Roth Conversions: When to Make 'Em, When to Take 'Em - 547

Summary

Podcast Summary: "Roth Conversions: When to Make 'Em, When to Take 'Em" (Ep. 547)

Podcast: Your Money, Your Wealth
Hosts: Joe Anderson, CFP® and Alan "Big Al" Clopine, CPA
Date: September 16, 2025

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Overview

This episode dives deep into advanced retirement planning topics, focusing on Roth IRA conversions—when to make them, when not to, and the intricacies of withdrawal rules. The hosts, known for their humorous banter, also answer listener questions about long-term care insurance, inherited IRAs post-SECURE Act, capital gains strategies, and the interplay between HSAs and HRAs. True to form, Joe and Big Al turn numbers-heavy topics into approachable, sometimes laugh-out-loud conversations, sharing insights that both entertain and educate.

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Key Discussion Points & Insights

1. Listener Case Study: "Koozie/Cuzzy"—Should Retirees Keep Converting to Roth?

[01:10–12:59]

• Situation:

  • Missouri listener (pronunciation of his handle, "Koozie"/"Cuzzy," is debated) and wife, retired at 69 and 67.
  • ~$2M in combined assets, $100K fixed income (Social Security + pensions), spending ~$110K/year.
  • Strong Roth balance ($850K), additional pre-tax assets, annuities (MYGA, QLAC), some brokerage money.
  • Is continuing Roth conversions in the 22% bracket smart, or should he stop?

• Insights:

  • Their robust fixed income puts them in a strong financial position.
  • Joe and Al argue that with so much of the "heavy lifting" already done via Roth conversions, any further conversion should be limited to the 12% bracket.
  • Social Security taxability threshold explained: Once you're at the level where 85% of SS is taxed, further conversions don’t hike your effective rate dramatically.
  • On annuities: The hosts muse on the logic behind buying MYGAs and QLACs within IRAs, questioning the strategy unless the goal is guaranteed income and risk minimization.
  • On long-term care insurance:
    • Koozie owns a traditional LTC policy (covers 50% of costs)—unusual structure, but if affordable and already in place, keeping it is reasonable.
    • Asset-based LTC vs. self-funding discussed; "The key is not just how much you have, but how much you spend relative to what you have." – Big Al [12:21]

• Notable Quote:

  • "If you can convert and still stay in the 12% bracket…maybe do that. But I wouldn’t convert into the 22%. You don’t need to." — Big Al (08:15)

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2. Peggy Hill in Minnesota: Roth Conversion 5-Year Rule Clarified

[13:08–21:48]

• Question:

  • Does Peggy need to wait 5 years after a Roth conversion to access the amount, or just the earnings? How does this differ between Roth IRAs and Roth 401(k)s?

• Insights:

  • There are two separate 5-year clocks:
    • Roth IRA contributions: Funds (contributions) can always be withdrawn penalty-free. Earnings require account to be open 5 years and owner to be 59½.
    • Roth conversions: Each conversion has its own 5-year clock (for those under 59½). Purpose: To prevent penalty-free early withdrawal of pre-tax money.
    • Roth 401(k): Each plan has its own 5-year clock. On rolling to a Roth IRA (open >5 years), IRA clock "trumps" the 401(k) clock, making post-retirement consolidation smart.
  • Practical tip: For maximizing simplicity and flexibility, roll retirement plan Roth accounts to a Roth IRA after retiring.

• Notable Quotes:

  • "If you're over 59½ and you already have a Roth IRA established for five years, then don’t worry about the second 5-year clock. It's all tax-free." — Joe (16:50)
  • "If you have five 401(k)s, they all have their own 5-year clock. It's not like IRAs where they're aggregated." — Big Al (19:44)

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3. "Skipper": Should He Buy Additional Retirement Credit? Internal Rate of Return Math

[22:44–27:53]

• Situation:

  • Retiree can pay $45,000 (from IRA rollover) for 5 extra years of service credit, boosting pension by $12,000/year for life.
  • Wonders if the deal is as good as it looks and how to calculate the true rate of return.

• Insights:

  • Both hosts affirm it’s a "killer deal"—payback in less than four years, everything after is "house money."
  • Net present value and internal rate of return (IRR) calculations show the return greatly exceeds conservative investment assumptions.
  • Caveat: Only makes sense if significant lifespan is expected.

• Notable Quotes:

  • "Anytime you can pay $45,000 to get $12,000 a year for life—do it." — Big Al (24:35)

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4. Jeff in Dallas: Capital Gains Minimization When Retiring Without a W2

[28:09–32:44]

• Situation:

  • 50-year-old retiree, $3M in single tech stock, $1M 401(k), some dividend and interest income, occasional eBay sales.

• Insights:

  • Long-term capital gains have a 0% bracket up to ~$48K single/~$97K married (2025 figures), with standard deduction raising the effective threshold (~$130K for married filers).
  • Suggests multi-year "tax gain harvesting"—selling shares each year up to the 0% limit to minimize overall tax.
  • Strong reminder not to "let the tax tail wag the dog": Don't try to save taxes if the underlying investment is falling in value.

• Notable Quotes:

  • "Don’t try to save a dollar in tax and lose $10 in stock value." — Big Al (30:38)

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5. Dolly: Inherited IRAs and the SECURE Act’s 10-Year Rule

[33:38–37:52]

• Question:

  • If Dolly inherits her husband's inherited IRA (originated pre-SECURE Act), can she continue RMDs, or does the 10-year rule force her to empty it?

• Insights:

  • Since the original IRA was inherited pre-SECURE Act (2018) and she is a spouse, she is likely allowed to continue the RMDs based on her husband's stretch period (rather than being forced into the 10-year depletion rule).
  • They caution rules can get complicated for non-spouse beneficiaries.

• Notable Quotes:

  • "I’m pretty sure you can take over your husband’s position… That’s what we think." — Big Al (37:14)

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6. Larry in Rhode Island: Transition from HSA to HRA

[37:52–40:44]

• Situation:

  • Switching jobs midyear; first half includes HSA contributions, second half will provide an HRA. Wants to know if both benefits can be "maxed" in one calendar year.

