: "You have to do a little bit of work. There's no general guideline. There's no rule of thumb."

Call to Action:
Listeners are encouraged to download the guide and engage with Pure Financial Advisors for personalized financial assessments to enhance their retirement planning strategies.

Closing Remarks and Show Statistics

[61:03] – [61:06]
Andi Last concludes the episode by sharing impressive statistics:

• Engagement: Over 38,000 hours watched on YouTube in the past year.
• Popularity: Ranked in the top 10% of video podcasts on Spotify with over a million downloads.
• Global Reach: Positioned in the top 5% of most popular shows out of 3.4 million globally.

Final Notes:
Andi emphasizes the show's commitment to providing valuable, engaging financial advice while adhering to Pure Financial Advisors' fiduciary standards. She reminds listeners that the podcast is for informational purposes and advises seeking personalized advice for investment decisions.

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Conclusion

Episode 511 of Your Money, Your Wealth effectively blends financial expertise with relatable discussions, addressing real-life retirement planning challenges. Joe Anderson and Big Al Clopine provide actionable insights, making complex financial strategies accessible and entertaining. Whether you're planning to retire early, optimize your tax strategies, or diversify your retirement accounts, this episode offers valuable guidance to help you achieve a secure and enjoyable retirement.

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Access More Resources:

• Retirement Spitball Analysis: YourMoneyYourWealth.com
• 2024 Key Financial Data Guide: Download through the episode description.
• Financial Blueprint Tool: Calculate your retirement success probability.
• Subscribe and Follow: Stay updated via YouTube, podcast apps, and the YMYW newsletter.

Transcript

[Andi Last]

YMYW friends, welcome to 2025. Today on youn Money, you, Wealth podcast number 511, we're revisiting your favorite topics of 2024 as join big Al Spitball on strategies for building up tax free retirement income in Roth accounts, determining your appropriate mix of taxable tax deferred and tax free savings, also known as tax diversification, and whether YMYW viewers and listeners can retire as soon as possible. Check the timestamps in the episode description to jump directly to watch or list question. See which episode it originally came from and where and how you loved it the most in 2024. Click or tap the Ask Joe and Big Al link in the episode description to get a retirement spitball analysis of your own. We'll kick things off with spitballs from two of our most popular episodes on Apple Podcasts, YouTube and Spotify. I'm Executive Producer Andi Last, and here are the hosts of youf Money, you, Wealth, Joe Anderson, CFP and Big Al.

[Joe Anderson]

Clopine, CPA Joe and Angelina Jolie. Interesting.

[Andi Last]

Yeah, I don't know if that's supposed to be a reference to you and Angelina Jolie.

[Joe Anderson]

Oh, might as well. Strawberry Plains, Tennessee hello Joe, Big Al and Andy. I've watched YMYW for the last five years and watched all episodes from the beginning. What is wrong with you? How many episodes have you seen? Big Al?

[Big Al]

Let's see. I did. I told you about three weeks ago. I watched one. I think that's it.

[Joe Anderson]

Okay, I'm 63 and my wife is 57. Drink of choice is a good Hefelweizen beer and the wife prefers a Moscato. Another Moscato. What the hell is Moscato?

[Andi Last]

I believe it's a sweet wine.

[Joe Anderson]

It's a wine.

[Andi Last]

Sweet wine.

[Big Al]

Sweet wine. That sounds right.

[Joe Anderson]

Moscato when the mood hits. I'm semi retired now with passive income from rental properties of 100 or 1600 dollars a month. The little lady is still working full time and covers the insurance and a few bills we have. We are completely debt free as in own nothing on our house valued at 400,000 in the Nissan Pathfinder's paid off. I have $1.3 million in IRAs, 1 million in Traditional, 300 in Roth and each year I'm moving $100,000 from the Traditional to the Roth. We have a brokerage account, 25 grand along with passive income mentioned earlier. We have emergency fund of 80,000 in savings and an HSA totaling 50 grand. The wifey makes 70. Where's this guy from he's like, here's that little lady, Strawberry Plains, Tennessee. She likes a little Moscow when she's in the mood. Come here, little lady.

[Big Al]

Is that. Is that what you call your little lady? You can't get away with that in California.

[Joe Anderson]

No.

[Big Al]

Did the little lady. The wife. Yeah. Have you ever seen wifey?

[Joe Anderson]

Even slapped me.

[Big Al]

Yeah, me, too.

[Joe Anderson]

The wifey makes $70,000 from work and has IRAs, or 50,000, and a traditional 30,000 in a Roth, along with several CDs totaling $40,000. I plan to collect Social Security at age 70, if all goes well, which will be $4,300 a month, and we can retire early at 65, which would be $1,400 a month due to early, but possibly collects spousal benefit, if higher. We would like to retire abroad, maybe Asia, to stretch out our retirement dollar a little bit further and enjoy some sightseeing. That said, we're Planning on using $120,000 per year, adjusted for inflation. With the income as it is now, are we doing? Fine. But what would you do? And what does Big Al think? Are we on track? Thanks. Tomb Raiders. Tomb Raiders. Okay.

[Andi Last]

Angelina Jolie. Was the. Was there a male in that movie named Joe? I don't even know. I mean, the whole thing was about Angelina Jolie.

[Joe Anderson]

There's a couple of different Tomb Raider movies.

[Big Al]

Seen them both, have you? Oh, yeah. I only remember her, to be honest.

[Joe Anderson]

I figured. No, they're all right. Those were ages ago, too.

[Big Al]

It's a long time ago. Yeah.

[Joe Anderson]

So, Al, what do you say?

[Big Al]

Well, so they've got about a million and a half Joe. And expenses are $120,000. He's got about $20,000 of rental income, so they're short about $100,000. But wifey is working. If wifey wasn't working, it doesn't look very good. They'd have about a 6.7% distribution rate. But with the wife working and getting to the point where, you know, she would. She would trade work for Social Security. Yeah. Then at retiring at age 65, then I think it probably. It probably does work. Right. That's a number of years off, but I think. I think they'd be okay as long as she continues to work. But she's going to have to. But that's what he's implying. He's saying that she can retire early at 65. So I guess he's thinking that would be early for her while he is semi retired. So, yeah, I think it may work, Joe.

[Joe Anderson]

Well, she's 57. She's going to work until 65.

[Big Al]

That's what he's implying, it seems. He goes, I plan to collect Social Security.

[Joe Anderson]

He's going to be seventy.

[Big Al]

Yeah, yeah. Plan to collect Social Security at seventy, if all goes well, which will be four thousand three hundred a month, and she can retire early at 65. So I think that's what he's thinking.

[Joe Anderson]

Seventy is the retirement date for him. 65 for her. Yeah.

[Big Al]

He's.

