Should You Switch Retirement Contributions to Roth? - 518

Summary

Your Money, Your Wealth Podcast Episode 518: "Should You Switch Retirement Contributions to Roth?"

Release Date: February 25, 2025
Hosts: Joe Anderson, CFP® & Alan Clopine, CPA
Producer: Andi Last

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Introduction

In Episode 518 of "Your Money, Your Wealth," hosts Joe Anderson and Alan Clopine delve into the nuanced debate of whether listeners should switch their retirement contributions from traditional accounts to Roth accounts. The episode tackles listener questions about Roth conversions, backdoor Roth IRAs, tax implications, and strategic retirement planning, all while maintaining the podcast's signature blend of financial insight and humor.

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Key Discussion Points

1. Roth Conversion Withdrawal Debate

   • Listener Question: Tyler from Arlington, Virginia, asks whether withdrawing backdoor Roth IRA contributions to fund early retirement incurs a 10% penalty if done within five years.
   • Alan's Insight: At [02:05], Alan clarifies that generally, with Roth conversions, if you're under 59½, you must wait five years before withdrawing the converted amount without penalty. He references IRS Publication 590-B, emphasizing that non-taxable conversions aren't subject to the penalty if handled correctly.
   • Joe's Analysis: Joe explains the legislative intent to prevent loopholes where individuals could convert and withdraw tax-deferred funds immediately. He reiterates that after-tax contributions (backdoor Roth) can be accessed without penalties, aligning with Alan’s explanation.

   Notable Quote:

   Joe Anderson [04:21]: "People would convert their retirement accounts, pay the tax, and then take the money out the next day. So it was a loophole in the law."

2. Contributing to Multiple Roth Accounts

   • Listener Question: Kimberly from New York inquires about contributing to both a Roth IRA and a Roth 403 account.
   • Alan's Response [06:43]: Confirms that it's permissible to have multiple Roth accounts, including a Roth IRA and a Roth 403.
   • Joe's Addition [06:52]: Highlights that 401s or 403s are distinct from IRAs, allowing individuals to maximize their retirement savings by contributing to both.

   Notable Quote:

   Alan Clopine [06:44]: "You can definitely double up there."

3. Strategic Retirement Planning for Federal Employees

   • Listener Profile: Kate from Cleveland, Ohio, a 36-year-old federal agent planning to retire at 50 with a substantial pension and retirement savings.

   • Key Questions:

     1. Should she switch TSP contributions from traditional to Roth?
     2. Continue traditional contributions and plan for Roth conversions.
     3. Limit contributions to match and allocate additional funds to a taxable brokerage account to manage future RMDs.

   • Alan's Recommendation [09:27]: Suggests favoring Roth contributions given her current 24% tax bracket, anticipating higher income and tax rates in the future.

   • Joe's Perspective [10:36]: Agrees with Roth contributions, emphasizing the benefit of locking in the current tax rate before potential increases.

   • Collaborative Advice: Both recommend a strategy that maximizes Roth contributions now to mitigate higher future tax burdens, with Alan suggesting a balanced approach if full Roth conversion isn't feasible.

   Notable Quote:

   Alan Clopine [10:36]: "If that tax rates changed, I would try to stay in the 24%. And so I would split the contributions."

4. Roth Conversions for High-Net-Worth Retirees

   • Listener Profile: Neo from San Clemente, recovering from brain surgery, seeking advice on converting a $1.2 million IRA to Roth.

   • Discussion Points:

     • Balancing tax liabilities with long-term care expenses.
     • Timing Roth conversions before RMDs commence.
     • Considering current and future tax brackets.

   • Alan's Strategy [16:31]: Advises against converting the entire IRA at once, recommending phased conversions to stay within favorable tax brackets.

   • Joe's Input [17:08]: Emphasizes the importance of utilizing current lower tax brackets to manage RMDs effectively.

   Notable Quote:

   Alan Clopine [16:31]: "There's no reason why you would convert the whole 1.2 million."

5. Roth Strategies for Couples with Significant Retirement Savings

   • Listener Profile: Mike from Western PA, a 67-year-old planning retirement with his wife, aiming to manage $5 million in retirement accounts.

   • Key Questions:

     • Should they pursue Roth conversions with their existing $4 million in retirement accounts?
     • How to handle RMDs given their age difference.

   • Alan's Recommendation [19:21]: Suggests conducting Roth conversions within their current tax brackets to minimize future RMD-related taxes.

   • Joe's Advice [20:26]: Encourages utilizing Roth conversions to reduce the tax burden, especially considering the couple's substantial retirement savings and the differential in RMD timings due to age differences.

   Notable Quote:

   Joe Anderson [20:26]: "I would utilize the 24% as much as you can while you're both young and healthy."

6. Early Retirement Strategies for High-Income Tech Professionals

   • Listener Profile: Ricky Bobby from Charlotte, NC, a 33-year-old tech consultant aiming to retire at 43 while maintaining financial independence.