• Insights:

  • Yes: He can max the HSA with his first employer (while on a high-deductible plan), then switch to using only the HRA with the new employer for the remainder of the year.
  • Caution: Once on the HRA (and no longer on high-deductible coverage), should not make further HSA contributions for that year.

• Notable Quotes:

  • "You'll basically have two plans in one year, and that's okay because you cut off employers. But just to be on the safe side, don’t use any of your HSA funds for the rest of the year." — Big Al (39:52)

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Notable Quotes & Memorable Moments

• On naming conventions:

  • “Reminds me of beer. You need a koozie.” — Joe (01:44)

• Banter about financial calculators:

  • “I wonder if he’s got like a Hotmail email account…” — Joe on Jeff in Dallas’s eBay mention (29:04)

• On five-year Roth rules:

  • “God, who’s on first?” — Joe (18:28), after a whirlwind explanation of the rules

• Humor after a metaphor gone awry:

  • “You don’t want to wag the tax dog tail to do to eat the beans.” — Joe (32:02)
    “Now, what kind of beans are those?” — Big Al (32:21)

• Listener interaction appreciation:

  • “Those who don’t find this funny have no sense of humor.” — Dolly, listener (34:19)

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Additional Resources Mentioned

• YMYW Whitepaper: Five-Year Rules for Roth Withdrawals ([16:03])
• 2025 Key Financial Data Guide ([32:44])
• New TV episode: "What to Do When Markets Get Crazy" ([32:44])

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Takeaways

• Roth Conversion Timing: Once you’ve built a large Roth balance and your future RMDs only push you into a moderate bracket, stop converting above the 12% bracket.
• Five-Year Rules: Know that contributions and conversions are treated differently. The rules are more nuanced for those under 59½ and get easier—though still bureaucratic—after retirement.
• Capital Gains Harvesting: Use your low tax years to realize gains, but don’t let the pursuit of tax avoidance override good investment behavior.
• Inheritance Post-SECURE Act: Spouses have more favorable options than other beneficiaries; pre-act stretch rules can persist in some cases.

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For anyone facing similar financial decisions, this episode provides not only the facts but also the real-world wisdom—and the laughs—to make informed choices.

Transcript

[Andi Last]

A YMYW listener from Missouri and his wife are retired at 69 and 67 with less than $2 million. Should they continue converting retirement savings to Roth for the tax free growth? What should they do about long term care insurance? More importantly, is our listener's name pronounced cuzzy or cousy? Speaking of Roth conversions, must Peggy Hill wait five years to withdraw her conversion money or only its earnings? That's today on youn Money, you, wealth podcast number 547. Plus is Skipper's retirement pay killer deal. He thinks it is. How can Jeff in Dallas pay less capital gains tax on his $3 million single stock million $401k and potential eBay income? Is selling on ebay still a thing? Does Dolly in Tennessee need to empty her inherited IRA within the next 10 years due to the SECURE Act? And finally, HSA versus HRA. How should Larry in Rhode island navigate switching from his current employer's health savings account to his future employer's health reimbursement arrangement? 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 dive right in he goes. Hey, Joe. Big Al. Have been listening to you guys for a while as I walk and exercise. So he's been listening for several months. Has he been exercising for several months or just started the show? Several months?

[Big Al Clopine]

Yeah. I don't know, it's not clear.

[Joe Anderson]

Got it. Would love a spitball from you too. Love the podcast. Have learned a bunch from you too. Thank you. You can call me Koozie from Missouri.

[Andi Last]

I think it's Cuzzy.

[Joe Anderson]

Cuzzy from Missouri.

[Andi Last]

I'm short for cousin.

[Big Al Clopine]

Not sure Cousin. I think it's Koozie.

[Joe Anderson]

C O U S Y. Koozie.

[Big Al Clopine]

I like Koozie.

[Joe Anderson]

I like Koozie too.

[Big Al Clopine]

Reminds me of beer.

[Joe Anderson]

Yeah, you need a koozie.

[Big Al Clopine]

You do? Yep.

[Joe Anderson]

All right. Wife and I have been blessed with good health and multiple grandchildren. Retired from full time work few years ago. I'm 69. I work a little part time, but not counting that income in the following. Listening to others pitfall examples make me feel like we're behind most of your listeners in retirement savings, but feel pretty good about our chances to outlive our assets. Here it goes. $72,000 in Social Security. Both of us are claiming $24,000 in pensions. Cousy, you're sitting pretty good. $100,000 of fixed income. Doesn't matter what your assets are.

[Big Al Clopine]

Yeah, agreed.

[Joe Anderson]

He's got A house with no debt, $110,000 expenses. That includes tax and maybe a one time large expense. He's got some assets and a brokerage account of $150,000. He's got a 5 and a 10 year MYGA multi year guaranteed income annuity pre tax $400,000. Other pre tax 250,000. Roth IRA 850,000. All right, looks pretty good.

[Big Al Clopine]

Looks pretty good. I think that's about $1,600,000. Income of about $96,000, expenses of $110,000. I'd say check look good.

[Joe Anderson]

Yeah, he's sitting pretty good.

[Big Al Clopine]

Yep.

[Joe Anderson]

All right. He's got a question though. He's going. I have tried several online calculators post by Excel on whether to continue to convert additional money to Roth. The advice is conflicting. Marginal tax rate to convert is 22% and have been converting heavy for the last five to six years. Started Social Security in 2025 and it seems I could live now in the 12% marginal tax rate using qualified dividends until RMD start. Initially I will consume 25% of the RMD with a QCD. Also considering a QLAC. God, this guy loves annuities.

[Big Al Clopine]

He does, doesn't he?

[Joe Anderson]

At age 73, defer to 85 as an additional way to convert long term care costs if needed. Legacy for children would be nice, but children are in good shape financially already so priority is to us. Thoughts on continuing to convert or not? Seems like I'll pay 22% when I convert due to the higher taxability of Social Security even when I'm in the 12% tax bracket, but will also pay 22% when I start. RMD's thoughts on the above. Appreciate any guidance. Got question number two, long term care. I have a policy to pay 50% of the nursing home costs with an inflation rider included all of our annual expenses. All in our annual expenses. General thoughts on self funding versus asset based long term care policy versus traditional, which I have. Okay, so he's got $850,000 in Roth, which is a giant amount.