[Joe Anderson]

Going to have the twenty thousand. So that's fifty. Seventy thousand with inflation with her. Yeah, ninety thousand. They're spending one hundred and twenty, adjusted for inflation. Yeah. I think they're.

[Big Al]

They're sipping.

[Joe Anderson]

I would wonder where the two meters are going to go.

[Big Al]

Good question. A lot of people like Thailand, and I've heard the cost of living is a lot cheaper there.

[Joe Anderson]

So maybe, I would imagine, like, Japan would be pretty expensive.

[Big Al]

I think that'd be. Maybe even more expensive. Would be more expensive than Tennessee, I would think.

[Joe Anderson]

Right? It would be more expensive than almost Southern California.

[Big Al]

Yeah, Right. Certainly.

[Andi Last]

I hope they visited the place that they're planning on retiring before they actually, like, set down routes there.

[Joe Anderson]

Yeah, I'm going. I think I have a trip to Korea next year.

[Theodore]

Wow.

[Big Al]

You have a trip? Really?

[Joe Anderson]

I don't know how I'm going to make it. I don't know if they're going to make it.

[Big Al]

Not only do you have a trip, you have a trip across the ocean to Asia. Korea. That's amazing.

[Andi Last]

In episode 500, we just revisited the fact that Joe's been to, like, three countries in his entire life. This is. You're stretching your wings.

[Big Al]

Wait a minute. Are you starting your Go go years now?

[Joe Anderson]

No. Yeah. The countries usually you could drive to. When I lived in Minnesota, I could drive to Canada.

[Big Al]

Right.

[Joe Anderson]

San Diego, I could walk.

[Big Al]

You could walk. Well, you have to take. Yeah. You have to drive down to the border and walk across. Yeah, yeah.

[Joe Anderson]

My wife is. What is she, a quarter Korean? So I guess we're gonna pack up the family and.

[Big Al]

Got it. Well, you should go to Thailand. You should go to Thailand, too.

[Joe Anderson]

No, I think this would be the last family trip of.

[Big Al]

Is that right? Okay.

[Joe Anderson]

I don't know. I like to stay in my bubble.

[Big Al]

I know you do.

[Joe Anderson]

Yeah. Stay tuned. Let's see if we actually plan this trip. So, yeah, this is Theodore. I'm 61. And Louise, my wife. She's age 60. We're living in North Seattle. Louis Louise likes red wine from one of the many wine club memberships that we have. I drink a cold Pilsner red wine occasionally. Fairmont Lush. What's a Fremont? Fremont Lush.

[Big Al]

Fremont.

[Andi Last]

That is an ipa.

[Big Al]

Oh, it wouldn't work for you. There you go. Okay.

[Joe Anderson]

Got no pets. We raised two young men who are financially independent. Yippee.

[Big Al]

That was very good.

[Joe Anderson]

Yeah.

[Theodore]

Killed it.

[Joe Anderson]

My wife and I are both elementary school teachers. I plan on retiring after 33 years this coming summer at the age of 62. My pension will be around $38,000 a year with a COLA of 3% annually. My wife will continue working until she's 65 and have a pension of about $40,000. She will pay my medical until I'm 66. She's on a different state plan than me and will be teaching 12 years, so is unable to collect her pension until 65. We will both collect Social Security. At 67. My Social Security will be $38,000 and Louise will be $34,000. I have a 403B state teacher account of $930,000, additional 403 of $250,000 and $70,000 in Roths. Luis has a 260,403 and a $70,000 in Roth. Together, we have a brokerage account of $210,000 and $60,000 in our savings account. Louise will continue to add $2,000 a month to her 403 and contribute $8,000 yearly to the Roth until retirement. Our annual income is $260,000. However, we put into our various accounts about $5,500 per month of that income. We would like to spend $160,000 annually after taxes when we are both retired. During the four years until Louise retires, her salary will be $142,000 and I will have my pension of 38, adding up to $180,000 gross income for those years. We'll be taking little from any investments or our retirement accounts during that time. Here's our questions. Is the plan feasible? Sure. Sounds like it.

[Big Al]

I think so, too.

[Joe Anderson]

You got, let's see, $2 million liquid, roughly. And then the bridge. When he retires, she's going to continue to work. So he's got his pension of 40 grand, and she's got her income.

[Big Al]

Yeah. So when she retires, then she's got her pension, he's got his pension. The $2 million is going to be worth more because she's adding money to it. Right. And then that's even without Social Security. So, yeah, I think this looks pretty good.

[Joe Anderson]

Yep. As I understand it, I can contribute to my Roth IRA until Louise Retires since she is contributing to a Roth. Is that true? Well, kind of. There's a spousal contribution. So this is a really good question.

[Big Al]

It is a good question.

[Joe Anderson]

Is that. So Theodore is retiring. So he doesn't have earned income. So there's certain qualifications that you have to have to put into retirement accounts. And earned income is one of them. But he's retired. He's collecting a pension. But the pension is an earned income. It's not classified even though he earned it. From an IRS perspective, it's not called earned income.

[Big Al]

Yeah. The reason is because he didn't currently pay Social Security taxes on it.

[Joe Anderson]

So he's like, well, if my wife puts into a Roth, can I put into a Roth? Well, the qualification has nothing to do with her putting money into a Roth ira. The qualification is she has earned income. If you're married to her.

[Big Al]

Correct.

[Joe Anderson]

If she has earned income and you're married to her, then you can put money into a Roth. It's called a spousal Roth IRA or spousal IRA contribution.

[Big Al]

Right.

[Joe Anderson]

So good to go?

[Big Al]

Yep.

[Joe Anderson]

My employer in the last year is giving a Roth option. Can I have two Roth accounts? What is the max for both? Okay, well, now you're confusing two different things. You got a 403, that's a Roth. You can absolutely fully fund that. And then you can fully fund a Roth ira.

[Big Al]

Yeah, two different things.

[Joe Anderson]

Two totally different things. You got the 403B or a 401 for those of you that have a 401 plan. Or 457. Let's say he has a 457 with a Roth option, which I believe he does, he could go 100% Roth and all of the plans.

[Big Al]

Yep.

[Joe Anderson]

So the limit on 403B's 30,000. 3,500.

[Big Al]

500. Yeah.

[Joe Anderson]

And then 8,000 for the Roth.

[Big Al]

Correct.

[Joe Anderson]

So, yeah, you could fully fund that and then you could do a conversion. Here's number four. Here's the Roth conversion show with Big Al.

[Big Al]

No, I think it's the JoJo show.

[Joe Anderson]

I think we are very underfunded in Roths. Would it be wise to start doing conversions? If so, how do we choose the amount each year that the account. How do we choose the amount each year and what account do we use to pay the taxes? Thank you for any non advice you can give. Thanks, Theodore. This is not advice at all. Use your taxable account. Use your brokerage account to pay the tax. Should it make sense to do conversions, your fixed income is going to be roughly $150,000 per year. You're not going to touch the $2 million that you currently have now for. Maybe for a while. For a while.