[Big Al Clopine]

It's more than is deferred. It's amazing.

[Joe Anderson]

So then he's got $400,000. So four. What he is 650 in retirement accounts total.

[Big Al Clopine]

Yep.

[Joe Anderson]

He's 69 years old. He's got RMDs coming in what, five, six years?

[Big Al Clopine]

Yeah, call it four. Well, yeah, I think four.

[Joe Anderson]

72 or 75.

[Big Al Clopine]

73.

[Joe Anderson]

I think 73.

[Big Al Clopine]

Yeah.

[Joe Anderson]

We'll phase. All right. Yeah, I think call it four. All right. But he bought these annuity contracts.

[Big Al Clopine]

Right. But it's inside a tax deferred.

[Joe Anderson]

Yeah. Is he going to turn them on and then create the income and get the income that's going to be a force out of the retirement account.

[Big Al Clopine]

Yeah, but you can just keep it in the ira, can't you? With a myga?

[Joe Anderson]

I suppose. But why would you even buy a MYGA inside an ira?

[Big Al Clopine]

I don't know.

[Joe Anderson]

If you're not going to take the.

[Big Al Clopine]

Income, I don't know. I think he's thinking he's going to take the income.

[Joe Anderson]

I think so, too.

[Big Al Clopine]

Because, Joe, here's what I did. I looked at not considering the myga, which I agree with you, that's a question. But if you just look at Social Security, I took 85% of that, so that's $61,000 pension, $24,000 dividends, I don't know how much. $150,000, 2%, $3,000. So that's $88,000 RMD somewhere around 4% of $650,000. Ish. So that's $26,000. So I get $114,000 of AGI. You take out the standard deductible 1%, $30,000, you get $84,000 of taxable income. There's another. What's $13,000 still in the 12% bracket there'? I wouldn't be converting anything except in the 12% bracket. I think that's where you're going to be unless you start taking a lot of money out of the myga. That could be a different story.

[Joe Anderson]

Yeah, stay in the 12%, because he's already done a really good job of converting to keep him out of the 22.

[Big Al Clopine]

Agreed. I think he did almost perfect, Joe. I mean, he converted enough to kind of stay in the 12% bracket, so good job.

[Joe Anderson]

But if you're going to convert in the 12. So he's saying, hey, because of higher taxability of Social Security. But if I'm thinking, all right, so Social Security is taxed based on provisional income.

[Big Al Clopine]

Right.

[Joe Anderson]

And so if I look at his provisional income, so that's half of his Social Security benefits, call that $35,000.

[Big Al Clopine]

Right.

[Joe Anderson]

He's going to have his pension of 24,000. So what's that, about $6,060,000?

[Big Al Clopine]

Yep.

[Joe Anderson]

All right, and then interest in dividends, I don't know, $63,000 RMD 26.

[Big Al Clopine]

So call it 100. So, yeah, so it's going to be.

[Joe Anderson]

85% of a Social Security is going to be subject to Tax anyway. So sometimes if people are in certain thresholds depending on where your Social Security is going to be taxed, because it depends on what your modified adjusted growth or your provisional income is going to be determined. If 0% of your Social Security is taxed or 50% of your Social Security tax or 85% of your Social Security is subject to income tax. And when people move their income up, like with Roth conversions and things like that, that might push them into another threshold from a Social Security taxability issue where their tax rate is in 12% anymore, it actually increases because every dollar that you add of income adds another $2 of Social Security subjects tax.

[Big Al Clopine]

Right. Yeah. It can be sort of exponential there, but I think he's in a low in a bracket, it doesn't really matter. Plus I haven't even factored in the.

[Joe Anderson]

But I think he's in a high enough provisional income where.

[Big Al Clopine]

Where it doesn't matter.

[Joe Anderson]

Where it doesn't matter. If he adds a little bit more income, he's already at that higher threshold.

[Big Al Clopine]

I agree with that. Yeah. So I think, I think Koozie, I think you did a good job. I think you're sitting in a great place. If you can convert and still stay in the 12% bracket, maybe that's another 10 or 15,000 based upon at least what I see that what you told us, maybe do that. But I wouldn't convert into the 22% bracket. I don't think you need to.

[Joe Anderson]

Yeah. So he's got these. I'm not sure why he. He doesn't need a lot of income.

[Big Al Clopine]

No.

[Joe Anderson]

And so he put most of his retirement account in an annuity. And why you would do that is to create a guaranteed income. And so I don't know. And that's fine because he said, you know, the kids are doing fine financially and you don't want the risk and you want this stability and the guarantees.

[Big Al Clopine]

Right.

[Joe Anderson]

But if you're going to turn. Yeah. So. Yeah. All right.

[Big Al Clopine]

What about the long term care?

[Joe Anderson]

All right, what. What do you like in long term care? So he's got a traditional policy that's going to pay 50% of nursing home costs. I've never seen a policy that says I'm going to pay 50% of your nursing home costs. It's usually a daily benefit.

[Big Al Clopine]

Yeah, right. Got it.

[Joe Anderson]

A daily benefit with a certain cola on it.

[Big Al Clopine]

Right.

[Joe Anderson]

So is it $100 a day? $200 a day? 250 a day.

[Big Al Clopine]

Yeah.

[Joe Anderson]

Versus because, I don't know, long term care could last a long time. I don't know if an insurance company is just going to cut the check for 50% but I don't know, maybe there is a policy out there that states that.

[Big Al Clopine]

Yeah, I don't know either. But I think, you know what, it's long term care is expensive and if you can afford it and you've already got it and it's paying for what sounds like a good chunk of your long term care, I probably just keep it. Why not?

[Joe Anderson]

Yeah, for sure. I mean I think long term care insurance is, you know, you're probably going to use it, you will use it or your spy spouse is going to use it and if you don't use it, guess what, your dad probably right. You know what I mean?

[Big Al Clopine]

It's insurance. You know what Joe? You have fire insurance. You hope your home doesn't break down, but if it does, you have it. I mean I think of this as kind of the same way.

[Joe Anderson]

Yeah. And I think also you want to look at both spouses here because if something happens to one and then it's like, man, you have to take care of one spouse and you're draining all the cash out of the investments and then the one spouse finally passes away, then the surviving spouse has limited funds. So yeah, I'm a big fan of protecting the overall estate if something were to happen. Do I like self funding, asset based long term care traditional. I mean, I think it really depends on the circumstance.

[Big Al Clopine]

Right. How about a qlac?

[Joe Anderson]

A qlac? Well, yeah, well, I don't know. So then he's going to buy another insurance for longevity. So he's going to turn that baby on at 85.

[Big Al Clopine]

We should say qualify longevity annuity contract that. I mean I think that's what that is and that basically what that does is you put some money into a policy and you don't get the benefits usually till age 85. So the premiums are lower than maybe a typical annuity because you're not going to get benefit unless you actually get to age 85. But if you do, you know, it's a leverage. It's a pretty good amount.

[Joe Anderson]

Yeah, right. You put in a dollar, you get 15 back.

[Big Al Clopine]

Yeah. Whatever the ratio is, it's a good ratio and maybe you don't need it. Right. But if you do, it's a good thing to have.

[Joe Anderson]

Yeah, I think you're, I think he's done a really good job from a financial planning perspective. He's got a lot of things covered based on what his goals and risk tolerances. It sounds like you know, I don't know if there's, there, there's an insurance agent in there just kind of selling a product with a QLAC with these mygas and then the long term care policy. But I think, you know, if, if you're looking to protect the overall wealth, you know, from your, you know, and want to pass to the next generation, it sounds like that's not one of his goals. So if you spend the last dime and bounce the last check to the mortuary, who cares, right? Then maybe the long term care might be, you know, an added expense where you do have enough assets. It sounds, I mean, they have a pretty solid net worth.

[Big Al Clopine]

Yeah, I think, you know, and I'll just say one other quick comment, which is this. It really doesn't matter how much you have. What matters is the relationship between how much you have versus how much you need to spend. Like for example, if you have fixed income of 100,000 and your, your expenses are 80,000, you don't need a penny, right? It's nice to have some cushion. But it's that ratio. It doesn't matter whether you have 100,000 or 10 million. It's that ratio expenses compared to what you need your assets to produce. And that's why we talk about 4%. Just as a, just as kind of a guideline as to how much you need to have to cover your retirement.

[Joe Anderson]

Cool. Congrats, cousy. Thanks for the question. All right, let's go to Minnesota, my home state. Here we got Peggy Hill.

[Big Al Clopine]

Hi Tina from King of the Hill.

[Joe Anderson]

Oh, okay.

[Big Al Clopine]

Okay.

[Joe Anderson]

Hi teen. I'm getting very confused about the five year hold.

[Big Al Clopine]

Oh man. Oh boy. You're going to have to do that again.

[Joe Anderson]

All right. I'm getting very confused about the five year hold period on Roth accounts before you can withdraw. I have a Roth account for many years. Well over 5. I started doing Roth conversions last year for my 401k to my Roth IRA. Do I have to wait 5 years before I can withdraw my conversion or, or just the earnings on my conversion? Also, I just found out my 401 plan allows in plan conversions. I have a great 401 plan. It work, pays all management fees. So I'm thinking about doing that this year and converting my pre tax 401 to my Roth 401 account. Does the five year hold apply to the Roth 401 the same way applies to the Roth IRA? I've been participating in the Roth 401 plan for many years also. Any preference between the Roth 401k Roth IRA. Love the show and plan to submit a spitball sometime soon. Thanks for the great content. All right, Peggy. Everyone is confused on the five year rule.

[Big Al Clopine]

It's very confusing.

[Joe Anderson]

So I don't know how old Peggy is.

[Big Al Clopine]

That would help.

[Joe Anderson]

That would help because there's two five year clocks. One is on a Roth ira. Let's just say a straight contribution Roth ira.

[Big Al Clopine]

Yeah, let's just go there.

[Joe Anderson]

All right. The dollars need a season in the Roth IRA for five years or until you turn 59 and a half to get tax free withdrawals on earnings.

[Big Al Clopine]

Right. That's not a contribution or conversion.

[Joe Anderson]

Five years, 59 and a half, whichever is longer.

[Big Al Clopine]

Okay. That's pretty straightforward. And if you have five Roth accounts, it's the first one that you started that starts the clock.

[Joe Anderson]

If you start a Roth ira at age 60.

[Big Al Clopine]

Yep.

[Joe Anderson]

You have to wait five years, even get the earnings out. If that was the first Roth IRA that you've ever.

[Big Al Clopine]

Even if you open up a Roth for a dollar, that would count.

[Joe Anderson]

That would start your five year clock.

[Big Al Clopine]

Yeah.

[Joe Anderson]

So if you start it. So she's got a Roth IRA that's well over five years. So she always has access to the earnings. I mean, that's the contribution. I'm even confused. You always have access to the contributions to a Roth IRA contribution. The earnings need a season in for five years or 59 and a half, which is longer. Whichever is longer.

[Big Al Clopine]

And that's the key. Whichever is longer.

[Joe Anderson]

Correct. So again, if you started at 59, you have to wait until 64 before to get the earnings. But you can always take the contributions out because it's after tax.

[Big Al Clopine]

Yeah, but what's cool is if you do a contribution or conversion, it goes back to January 1st of the tax year that you're doing it, even if you do it april 15th of the following year.

[Joe Anderson]

The following year. Yeah. You wait till 2026 to do a 2025 Roth IRA contribution. The five year clock starts 1-1-20.

[Big Al Clopine]

Pretty good deal.

[Joe Anderson]

Okay, so, okay, so that's.

[Big Al Clopine]

We got that.

[Joe Anderson]

All right, so conversions. So now conversions is like. All right, well, here you have a five year clock for every conversion that you do until you turn 59 and a half.

[Big Al Clopine]

Okay.

[Joe Anderson]

The reason for that. So if I have a Roth IRA established well before five years. And then, so in her case, Peggy, she's got a Roth that's seasoned for five years, she does a conversion.

[Big Al Clopine]

Okay.

[Joe Anderson]

Okay. Those dollars would apply to the five year clock, depending on how old she is. Is she over 59 and a half or she under 59 and a half.

[Big Al Clopine]

Right.