[Big Al]

Maybe for a long time.

[Joe Anderson]

Yeah. The amount that you pull out is probably not a lot. So does it make sense to do conversions? I would say yeah, you would probably want to map it out a little bit. But off the back of the envelope here, I would say yeah, I think so too.

[Big Al]

And I would probably, given your situation.

[Joe Anderson]

So he retires at the end of.

[Big Al]

This year, in the summer this year. So should he do a conversion this year? Depends upon his income and whether he got extra vacation pay and whether it makes sense. But the thing is, probably stay in the 2022 percent bracket.

[Joe Anderson]

Yeah, stay in the 22. In the top of the 22 taxable income is.

[Big Al]

Yeah, that's. Let me see here, that's a couple hundred thousand dollars.

[Joe Anderson]

So taxable income. So it's not your gross income. Adjusted gross. You have to look at your tax return and kind of forecast this out. So look at your taxable income, stay in that 22% tax bracket. And that's where I would kind of start. And if I were to pay the tax, I would pay it from my cash or taxable.

[Big Al]

Yeah, I would too. And to say that another way, 200,000 is the top of the bracket. Standard deduction is about $30,000. So total income about 230,000 ish is what you could do. So it'd be your income, your wife's income plus Roth conversion, no more than 230.

[Andi Last]

Okay. Did you see that document that Big Al was referencing when he was talking about tax rates? That is the 2024 key financial data Guide. And along with their email list and their HP12C financial calculators, that single two sided sheet is a must have for Joe and Big Al to be able to spitball for you. Download a free copy for yourself in the link in the episode description. It'll show you at a glance the 2024 tax brackets and capital gains tax rates, retirement plan contribution limits, tax on Social Security, Medicare premiums and all the current credits, deductions, exemptions, distributions and and exclusions, all the numbers that you'll need to do your 2024 taxes and all the numbers that affect your financial strategies as you plan for retirement. One listener said that basically this guide alone is worth the price of admission to ymyw. So it's priceless. Just click or tap the links in the episode description to download the Key Financial Data Guide to ask Joe and Big Al for your retirement spitball analysis. And to access plenty of other free financial resources, make sure you're following us on YouTube and in your favorite podcast app. And subscribe to the YMYW podcast newsletter so you can get your hands on the 2025 key financial data guide as soon as it's available. Up next, YMYW listeners want to punch the clock at work for the last time asap. Whether or not they can was a big topic of discussion in 2024.

[Joe Anderson]

Hi, Joe, Al, Andy Ricochet. Ricochet J. Yeah, Ricochet J. I was gonna totally butcher that, but I took a guess that it was Ricochet.

[Andi Last]

Well done.

[Big Al]

Good for you.

[Joe Anderson]

Yeah, he's here from Ricochet J from Colorado. Now this is surely what my golf nickname would be if I played more. Ah, okay. A little Ricochet. He probably little blade it right in the trees. Thank you for taking my question. I started listening to the show about a year ago and I first I wasn't sure about it. Well, just one of you. I know where he's going.

[Big Al]

I wonder which one I know.

[Joe Anderson]

See, just like I'm a fine wine, it just takes time and you fall in love. But you've grown on me and I enjoy listen each week during my commute now not really in the car. So I'll tell you, the last exciting place we traveled was to Monaco in the Canary Islands or Morocco, whatever. Yes, you say Morocco, I go to Monaco.

[Big Al]

It turns out they're different places.

[Joe Anderson]

It's so beautiful at both.

[Big Al]

It's a little better in Monaco in my opinion.

[Joe Anderson]

But look at snooty over here. Okay. The coast of Morocco is amazing and it's worth the road trip. Drink of choice for me is a Paloma or a glass of chardonnay. Husband doesn't drink, but he does love those athletic NA beers.

[Big Al]

Non alcoholic.

[Joe Anderson]

Yeah, I've never had one of those.

[Big Al]

Yeah, I have. They're pretty good.

[Joe Anderson]

Are they? Yeah, I think I'd rather drink water. Na beer, but maybe.

[Big Al]

Well, I'll give you. I'll give you 10 more years when you don't need quite as much alcohol, but you still want to have fun.

[Joe Anderson]

Have a little taste.

[Big Al]

Yeah. A little taste. Yep.

[Joe Anderson]

Okay. All right. I am looking for a spitball. In our situation, I'm wondering how best to direct an expected increase in income in the future retirement funds. Okay. I work for a municipality and my husband is self employed. My question is whether we are better off directing surplus funds to a brokerage or setting up a solo 401k for him. Here's our info. We have a combined gross income of $200,000 and next year I expect to have a pay increase to about $15,000. I'm 45, my husband's. We also have a 10 year old son. We have currently retirement savings of $285,000, $125,000 in Roth IRAs, $85,000 in a rollover IRA and $75,000 in our Roth 401. Through our current employer, I've been maxing out the Roth IRAs, including catch up for me and my husband, the Roth 401 each year and plan to keep doing so. I'll be eligible for a pension and since I'm already close to 10 years in, I think I'm in it to win it. And we'll try to stay in the system. My hope is to reach a point where I'll receive around $50,000 a year from the pension. I'll have to stay at least another 10 years to wait to draw upon it until my early 60s. We have a brokerage account that I just set up this year and we have about $10,000 in it. We currently add $500 a month to this. Our primary home is worth $800,000 and we owe $330,000 on it at a 3.25% interest rate. We also have a rental home in Denver also worth around $800,000. With no mortgage left, we currently nets up $30,000 a year in rent after expenses. 30 grand on 800. That's really good.

[Big Al]

It is.

[Joe Anderson]

All right. Our son has about $55,000 in his 529 plan. Our account and our account and the grandparents, we keep. We'll keep putting funds into this and I'm a little more worried about a retirement right now, so I'm not going crazy with that in just adding $300 a month. Wow. Ricochet J. This is a novel.

[Big Al]

It keeps going.

[Joe Anderson]

Yeah. Spend about $8,000 a month, depending on where it's hockey season for our son, AKA the longest and most expensive sport a kid can play. Never played hockey, but my best friend did in high school. I expect we'd spend the same or a little bit more in retirement since we'd love to travel. All right. We'd like to retire as soon as humanly possible, but I know in reality that it won't likely be until our early 60s. If we could work some spitball magic to see if late 50s were in for us and early 60s for my husband, that would be great. Since my husband is 6 years older in could tap into his Roth 401 sooner than I can access my funds. Would it make sense for us to start one of those for him or should we start putting more funds into a brokerage account? It seems to me the solo Roth would be a better option given that there isn't any tax on the flip side, like a brokerage. And we use either to bridge the gap until I could use or turn on the pension. I don't pay into Social Security currently. So my projected payout is low. 12, $12,000 at 67 or $15,000 at 70. Is that $15,000 or $1,500? It's $1,500, $1,500 a month, $1,200 a month and $1500?