[Joe Anderson]

If you're over 59 and a half and you already have a Roth IRA established for five years, then don't worry about the second five year clock.

[Big Al Clopine]

It's all tax free.

[Joe Anderson]

It's all tax free because basically what they're trying to avoid is that let's say I am 45 years old and I do a conversion. And so I pay the tax, I do a $50,000 conversion, I pay the tax, the money's in the Roth ira, then the next day I take the money out because I paid tax on the conversion.

[Big Al Clopine]

Yeah. What's the problem with that?

[Joe Anderson]

But what did I do? I avoided the 10% early withdrawal penalty.

[Big Al Clopine]

Right.

[Joe Anderson]

So the conversion penalty or the conversion five year clock is to avoid that loophole.

[Big Al Clopine]

Got it.

[Joe Anderson]

So as long as I'm over 59 and a half, I wouldn't worry too much about the conversion five year clock because it would already be satisfied by another Roth IRA that was established if you had it for over five years.

[Big Al Clopine]

But let's say I'm 45. A little while ago.

[Joe Anderson]

Sure. A couple days.

[Big Al Clopine]

A couple days. And I do a conversion. Right. Of $50,000. Whatever, doesn't matter the amount. So I'd have to wait till I'm 55 years later to have access to those conversion funds. And I would at be just like a contribution at that point. I can't take out the earnings because I'm not 59 and a half. But I could take out that $50,000 conversion as if it were a contribution.

[Joe Anderson]

Correct. So if you were 59 and a half and you did a Roth conversion of $50,000, you would have access to the $50,000, but you would have to wait five years for any earnings that $50,000 made.

[Big Al Clopine]

Yes.

[Joe Anderson]

If you didn't have a Roth IRA established five years earlier.

[Big Al Clopine]

If I already had one established, then I do have access.

[Joe Anderson]

God, who's on first?

[Big Al Clopine]

That sounds like that, doesn't it?

[Joe Anderson]

Oh, my gosh. Don't we have a white paper or something like that that we did years ago? We do.

[Andi Last]

It is called the Five Year Rules for Roth Withdrawals. And I will put that in the show notes.

[Big Al Clopine]

Well, I think it'd be a white paper that you have to read over and over and over again until you get it.

[Andi Last]

And it's broken down into whether you're before 59 and a half or after 59 and a half. So. And it explains the order that you can actually take the money out of the Roth. So it'll be in the show notes.

[Big Al Clopine]

What we just described was a Roth IRA. Now a Roth 401K. Here we go.

[Joe Anderson]

Yeah. If you keep it in the Roth 401, it has the same laws that apply to the Roth ira. So what I would do if I were you is that when you retire, just roll those dollars into the Roth IRA. And in an IRA, or if you're going to convert 100% of the $401 into a Roth IRA, does that five year clock trail through the 401? If it goes into a Roth IRA that was established over five years, I would say the Roth IRA trumps it in that it would be satisfied for the five year clock if that Roth IRA is established for five years or longer.

[Big Al Clopine]

Yeah, I agree with that. But here's the weird thing is if like, let's say you keep the money in the Roth 401, then it has its own five year.

[Joe Anderson]

It has its own five year clock.

[Big Al Clopine]

Maybe you got five 401s because you had all these jobs, they all have their own five year clock. So it's not like an IRA where they get sort of combined together as if you had one account. Every single Roth 401k or 401 plan that has a Roth option has its own 5 year clock until you get it out of that and gets to a regular Roth ira.

[Joe Anderson]

Right. And that same with like required distributions. If you have several 401s or you have several 403s or anything like that, they all are separate IRAs, they can aggregate so they can take a look. All right, you have 15 different IRAs, have 15 different custodians, it doesn't matter. They'll count it as one IRA and they look at the total balance there. So if I had a required distribution, I could just take it from 1 IRA. The 5 year clock would satisfy with that from a roth perspective. But 401s are completely different. They're going to look at each 401 separately. So they would all have to follow the five year clock. They would all have to follow their own required distributions, and they might have to all follow the aggregation and pro rata rules and everything else. So I think for us, and she's asked what do I like better? 401s or IRAs? I think it's a lot easier once you retire. You can just move and consolidate the dollars into one ira, pick a custodian that you like and just roll it into one account. From an IRA perspective and one Roth IRA perspective, it's a lot Easier to manage the risk when it comes to rebalancing. It's a lot easier to tax manage. It's just consolidation, I think, in just my opinion, is better.

[Big Al Clopine]

Yeah, I agree with that. And the real benefit, Joe, is it's the fact that if you have a Roth Provision in a 401k, you can put a lot more money into it, first of all, even more if you're 50 and over.

[Joe Anderson]

And then, then you have the Mega Megatron after tax.

[Big Al Clopine]

You put after tax dollars into your Roth. And so. And there's no income limitation. Right. So you can get actually quite a bit of money into a Roth 401K that you may or may not be able to get into a Roth ira.

[Joe Anderson]

All right, Peggy, thanks for the question, Andy. Joe, Big Al listening regularly for a couple of years now. Love the show, love the non advice, love the banner. Always look forward to the next episode dropping. Cool. Thank you very much, Skipper. Just an FYI, I like the new feature where Andy gives a little preview of the next episode at the end of the current episode. Quick and easy question for you today. Wow. Started doing that because we got a.

[Andi Last]

Backlog we're able to record in advance, so I can actually tell people what's coming up next. It used to be that we would record like three days before the actual show was going to air. And it's like, I don't know what the heck's going to happen next week. So, yeah, now I actually can tell people in advance. We can do teases. It's good.

[Big Al Clopine]

Got it. Okay.

[Joe Anderson]

All right, so Skipper's got a question here. He's like, the payout for my retirement plan is based on a formula which includes years of service. Service. The plan has provisions where employees who have served in the US Military, which I have, can purchase five additional years of service credit in the retirement plan based on the particulars of my situation. This will cost me $45,000 today to pay an extra $12,000 per year for the rest of my life, starting when I retire, plus or minus 18 months. Also, I could pay the $45,000 fee via rollover from my traditional IRA so there won't be any out of pocket expense. Cool. All right, let's see if he's doing the math right. If I use the 4% rule, I would normally need to invest $300,000 investment to generate a safe withdrawal rate of $12,000. So getting that return for only $45,000 investment is a killer deal. So am I missing anything? Short of having a life expectancy of less than 45 months. Is there any reason I shouldn't do this? Also, I'm not exactly sure how to calculate the rate of return. If I invest $100,000 to make 10%, I have $110,000. But in this case, I gave the principal away to get the payment. So what's my return? I'm guessing not the only listener who wants to know the calculus behind this so we can enter it into our spreadsheet. The Skipper.

[Big Al Clopine]

So this is what you might call a net present value type of calculation.

[Joe Anderson]

Or you can use internal rate of return.

[Big Al Clopine]

You could. So I did net present value.

[Joe Anderson]

Okay.

[Big Al Clopine]

Which is probably harder to explain, but anyway, that's what I did.

[Joe Anderson]

How old is he?

[Big Al Clopine]

It doesn't say.

[Joe Anderson]

He wants to retire in 18 months.

[Big Al Clopine]

Yeah. So retirement age. Let's assume. Well, first of all, anytime you can pay $45,000 to get $12,000 a year for life, do it is a good deal.

[Joe Anderson]

It doesn't matter what you read.

[Big Al Clopine]

I don't care what the math is.

[Joe Anderson]

It's high.

[Big Al Clopine]

But here's what I did. Net present value, it's just a way to calculate whether the money that you put in versus the money that you get out at a certain cost of capital, whether it's positive or negative. And I use 7%. Joe, you could argue lower, but I use 7% because that's kind of maybe an investment rate that you would be giving up on the $45,000.

[Joe Anderson]

The discount rate is what you're using.

[Big Al Clopine]

Yeah, I use 7%. And so five years, I get a $4,000 positive. 10 year, I get $39,000 positive. 20 year, $82,000 positive. These numbers are almost irrelevant. It just shows you anytime you get a positive net present value, you're going to. And it's. In other words, your. The amount of return that you get is greater than what you estimated for your cost of capital or investment return. It's a good deal. And this is a good deal. I KN did this calculation, but internal rate of return is another way to go. And I think Joe is working on that right now.

[Joe Anderson]

But I, I can't figure it out because I don't know how old he is, and I don't.

[Big Al Clopine]

Well, I just say 20 years. I mean, that's. That, that's what I did.

[Joe Anderson]

So I'm getting at 20 years, like a 20 some odd percent rate of return. I don't know if that's right.

[Big Al Clopine]

I'm not sure if that's right either.

[Joe Anderson]

That's really high.

[Big Al Clopine]

Yeah. I don't think it'd be that high, but it's going to be a good number. It's. It's going to be a lot more than you can make as far as investing.

[Joe Anderson]

That's probably right, because, I mean, your payback is in three, three and a half years.

[Big Al Clopine]

Less than four years. Right.

[Joe Anderson]

So then after four years, everything is profit.

[Big Al Clopine]

Yeah. So that the point.

[Joe Anderson]

Your profit is $12,000 per year. If you live 20 years, it's all house money. You know what I mean? So you're at 16 times your profit on that is $192,000.

[Big Al Clopine]

It's good. Maybe that's where you're getting such a high return, right? Yeah, could be. But you don't need calculus. It's a good deal no matter how you think about it.

[Joe Anderson]

Yeah. I mean, and what he did was fine, too. It's like, all right, well, If I had $300,000 and a 4% burn rate. But the 4% distribution or the 4% rule assumes that you keep your principal, but you have to use. All right, If I got $45,000 and I'm going. Principle and everything else, you look at it that way to figure out. But you look at how many years that you're going to live. Right. A hypothetical. And when you're going to collect it. And so that's going to be your years, your n. Then you look at your $45,000. That's the base value of the payment on that is going to be $12,000 per year over the 20 years. And then you solve for I or your interest rate or your internal rate of return. So.

[Big Al Clopine]

Yeah. So this tells me that you live five years, you're going to be happy you did this. If you die in two years, well, maybe you don't know. You passed away.

[Joe Anderson]

Yeah. You don't care. You're dead.

[Big Al Clopine]

In all likelihood, it's a great deal. And I do agree with you, Joe, that the fallacy in the calculation you just said is that is with this, this is kind of like a payment through Life. Whereas the 4% rule assumes that you'll still have that 300,000.

[Joe Anderson]

So it's a lower number if it's 192 plus 45. It's going to be 237 if you live 20 years, not the 300 because you're spending on the principal, because it's.

[Big Al Clopine]

Going down to zero. Yep. Yep. Makes sense.

[Joe Anderson]

All right, we're going to. Jeff from Dallas. I am currently 50. I've decided to retire from my high tech career. After 24 years, I've been healthy or heavily invested in brokerage firms. Primarily focus on single large tech stocks. Approximately $3 million. Also have a 401k with approximately value of $1 million. Since I no longer have a W2, I'm curious about how to minimize my capital gains tax. I do have dividend income from my E trade and interest income from my high yield savings account as well as a potential 1099 form from eBay. What's he doing? Like selling on ebay?

[Big Al Clopine]

I guess he could have sold a.

[Andi Last]

Car or a boat on ebay. You can do that.

[Joe Anderson]

When's the last time you've been on ebay?

[Big Al Clopine]

It's been a while.

[Joe Anderson]

Yeah, it's like.

[Big Al Clopine]

In fact, I can't even remember when.

[Joe Anderson]

I. I wonder if he's got like a hotmail email account.

[Big Al Clopine]

No, it's. It's aol.com eBay.

[Joe Anderson]

Yeah, I haven't been there. I haven't heard of. Yeah, all right, cool. So he's selling some stuff on ebay.

[Big Al Clopine]

I guess people still do it.

[Joe Anderson]

That's awesome. Could you please provide me a strategy to maximize my capital gains bucket? Okay, cool. Yeah, he doesn't have W2 income.

[Big Al Clopine]

That's helpful.

[Joe Anderson]

That is. And I wonder if he's single or married.

[Big Al Clopine]

Yep. So it's the same concept either way.

[Joe Anderson]

Sure.