[Big Al]

I think so, yeah.

[Joe Anderson]

My husband's is 1250 at 62,000, 1900 dollars at $67,000, $24,050 at $70,000. We have a loose plan that as we near retirement time, we'd move back into our rental to get two years of primary residence back before selling the lot. We'd love to move around, maybe France or move abroad. Maybe France and live in a country with a national health care. But we'll see what the state of the world is in 10 to 15 years. I'd like to see what the state of the world is when I get done reading this question.

[Big Al]

It's still going.

[Joe Anderson]

I'm sweating. This is hard work here. Can you spitball how we're doing and how I should be directing our new funds? Is our dream of living in the land of baguettes?

[Andi Last]

Baguettes.

[Joe Anderson]

Baguettes. Baguettes. In vino. On track.

[Big Al]

Bread and wine translated.

[Joe Anderson]

Okay, thank you, bro. I'm also curious if you approve of my asset allocation strategy. I'm going heavy on stocks since I have a pension coming. I have my husband's Roth IRA 7030. The brokerage is all in stock market. We're just trying to sort out how to best fund the gap until we can start reaching our Social Security and our pension. Hoping that between you, some of the combined house sale funds in the brokerage of our Ross. Okay, blah, blah, blah. Thanks so much for your insights. Keep up the great work. All right, so she's got some extra cash, right? She wants to put it in some. A brokerage account or Roth 401K.

[Big Al]

Yeah. All right, so that one's easy.

[Joe Anderson]

So total assets, she's got $300,000.

[Big Al]

Yep.

[Joe Anderson]

85 in a rollover IRA, $10,000 in a brokerage, $200,000 in a Roth.

[Big Al]

Yep.

[Joe Anderson]

Okay.

[Big Al]

Rental income, $30,000, $50,000 a year in pension later. So let me recap a couple of things here, Jeff. All right, so first of all, question whether we're better off directing surplus funds to brokerage or setting up a solo 401k for him. I would do the solo 401 every day of the week, particularly since when the funds might be needed. According to your explanation or question, he'll be in his 60s and it'll be fully available for withdrawal. Right. So, yes, do the Solo 401. It's going to be tax free, so that's an easy one in terms of whether you're going to be. Okay, first of all, thanks so much for your question, but this really is a better question for a financial planner to run an analysis instead of us trying to figure out all these numbers in our head. But nevertheless, I did do a spitball for you. So I'm going to say this. You got 300,000. Now you're adding about 38,000 per year based upon two Roth IRAs and maxing out a 401. I'm going to say 12 years from now, I just made that up. 57, husband 63, 6% interest. You end up with about 1.2 million. Okay, so right now you want to spend about 96,000 a year, 3% inflation, 12 years from now, that's about 137,000. Okay. There's a pension of 50,000 a year, although you won't get it until I think you said 60, but I'm going to put that in anyway. And rental real estate, 30,000. So that's about $80,000 off the $137,000. So in other words, you need $57,000 from your portfolio. Then you take $57,000 shortfall, divide that into what you have at that point, at a 6% return, $1,200,000, you get 4.8%, which is a little bit higher than we'd like to see. However, if your husband takes Social Security at 62, which we're not necessarily recommending, but if he did, then that distribution rate would go down to 3.5%. And you're kind of right on the cusp. But I'm going to say maybe it may work out for you, but this is something that.

[Joe Anderson]

Hold on. Let's see. There's an easier way to do this. Don't start peddling financial planning services over there.

[Big Al]

Well, yeah, but I mean, it's hard to spitball this when there's so many variables, I don't care.

[Joe Anderson]

It's almost impossible.

[Big Al]

I don't care if she uses a program herself.

[Joe Anderson]

Here's $96,000 is what she wants to spend. And she's 45 years old, right?

[Andi Last]

She is 45, husband is 51.

[Joe Anderson]

All right, so she wants to retire in the late 50s.

[Big Al]

Yeah.

[Joe Anderson]

Okay, so 45, 55. I'm going to get her retired at 60.

[Big Al]

Okay, you're going 15 years.

[Joe Anderson]

I'm going to go present value, and then you got 15. And then let's say inflation is at 3.5 or. And then so that's $160,000 living expenses 15 years from now. I'm just taking that 96,000 and pushing it out.

[Big Al]

Now I got $140,000 for 12 years, but.

[Joe Anderson]

Okay, in the ballpark, but. So at 60 she's going to have $50,000 pension. I don't know if there's a cola on that pension or not, but.

[Big Al]

Don't know.

[Joe Anderson]

She's pretty excited about the pension. So am I. I would be too. 50,000 plus another 30,000 of, of rents. I don't know if there's going to be an increase in rents.

[Big Al]

That's right.

[Joe Anderson]

So $80,000. Call it. So she needs another $80,000, not including Social Security. She says she's going to have a pretty small Social Security and then you got to bridge the gap with the husband. So if you need 80, what was her husband's Social Security?

[Big Al]

Well, it's 62. It's 1,200 then 19, 67, 2,400 at 70.

[Joe Anderson]

All right, I'm gonna say she needs like what you said, $50,000 is what the shortfall was.

[Big Al]

Yeah, that's, that's what I, that's what I calculated.

[Joe Anderson]

I would say she needs to target like if, if you could get to one and a half million dollars over the next 15 years, I think you're, it's sitting in a really good spot.

[Big Al]

Yeah.

[Joe Anderson]

Right. So it's just kind of focusing on a goal, what the number is. I think once people can get a number in their head, then they're much more apt to, to achieve it. But you're right. I mean, we're just spitballing. It's a back of the envelope. But the more that you could save, right. And the more that you invest, you're all in stocks. You don't need the money for another 12 to 15 years. I think all of that is really good. You're in low cost index funds. Great. For you. Should you put money into more Roth IRAs? Yes. Because you're going to have a lot of fixed income, so you're doing all the right things. I think where you're going driving yourself crazier or making yourself a little bit nervous is that, yeah, you want to travel more, you want to go get some wine and vino and baguettes or whatever the hell that is. And so. And then you're going to sell the house. So there could be equity within the home if they're going to, you know, hang out in France.

[Big Al]

Could be.

[Joe Anderson]

Yeah, you get baguettes.

[Big Al]

Although, yeah, the rental income would go away, but.

[Joe Anderson]

Well, no, he's got a rental and the primary.

[Big Al]

I know, but she's saying she might want to move into the rental.

[Joe Anderson]

Oh, I didn't read that. Well, I got bored of it or something.

[Big Al]

There it.