[Big Al Clopine]

So I'm going to pull out my trusty sheet and tell you so when it comes to capital gains. So if you're single, and I'll just use round numbers, the first $48,000 of long term capital gains is tax free. If you're married, it's double that. Right. It's about 96, 97,000, something like that now. So that's where it's zero. Now the next bracket after that's 15%. So you have 15% capital gains bracket. And that goes quite a way. If you're single, that goes to 533,000 of taxable income. If you're married, it's about 600,000. After those points, it becomes 20%. But one more little caveat. Once you hit $200,000 of modified adjusted gross income single or $250,000 married, that net investment income tax applies to it. That's another 3.8%. So just be aware of those. I don't know how old you are or how long you want to do this. You know, I will say you could do this over a period of many years and save taxes, but be aware of the stock price. Don't try to save a dollar in tax and lose $10 in stock value. So just be mindful of what the st doing. If you, if you think it's going to go down and down quite a bit, go ahead and pay the tax because that's better than losing the principal.

[Joe Anderson]

Yeah, it depends on how many single stocks you have. But there's, there's tax gain harvesting and so you. The zero percent tax bracket is a married couple is what, $100,000 plus the state deduction.

[Big Al Clopine]

Yeah, that's right. Yeah.

[Joe Anderson]

So let's call it $130,000. So you could sell $130,000 of capital gains with zero tax.

[Big Al Clopine]

Yeah, well, minus your dividends and interest, right? Yeah.

[Joe Anderson]

So you get up to $130,000 of gains and interest and dividends and everything else tax free. So up to the 12% tax bracket plus your standard deduction. So just think of it like that. Of. All right, well, what's the interest and dividends? What does that look like hitting your tax return? And then how much dividends or how much capital gains that you want to sell, you can get up to that dollar figure of gains. So if you have a million dollars of gains, it could take you. Maybe it's a 10 year process. But I think I'm with Al here. You don't want to wag the tax dog tail to do to eat the beans.

[Andi Last]

I don't know, the beans part, that went off in a completely different direction.

[Big Al Clopine]

I know what you're saying, something about wagging the tail.

[Andi Last]

Don't let the tax tail wag the dog.

[Big Al Clopine]

Oh, thanks. I'm glad you're here because we're talking about beans. Whatever else we can think of. Now, what kind of beans are those?

[Joe Anderson]

I don't know. They're refried.

[Big Al Clopine]

That's even worse. I was thinking like a whole pinto bean or something, but you're mushing them together.

[Joe Anderson]

Yeah, they're so good.

[Big Al Clopine]

Okay.

[Joe Anderson]

All right, well, good luck job. But. But congrats.

[Big Al Clopine]

Yeah, that's a great problem to have.

[Joe Anderson]

Yeah. Four million bucks at age 50.

[Big Al Clopine]

Yeah.

[Joe Anderson]

All right, killing it. Good job.

[Andi Last]

Get that sheet that Al was looking at in the episode Description. It's the 2025 key financial data Guide. You can see at a glance. Like Joe and Big al do the 2025 tax brackets, capital gains tax rates, retirement plan contribution limits, tax on Social Security, Medicare premiums and current credits, deductions, exemptions, distributions and exclusions. It's all the numbers that affect your financial strategies as you plan for retirement. And now it's newly updated to Account for the tax changes in the one big beautiful Bill Act. Also, we've seen some market volatility in recent weeks and months. What should you do when the stock market gets crazy? Watch the brand new episode of YMYW TV to find out and download 10 Steps to Improve Investors Investing Success. I know it's a lot of free financial resources I just threw at you. Luckily, you can find them and many others linked in the episode description for you to download and watch and peruse at your leisure.

[Joe Anderson]

All right, let's. Let's go to Dolly. She goes. Please use Dolly, my call name.

[Big Al Clopine]

Yeah.

[Joe Anderson]

All right.

[Big Al Clopine]

Yeah.

[Joe Anderson]

Okay. We are both 62. My husband. My husband has inherited an IRA from his mother in 2018 from which he is taking RMDs. Should my husband pass away, honestly not hoping for this early demise. Thanks, Dolly. And I become the beneficiary. Would that IRA need to be emptied in 10 years? Now the Secure act is in place, or can I continue as my RMD as before? Have been listening to you for the past year and have helped me correct several mistakes we made. We feel much more comfortable with our current assets and retirement plans. You guys are great together and keep me laughing. Those who don't find this funny have no sense of humor. Oh, look at Dolly. Yeah, makes me happy. Also want to tell Joe that he shouldn't put himself down with bad words like idiot. Wow, when do I call myself an idiot?

[Big Al Clopine]

I don't.

[Andi Last]

When you're reading and you say that, people say that. They must be listening and thinking, this guy is such an idiot.

[Big Al Clopine]

You probably have said that.

[Joe Anderson]

Well, I think Andy.

[Andi Last]

Oh, it's me.

[Joe Anderson]

I prefer savant and ignore the critics.

[Big Al Clopine]

Yeah, that's a good word.

[Joe Anderson]

All right.

[Big Al Clopine]

Savant.

[Joe Anderson]

Yes. Okay. Keep spitballing. And sometimes you do have to hurl the whole loogie. What the hell does that mean?

[Big Al Clopine]

Well, that's just in reference to spitball.

[Joe Anderson]

Oh, wow. Okay. Dolly's got a sense of humor there, right? Yeah. Gotta hurl the whole loogie. You gotta hurl it out.

[Big Al Clopine]

Gotta do it. Get it out there so you can answer the question.

[Joe Anderson]

My sympathies to Big Al with his mom. I'm currently caring for my 95 year old mother, preparing for the inevitable. Andy's a Joy. We have two chocolate laps. Husband drives a 2018 4Runner. I drive a 2024 Tacoma. My dream car. I saved up to pay cash. A Tacoma is a dream car?

[Big Al Clopine]

Yeah, why not?

[Joe Anderson]

Yeah. Yours was a red convertible Mustang.

[Big Al Clopine]

You know, when I was a kid, the game shows the brand new car. Let's make a deal behind Kurt. You know, you pick curtain number two and it's a goat. Curtain number three is a convertible. Red convertible. That was always the top of the pile.

[Joe Anderson]

Got it?

[Big Al Clopine]

Yeah. Finally got one.

[Joe Anderson]

All right, so her husband, he likes a shot of straight bourbon a few nights a week. All right. For the health benefits.