[Joe Anderson]

But let's say if she gets one and a half million dollars, so that's the target. So if you ricochet. Don't ricochet. This just kind of keep focus, keep saving. And then if you can get to one and a half million dollars, I think you're sitting in a really good spot.

[Big Al]

Okay, I'll accept that.

[Joe Anderson]

Right. Sometimes it gets super confusing because there's all these cash flow needs that have to happen at certain time periods because your Social Security is timed at a certain. Then your pension's going to come in. You want to retire at a certain point, but then your husband's going to retire at another point. So, yeah, you have to spreadsheet this thing out. But if you're just looking at back of the envelope, you can look at, all right, well, what do I want to live? What do I want to spend on an annual basis? And she figured that out closely to $100,000 a year. You just need to figure out what that 100,000 is going to buy in 10 or 15 or whatever year that you really want to retire and then look at. All right, well, divide that by a distribution rate, 3%, 4%. And then that's going to give you kind of a number to shoot for. So I don't know. We're just dragging these things out.

[Andi Last]

You're spitballing.

[Joe Anderson]

All right. Good luck. I'm glad you warmed up to you. She's like, she only likes one of us, Al.

[Big Al]

Now. She likes both now.

[Joe Anderson]

Yeah.

[Big Al]

Probably likes you better because you're like fine wine. This keeps getting better.

[Joe Anderson]

I am. You know, remember that one guy was like, yeah, I came back like four times and I just. I gotta leave again. I just can't do it. But they keep coming back. Why do you guys keep coming back?

[Big Al]

I wonder why he kept coming back.

[Joe Anderson]

It's like, man, you know, I've tried you now four times.

[Big Al]

This has got to be a good show. No, not really.

[Joe Anderson]

We got little Barney and Betty from northwest New Jersey. He goes, hey, Andy, Big Al, Joe, big fan of the show and greatly appreciate the combination of sound financial information and humor. Personally, I don't think Joe's sarcastic enough.

[Big Al]

Really?

[Joe Anderson]

Listen to the show a couple years ago.

[Big Al]

Wow. Okay.

[Joe Anderson]

Try to tone down. You get all hopped up on Celsius and then you got to deal with life.

[Big Al]

You, you've toned down a little bit.

[Joe Anderson]

This is my outlet.

[Big Al]

I think once you started, you know, had family, kids, I think you toned down a bit.

[Joe Anderson]

I'm coming back hotter than ever. We should really lay into this letter. All right, I'll lay into you. I can take it. All right. I'm currently 56. My wife's 57. I recently switched from full time to part time work. I'd like Joe and Big Al to spitball for me the earliest that I can quit the part time work and fully retire. All right, here we go. Barney, for retirement savings, currently have about $3 million in. Okay, that's enough. You're good. You're done. Oh, I don't know. Can I retire? By the way, I got like $20 million. Please call me Barney and Betty because I don't want anyone to know I'm super loaded.

[Big Al]

Sounds like you're, you're, you're ripping on him.

[Andi Last]

He can take it.

[Joe Anderson]

He gives you any can take it. All right, $3 million in a pre tax 403. $450,000 and 457 accounts. $150,000 in a Roth IRA. Oh, $1,200,000 in a taxable brokerage account. $13,000 in HSA. Oh, we have $1,300,000 in home equity. Come on, dude. I make $315,000 per year for my part time works. Oh, my God. Poor you. Part time $300,000. Most people don't make that in a lifetime, Barney. My wife works full time and makes $250,000 a year. All right. I contribute about $30,000 a year to my pre tax. 403, 22 into the 457. $8,000 per year in the backdoor Roth. My employer contributes $40,000 per year into the 403 total. $100,000 per year. This will obviously stop when I fully retire. My wife contributes $30,000 per year to her pre tax. 403. $8,000 to the back door, $8,000 to our HSA. Her employer contributes $23,000 per year into the pre tax. 403. Total $69,000 per year. All right. My three kids will all be off to college in five years. Their college is completely funded by the 529 plans. Oh, my. It just gets worse and worse for this guy. Another one, Man. In five years, we'll sell our current home, buy a smaller house or a condo, and net about $300,000 in profit.

[Big Al]

Let's add that to the total in terms of expenses.

[Joe Anderson]

I spend $5,000 a month. In terms of expenses, my portion of the household expenses is currently $22,000 per month. This will decrease to $17,000 per month in five years when we downsize and have an empty nest. I currently draw $60,000 per year out of my brokerage account to cover the difference between my income and expenses. This difference will eventually be covered by the $300,000 profit from the sale of the house. My wife will work until age 67, at which point our combined Social Security benefits will 100% replace her income. Thus, I think we can keep my wife's income, her portion of the household expenses, and our Social Security benefits out of the analysis. Ken, I've not heard anything bad yet. Not even close. Okay. I like Kentucky bourbon with a little large round ice cube.

[Andi Last]

Why has that become so popular?

[Joe Anderson]

Yeah, you know, I'm not a big ice cube guy.

[Big Al]

You're not?

[Joe Anderson]

No, I like the rocks. I'm here to tell you, the big ice cube just. I don't know. It doesn't do it for me.

[Andi Last]

I want to chew ice.

[Joe Anderson]

The big ice doesn't do that, too. I like to. What is that? What is that? Just.

[Andi Last]

It probably means we're OCD or something. I don't know.

[Joe Anderson]

Yeah, look at my pen. I chew on my pen. I chew on ice. All right, so the wife, she likes little New Zealand Sauvignon Blanc. I drive a 2021 Honda CRV. My wife drives a 2024 Hyundai Telluride. We have no pets. Do you agree with maxing my contributions to my retirement accounts? Even though this means taking some money out of the brokerage accounts, I would like to retire as soon as possible and have several hobbies to occupy my time. My wife loves her job, so she's fine working until 6770. Until I what? While I. What total do the retirement savings need to reach for? Me to retire at what age do we switch from 3% to 4% in terms of a safely yearly withdrawal rate on the retirement savings? Or should I just use 3.5%? Thanks for your spitball. Okay, there's a ton of assets here, a ton of income, a ton of savings. Can he retire and do some cool stuff as soon as possible?

[Big Al]

Yeah. So he's starting with 5 million, Joe. And the only problem is the spending. So 22 grand a month if you, if you run that over the course of the year. I just divided that into 3% just at age 56. I think he said he was. That was one of his questions. When to use three, three and a half, four. I personally use 3%. Around 50, 55. Three and a half at 64% at 65. It's not a hard and fast rule. It just gives us an, you know, a ballpark idea. If you take 22 grand divided by 3%, you're going to need about 7.9 million, and you got 5. So. But in five years when your spending is 17, I think that's no problem. So you could retire right now if you saved a little bit on spending. Otherwise, you got to grow the portfolio a little bit for that kind of spending. But again, assuming that the spending is less later.

[Joe Anderson]

I got 8.8 million, Al.

[Big Al]

8.8. Okay. 22,000 times 12 divided by 3%. Yeah.

[Joe Anderson]

0.03 divide. 8.8 million.

[Big Al]

You did? Okay, yeah, I got 7.9.

[Andi Last]

It's the battle of the calculators on YMYW.

[Joe Anderson]

What do you have? You're using your phone. I got an HP12C here.

[Big Al]

It's a HP app, so.

[Joe Anderson]

But what I'm confused about here. So in terms of expenses, my portion of the household expenses is currently $22,000 a month. So. Did you get 8.8, bud?

[Big Al]

I did. So it's. I must have done it too fast.

[Joe Anderson]

So $260,000 a year is his portion of the expenses.

[Big Al]

That's what he's saying. He's saying, let's keep the wife's out of there. She's covering her side and her income isn't going to change because she retires and Social Security takes over.

[Joe Anderson]

Okay, and then so bar $300,000 a year, right?

[Big Al]

Yeah.

[Joe Anderson]

Is that what's his income?

[Big Al]

Yeah. 315.

[Joe Anderson]

Okay, so he needs 260. After tax, he's making $300,000. So with his savings that's going into the 403 and the 457 plan, he's taking money out of the brokerage account and he's funding those accounts. So I don't know if that makes a ton of sense because he's going to have a ton of money in retirement accounts and they want to spend high dollar in retirement. His wife makes $200,000 a year and she's going to continue to work until age 67. So he's taking money from a brokerage account that's going to be taxed at a capital gains rate. He's taking the money and he's putting it into a retirement account. He's getting the tax deduction today but then the money grows tax deferred but he's going to have to pay taxes on those dollars at a later date. So I think the math is all right, well what tax bracket are you in today? What tax bracket do you think you're going to be? It sounds like he's relatively going to be in the same tax bracket because a ton of the money that they're saving in all of this match is going into a qualified plan. So all dollars that are coming out is going to be taxed at ordinary income rates. So I don't know if that makes. I would have of course to get my HB12C a little bit more exercise here. But I don't know if that makes sense. Unless if I'm going to take money from a non qualified account and put it into a brokerage account to reduce my taxable income, I would do conversions and keep my taxes the same versus what he's currently doing. So I don't know if I like that move at all.

[Big Al]

I'm with you there because he's already got three and a half million or three million in retirement accounts. He's adding to it. He's still young. I mean that thing can double twice. I mean can you imagine what the RMD is going to be in the future? So I don't really the only reason I would take money out of the non qualified account put into retirement if I was doing Roth just like you said because, because then I'd like more tax free. But yeah, agree with you there. So I did a little fat finger on my calculator. So 8.8 million is the correct answer. Now if you use three and a half percent again this is just, just to give you in the ballpark, even if you use a three and a half percent distribution rate right now you need seven and a half million, you got five. So you can't really retire right now at this spending level. But as you say your spending goes down $5,000 per month in five years. Then it starts to look pretty good, Right? So now you, now you can. I think you can make that. So, yeah, I think you will be on track.

[Joe Anderson]

He's really, really close, to be honest with you, because there's a lot of calculations that he needs to do. So if, let's say he retires as soon as possible. Tomorrow. You retire tomorrow, you're going to have a large distribution rate. $264,000 into $5 million is 5.3%. It's not awful. So you take 5.3% out of the overall account for the next several years, and then it's going to be a little bit less because your spending is going to go down depending on what the portfolio does. What will kill him is the sequence of return risk. So if he retires today and takes 5.5% out, because that money needs to last quite some time. But there's all sorts of things that he could do to say, all right, well, here I'm going to spend $265,000 a year for the next, let's say 15, 20 years. And then I'm going to tone that thing way down because I'm not going to be doing the hobbies, I'm not going to be traveling. I'm not going to have membership of the country club or whatever the case may be. So, you know, people spend a little bit higher in their first 10 to 15 years, and then they kind of slow things down and then they spend a little bit less. But then there could be health care costs. So I think he's super close here. If I was him, if I hated what you're doing and you got 5 million bucks and your wife is working full time making two hundy, see you later.

[Big Al]

I wouldn't do that at the spending level. Me, personally, to me, that's too rich of a distribution rate at age 56% more than 5.

[Joe Anderson]

But he's going to get Social Security. He's going to tone down his savings in a couple of years. His wife is working full time at.

[Big Al]

Here's the problem with this kind of question is we really need financial software to plug all this in because there's a lot of variables. So we're just giving you a quick answer based upon what's in front of us. And in my case, my phone, in Joe's case is hp, and this is.

[Andi Last]

Why it's called the spitball.

[Joe Anderson]

This is a big, big wad football here for sure.

[Big Al]

Anyway, I, I wouldn't retire just yet. Also, I'm just thinking about you still have kids that are at home, but the kids are.

[Joe Anderson]

Yeah, I suppose. But the college is paid for.

[Big Al]

I know, I get that. But then it's like, all right, I, I don't know. I personally, I would. I let the kids get through high school at least that's kind of how I would think about it.

[Joe Anderson]

If you could be flexible in your spending. If it's a hard, fast 270 plus a cola. Yeah, it's super tight. But down markets or things, most people spend a little bit more some years a little bit less the other years. It's variable. That's why you have to be looking at this constantly. It's a process. It's not. Here's a spitball when you're 57 years old and then you're going to come back 15 years from now when your $5 million portfolio is two and a half and coming blazing.

[Big Al]

Wait a minute, Joe, you said it was okay.

[Joe Anderson]

Yeah, where's that Anderson punk? He said I was all right. That sarcastic a hole. All right.

[Big Al]

On the other hand, 5 million bucks is a lot of money, so you can definitely retire tomorrow. You just have to probably make a.

[Andi Last]

Couple changes Calculate your likelihood of retirement success with a financial blueprint Click or tap the Financial Blueprint link in the episode description. Input your details and our free tool will analyze your current cash flow, assets and projected retirement spending. It'll output a detailed report with three scenarios to help you determine your probability of retirement success, including future taxes and actionable steps you can take now to achieve your financial goals. Next, schedule a free financial assessment with one of the experiences experienced human professionals on Joe and Big Al's team at Pure Financial Advisors to review your financial blueprint. They'll help you develop a thorough financial plan that addresses your unique immediate needs and your long term retirement vision. At the end of the assessment process, you can decide whether Pure Financial Advisors is a good match for your retirement planning needs and what next steps look like. Click or tap the links in the episode description to get your financial blueprint and and to schedule your financial assessment. Both are free courtesy of your money, your wealth and Pure Financial Advisors. Next up, when Joe and Big Al had the opportunity to talk to the IRA guru himself, they jumped at the chance and that show has now become our most viewed podcast episode of 2024 on YouTube. Here's a clip from the fellows chat with Ed Slott, cpa.