[Andi Last]

There's health benefits to bourbon a few nights a week?

[Joe Anderson]

Oh, yeah. And he makes the best old fashioned or mojito on rare occasions only. Okay.

[Big Al Clopine]

Okay.

[Joe Anderson]

All right. So some confusion on RMD's 10 year rule. Secure Act. So 2018 was prior to the secure Act.

[Big Al Clopine]

Yep, it was.

[Joe Anderson]

And so his mother passed. And back then, depending is that you could take a required minimum distribution based on the life expectancy of Dolly's husband.

[Big Al Clopine]

Yep. In other words, he took over his mom's and he could stretch the IRA over his lifetime. Correct. So can Dolly do that or does she have to go to the new ten year rules?

[Joe Anderson]

Well, because she's a spouse, I'm assuming that she can continue with those RMDs.

[Big Al Clopine]

Yeah, that's my thought too. 95%. Not 100%.

[Joe Anderson]

91%.

[Big Al Clopine]

But that's how the rules typically are. Right. It's in the hands of the person that passed away.

[Joe Anderson]

But if it goes to non spouse beneficiary, then that's when things get a little bit hairy.

[Big Al Clopine]

Correct. So I'm pretty sure that you can take over your husband's position. Hopefully this doesn't happen. Right. For many years, if ever. But that's what we think.

[Joe Anderson]

I'm sure we'll probably have to recant that.

[Big Al Clopine]

Probably.

[Joe Anderson]

All right, let's go to Larry from Rhode Island. Hello. Love the show. Long time listener, first time caller. I love my IPAs and Zimphandel wine. Larry, that's just like your head's in the freezer and your feet are in the oven.

[Big Al Clopine]

Well, I like IPAs and I like. I like red wine.

[Joe Anderson]

Well, Zimpendo. Well, yeah, I'm having trouble finding the answer to this question. I hope you can help. I'm changing jobs in July. My current employer offers an hsa. By the time I leave in July, I will have Contributed My max $5850. And my employer contributes $225 a month. This has been standard over the years for this high deductible plan. When I started my new job in July, the employer offers an HRA. They provide me a $10,000 to spend on medical expenses for the HRA. Here is my question. Can I max out an HSA contribution with my current employer and then use the HRA with my new employer to its full capacity when I start that job. I have a family of six, so we do get a lot of medical bills. While I may not be able to spend all of the $10,000 in the HRA as I only have a half of year left, I will definitely use a portion. For what it's worth, I've used my HSA as an investment tool over the years. I've never pulled money out of the fund for medical expenses. Instead, I pay all medical bills out of my pocket and let the HSA grow. I've saved all my receipts and plan on pulling money from my HSA in retirement. Can I utilize both plans in the 2025 tax year? Thanks for the help. Also, do you email us which episodes the question will be answered in? Sometimes I get a little bit behind, but. And I'm hoping to get this answer asap. Thanks again. Well, he wrote this in May and.

[Big Al Clopine]

He starts in July, so it's too late. Sorry.

[Joe Anderson]

Sorry, Larry.

[Big Al Clopine]

You guys were on vacation. I'm sorry about that. But yeah, I think the HSA health savings account. So you have to have a high deductible health insurance plan, which presumably you did at your other employer. Yeah, you can max that thing out, you know, by the time mid year. And then you change jobs and now you get on a HRA plan health reimbursement arrangement. That kind of plan is where you submit a medical bill to your employer and they re that you paid and they reimbursed you the most important thing, and you'll basically have two plans in one year. And that's okay because you cut off employers. But just to be on the safe side, don't use any of your HSA funds for the rest of the year. Use the plan only, which is what you're going to do, of course. Already. So I think you're fine.

[Joe Anderson]

Yeah, he's not spending that anyways.

[Big Al Clopine]

Yeah. Yep. All good.

[Joe Anderson]

All right. Yeah, Just a couple months behind, Larry. Sorry. So appreciate the questions. Andy, wonderful job.

[Andi Last]

Thank you.

[Joe Anderson]

What are you doing? You're typing some notes there, huh?

[Andi Last]

Making sure that I can do good show notes. Talking about how you're an idiot.

[Joe Anderson]

I am an idiot.

[Big Al Clopine]

Are you gonna lead with that?

[Andi Last]

No, I'll leave that for later.

[Joe Anderson]

All right, Aaron, thank you. Wonderful job. Big Al, good to have you back.

[Big Al Clopine]

Yeah, good to be back. And good to. Good to be doing with this with you.

[Joe Anderson]

Yeah. And we'll see you guys next week. Joel's gonna you'd Money youy Wealth Dolly.

[Andi Last]

Thank you for pointing out that Joe is not an idiot, he's a savant one. We are very lucky to have on youn Money, you, Wealth along with the big man. The brilliant, brilliant Big Al, Clopine and Skipper. This is just for you. Tune in next week on YMYW to find out whether Wendy in Loveland, Colorado should continue converting to Roth while working despite being in a high tax bracket, the pros and cons of Kurt and Kourtney paying off their home before early retirement, and whether Tim and Faith should stick with saving to their tax deferred accounts on their way to retiring at ages 55 or 60. Kurt and Kourtney and Tim and Faith.

[Joe Anderson]

Faith.

[Andi Last]

Now that would be one heck of a super group. Your Money, you, Wealth is your podcast and it is super obvious to me that this show would not be a show without your questions, your participation, your feedback, your awesome name choices, and your help in spreading the word. Every comment on our YouTube channel, every honest review in Apple Podcasts, every time you tell a friend about ymyw, you're basically saying thanks to Joe and Big Al for the years of of fun and spitballing. And we truly do appreciate it. Yoramari, you, wealth is presented by Pure Financial Advisors, and while a spitball from Joe and Big Al is great, a free financial assessment with one of the experienced professionals on their team at Pure is even better. Click or tap the link in the episode description or call 888-994-6257 to schedule your free financial assessment. It doesn't matter if you're in one of our 13 nationwide locations to meet with Pure in person. You can take that zoom call right from your couch without leaving your home and find out how to get on your unique, customized path to retirement. 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 on any information contained in the podcast in the process of making a full and informed investment decision.