[Joe Anderson]

Someone reads the book how much money do you think that they could save in taxes over their lifetime, depending on.

[Theodore]

Their balances, obviously, but hundreds of thousands or millions, you know, people say look at the market every day. Well, don't look today, but look at the market every day. And they say, Well, I made 10,000, I made 20,000, I made 100,000. You can make millions in good tax planning. Most people don't see it. They don't think it's money. But that's money that you would otherwise lose. If somebody told you you're going to lose a million dollars unless you do that, they would probably do something. Do some of the good planning I talk about in my book, and I'm sure you mention all the time on your program, because we seem to be saying the same thing. They could save a fortune in taxes and that's more money that they can use in retirement and will go to their beneficiaries. And if you do it right, all tax free. So this whole thing that we're talking about comes down to one big giant bet. And the bet is, do you think future tax rates will go up? And I think the answer is yes. You know, I asked a group al this same question I always ask advisors and consumers, I always ask them, do you think taxes will go up? And about half the room raises their hands. And then I ask this question, all right, I get that. How many of you think taxes will go down? Nobody raised their raises their hands. And then I say to them, but that's the same question I just asked you. If they're not going down, they're not, they're going to go up. But even if they stay, I mean, you know, this is higher math, you know.

[Big Al]

Right.

[Theodore]

But that's the whole bet. If you think future taxes are going to go up, the Roth bet, or getting the money out of the IRA and putting it into other tax free vehicles, or even doing charitable planning that will pay off big time for you and your beneficiaries.

[Big Al]

Yeah. When you think about Ed, you think about all the, all the taxes you pay in retirement, pulling the money out of the accounts, extra income, extra adjusted gross income, causes all kinds of extra income on Social Security, on real estate earnings, on and on and on. Then you add in, you pass away. Now the marriage penalty because now you're on the survivors on the single brackets. And now you, when the survivor passes away, the kids have to take the money out in 10 years, many times in their, their high earning years. And then if the estate tax deduction becomes a lot less as planned in 2026, that there's all Kinds of reasons to do this right now for the next two years, while we know tax rates are lower.

[Theodore]

Yeah, you got to take advantage of low tax rates. In fact, in my book on page 28, I give the history of tax rates from the 16th Amendment, 1913, when our current system started, till right now, 2024. The reason I do that is because some people, most people, look, nobody wants to pay taxes before they have to. Everybody, you know, everybody hates taxes. But you can use these rates to your advantage. So many people don't realize that these are the good old days. So I put that chart in there and a lot of the, and I highlight in the chart the years, people like me and maybe some of most, most of the people who are worried about this, the baby boomers, they seem to have the most money now in IRAs, the years the baby boomers were born, 1946 through 1964. And I remind people by showing them that chart, I do it in seminars too, that the top federal tax rate for 1946 through 1964, the top federal tax rate for each of those years exceeded 99. Oh, that's nine, zero. You're not hearing me wrong. Exceeded 90%. Except for the last year, 1964, when they dropped the top rate down all the way down to only 77%. And they tell me, I don't know because I was 10 years old then watching the Beatles on Ed Sullivan, but they tell me when they dropped the rate down to only 77%, the whole country did a happy dance because it was only 77. Well, now that's more than double today's top tax rate. So you need to take advantage. It's the opportunity of a lifetime to bring down these IRA balances. If anything, Congress, with the Secure act, the Insecure Act, I should say, encouraged us to trim these balances now, get them out at the low rates and build up in tax free vehicles to protect against the uncertainty of what future higher tax rates could do to your standard of living in retirement.

[Joe Anderson]

Yeah, I think it gives people a lot more flexibility. What do you think about people that don't necessarily have the money to pay the tax? Would you ever recommend someone paying tax out of the IRA to do a conversion?

[Theodore]

No, generally not. And remember, a lot of things I'm saying are for people with larger balances. If you have the money to pay the tax, maybe you're not in a big tax situation. It's not for everybody. But the more you have in your ira, the more is at risk. That's why I said earlier. The people at the highest risk are the people that save the most for retirement. It's always that way with tax laws. You know, it always seems to come down that our tax system is a penalty on savers.

[Andi Last]

Check the episode description to watch the entire conversation with Ed Slot, cpa. I think we still have a small handful of copies of Ed's book. The Retirement Savings Time Bomb Ticks Louder. Ask for a complimentary copy when you have your financial assessment with Pure Financial Advisors. In the meantime, episode 468, called How Much to Save in Tax Free, Tax Deferred and Tax Multiple Accounts, was our most downloaded episode of 2024 across all podcast platforms. Your Money, you, Wealth podcast officially became a video and audio podcast in October of 2024, but this was back in February, so it's audio only then. We'll wrap up the best of 2024 with one of my favorite video derails of the year.

[Joe Anderson]

Got Brian from Naperville, Illinois I understand that tax diversification is important and that money should be saved in the taxable tax deferred and tax exempt accounts. However, I have seen a description about the proper proportion to be held in these accounts. I understand that this is a complex idea and it will be somewhat different for each individual circumstance. However, there should be some general guidelines and ideally there should be a calculator or formula that should help investors determine the correct target percentages. So having 80% versus 40% assets in a Roth is a big difference and it will have a huge impact from a tax perspective. Okay, where's the I agree.

[Andi Last]

Yeah, I think the question is what should be the proportion to be held in each type of account?

[Joe Anderson]

You already answered it.

[Big Al]

The answer is it depends.

[Joe Anderson]

How much money do you want to spend? Do you want to spend $200,000 a year or do you want to spend $40,000 a year?

[Big Al]

What tax bracket are you in now versus in the future?

[Joe Anderson]

Do you want to leave a legacy or do you want it all to charity? I mean, there's so many different factors.

[Big Al]

Exactly. Real life example, you got $100,000 in an IRA and nothing else. Keep it in the IRA, you're going to be in the lowest bracket. Who cares? You got 5 million in an IRA. You better start converting that because your required minimum distributions are going to be through the roof. But it does depend if now if you're going to give a lot of it away to charity. With the qualified charitable distribution, you can keep a lot more in if you don't have kids and it's just going to go to whatever. Maybe you don't care about the taxes as much. But I will say one other thing is a lot of times when people are thinking about this, they think about what's best for my kids, but it's like, no, it's really what's best for you because people are living into their 90s. So you retire and you may have 30 more years to be in a high tax bracket.

[Joe Anderson]

Let me try to answer this, because we get this question often and everyone wants a really simple answer. Okay, well, here, have 30% in a Roth and 33% in this and 33% and the rest in cash. Here's what they have to do. You have to do a little bit of work. There's no general guideline. There's no rule of thumb. I wish there was. I mean, for me, 100% Roth. There you go. That's what you want. You'll never ever pay taxes again. But I don't know what tax bracket that you're in. So you could overpay in tax by getting everything in Roth. So it's not that simple, is it? 50, 50, maybe. But you can map this out by looking at how much money that you really want to spend. And then you map out what you have in each of these different accounts. So you take your inventory, how much money you have in tax deferred accounts, such as your IRAs, how much money you have in Roth accounts, how much money you have in a brokerage account, and then you forecast those out, model it out at 6%. Now, then you have to look at your fixed income. Do you have a pension? Do you have Social Security? Model that out with inflation, and then you're going to look at your shortfalls. How much money is going to be demanded from the overall portfolio? Is it $20,000 a year or is it $180,000 a year? So if you have enough money, then you can model it a lot more effectively by saying, here, I need to pull X amount of dollars from my portfolio and I want to keep myself, let's say, in the 12% tax bracket for life. So I might have to convert to the top of the 22% tax bracket today to keep myself in the 12% tax bracket forever. So those are the strategies that you want to start modeling out. I wish I could just say, yeah, just put 33% in each of the different pools and call it good. That's probably better than not doing anything.

[Big Al]

Probably. So, I mean, a couple questions ago, we talked about Tom and Spokane and what I would do is convert 100% of it. Because he's got so much pension income and not a ton of ira. I would convert it all. But every case is different.

[Joe Anderson]

The whole purpose of having money in each of these different accounts is having control over your taxes in retirement because you're going to potentially, hey, I'm going to take enough out of my retirement account just to get me to the top of, let's say, the 12% tax bracket, or for people that want to spend a lot more money, I'm going to pull out of my retirement account to the top of the 22% tax bracket, but I still need more cash flow. So then that's when you pull from the Roth. That's when you pull from your brokerage account, because those are going to be taxed at a lot lower rate. So you're controlling your taxes long term. So ideally, would it be great to have everything in a Roth? Sure. Because then you know that you took the uncertainty of higher taxes off the table. But unfortunately, that's probably not the most effective way because you're going to leave money on the table because you converted. Probably too much.

[Big Al]

Yeah. And to me, there's one kind of foolproof way, which is you look at your tax bracket today. Top rate, your marginal rate, the highest rate that you're in. Let's say it's 33%, for example. Then you look at your income after you retire, before Social Security, before required minimum distributions. Oh, you're in a 12% bracket. You should be converting like crazy. Right. When you look at what your income is going to be after your required minimum distributions and Social Security. So you just have to look at your income at different points. Now, if you're in a very high bracket and you. You always will be in a high bracket. It's. There's less urgency in a way. But on the other hand, maybe your kids are in high brackets, too, and you want to convert so that you relieve them from taxes. I mean, it's so individualized.

[Joe Anderson]

Yep. All right. Hey, guys. Great, entertaining show and better information. My writing is worse than Joe's reading, so this should be fun. Oh, gosh, my reading is so bad. It's so embarrassing. I don't know why we continue to do the show the way we do.

[Big Al]

Because. Because it's entertaining.

[Joe Anderson]

We're gonna just make an AI person read this stuff.

[Big Al]

We should. Yeah.

[Joe Anderson]

We are the Griswolds. Clark and Ellen. God, I love the Griswolds.

[Big Al]

Yeah, I did. I did, too.

[Joe Anderson]

Remember, I used to call you Clark all the time.

[Big Al]

Yeah, yeah, I think you still do sometimes.

[Joe Anderson]

You are Clark currently living in Tutsville, Florida.

[Andi Last]

I think that's Titusville.

[Joe Anderson]

Titusville, Florida. See, my rating is top notch.

[Andi Last]

I take it Titusville is not anywhere near where you went to college.

[Joe Anderson]

You guys are tired of getting. I was going to say tittiesville or something, but I was like, that can't be right.

[Big Al]

Well, you moved that u where the I was and you and you.

[Joe Anderson]

So we travel five to six months a year in Airstream Atlas Motorhome named Nitley Lions Nittany.

[Andi Last]

You know, like the Nittany Lions.

[Joe Anderson]

So if you have an Airstream, are you supposed to name it? Is that the deal?

[Big Al]

Some people do, yeah.

[Joe Anderson]

My best friend Mikey Martin has an Airstream and he named it.

[Big Al]

Do you name your car?

[Joe Anderson]

No.

[Big Al]

Me neither.

[Joe Anderson]

No car. I have to get in my car. I have to get little Johnny to go down to the grocery store.

[Big Al]

When I got my Tesla, I was supposed to put in a name.

[Joe Anderson]

A name?

[Big Al]

Yeah. So I didn't know what to do. So you called a car. I put Tesla.

[Joe Anderson]

Oh, yeah. I don't know. I don't know if I could hang out with someone that names their automobiles.

[Andi Last]

Which is worse? Talking about yourself in the third person or naming your car?

[Joe Anderson]

I think it's both. If someone names their car, they definitely talk in the third person.

[Big Al]

They probably you.

[Joe Anderson]

Joe's got to get little Johnny to go to the grocery store.

[Big Al]

Well, Johnny, come on over.

[Joe Anderson]

We're going. I gotta get Clark some new Hogan. Oh, gosh.

[Big Al]

Okay.

[Joe Anderson]

All right. Airstream. Okay. Yeah, his. His name's was like he named it Dolores or something. Or Doris.

[Big Al]

Oh yeah, I think you're right.

[Joe Anderson]

We have been to East Mount East.

[Big Al]

Easternmost.

[Joe Anderson]

No, thank you. Easternmost point. Southernmost point in the westernmost point in the northernmost point in the lower 48 states. Okay, so he's been all over the U.S. yep. Also we have swam in Atlanta, Pacific and Arctic oceans. The Arctic Ocean swim was after a 600 mile one way drive on a dirt road to Said Tayaka.

[Big Al]

And that's in Canada.

[Joe Anderson]

It's a really nice place, I heard. Oh boy, this is, this is. This is tough.

[Big Al]

Oh, he says, Joe, can't wait until I hear you pronounced. Let me, let me try it.

[Joe Anderson]

All right, that's it. We're done. Thank you everyone for the wonderful questions. Andy, great job on putting all this stuff together.

[Andi Last]

Thank you for doing it.

[Joe Anderson]

We'll see you all next week. Chills cut you money, you wealth.

[Andi Last]

As we close out this best of 2024. Let's talk stats. Last year you watched the youe Money, you, Wealth podcast for more than 38,000 hours on YouTube. You made it one of the top 10% of video podcasts on Spotify. You downloaded it over a million times in the podcast apps. In the last year and over 4 million times since the podcast started publishing, you put your Money, you, Wealth in the top 5% most popular shows out of over 3.4 million podcasts globally. Clearly, your Money, you, wealth is your podcast. I mean it every time I say it. This show would not be a show without you. We thank you for that. Your Money, you, Wealth is presented by Pure Financial Advisors, 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.