   • Key Questions:

     • Optimal allocation of $85,000 annual savings.
     • Balancing aggressive savings with future lifestyle needs and potential career changes.

   • Alan's Guidance [35:07]: Recommends maximizing 401(k) contributions, utilizing Roth IRAs or backdoor Roths, and directing additional savings into taxable brokerage accounts.

   • Joe's Strategy [36:02]: Projects substantial growth in brokerage accounts, enabling financial flexibility for part-time work or career transitions post-retirement.

   Notable Quote:

   Joe Anderson [35:20]: "Fully fund the 401k plans... funnel into the brokerage account under that $85,000."

7. Tax Liability Concerns for Pre-Retirees with Pensions

   • Listener Profile: Herc and Angel, both in their early 60s, planning to retire with substantial pensions and retirement accounts.

   • Key Questions:

     • Managing tax liabilities due to pensions and upcoming RMDs.
     • Deciding on Roth conversions versus maintaining traditional contributions.
     • Adjusting investment portfolios to include more bonds.

   • Alan's Advice [30:43]: Recommends initiating Roth conversions to manage tax liabilities, focusing on the older spouse to handle RMD timings effectively.

   • Joe's Confirmation [20:26]: Supports Alan's approach, emphasizing the importance of utilizing current tax brackets to minimize future tax burdens.

   Notable Quote:

   Alan Clopine [21:59]: "I would go with the older person to convert that out."

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Insights and Conclusions

• Roth vs Traditional Contributions: Converting to Roth accounts can be advantageous, especially when current tax rates are favorable and expected to rise in the future. This strategy locks in today's tax rates, allowing tax-free withdrawals in retirement.

• Backdoor Roth IRAs: For high-income earners who exceed Roth IRA contribution limits, backdoor Roth conversions provide a viable pathway to benefit from Roth account advantages without direct contributions.

• Phased Conversions: Rather than converting entire retirement accounts in a single year, phased conversions help manage and mitigate tax liabilities, keeping withdrawals within lower tax brackets.

• Strategic Planning for Couples: Age differences and RMD timings necessitate tailored Roth conversion strategies to optimize tax efficiency and ensure sustained retirement income.

• Early Retirement Considerations: Aggressive saving combined with strategic Roth conversions and diversified investment portfolios enable early retirees to achieve financial independence while maintaining flexibility for career and lifestyle changes.

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Notable Quotes with Timestamps

• Joe Anderson [04:21]: "People would convert their retirement accounts, pay the tax, and then take the money out the next day. So it was a loophole in the law."

• Alan Clopine [06:44]: "You can definitely double up there."

• Alan Clopine [10:36]: "If tax rates changed, I would try to stay in the 24%. And so I would split the contributions."

• Joe Anderson [20:26]: "I would utilize the 24% as much as you can while you're both young and healthy."

• Alan Clopine [21:59]: "I would go with the older person to convert that out."

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Additional Resources

• Ultimate Guide to Roth IRAs: Downloadable for free here.
• Retirement Lifestyles Guide: Available for download to help plan lifestyle and financial strategies in retirement.

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Disclaimer: The advice provided in this summary is based on the podcast transcript and is intended for informational purposes only. Listeners should consult with a financial advisor for personalized financial planning.

Transcript

[Andi Last]

Should YMYW listeners be saving to their traditional 401ks and IRAs or their Roths? That's up next on this episode of youf Money, you, Wealth podcast. Plus, what are the rules around contributing to two different Roth accounts at the same time? If required, minimum distributions are going to be staggered because of a couple's age difference. Should they convert to Roth or just leave it alone? But first, the fellas have a Roth conversion withdrawal debate to settle. Click or tap ask Joe and Big Al on air in the episode description to ask your money questions or to get a retirement spitball analysis of your own. 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]

Ryan, thanks again for joining us. It sounds like a Roth show today, Al.

[Big Al Clopine]

Apparently. Yeah, well, I think there's a theme here. No problem.

[Joe Anderson]

Yeah, I'm over Roth. Been over Roth for 10 years.

[Big Al Clopine]

You're over it?

[Joe Anderson]

Well, I was just talking about it every week over and over and over again.

[Big Al Clopine]

I thought that's all you thought about.

[Andi Last]

You guys are the Roth brothers now. Come on.

[Joe Anderson]

All right, let's dive in. We got. Hey, Andy Jobing. Al, this is Tyler from Arlington, Virginia. I'm a full time federal agent, also owns a financial planning firm providing advice only services to federal employees. All right, Tyler, what's the name of your firm so people can look you up? I've been a huge fan of your show for years now and appreciate all the great information you guys provide. You're part of the reason I got into financial planning. All right, nice drink of choice is seltzer water or iced coffee. And non work vehicle is a Kia Forte. Boring. I know. He's a federal agent. He drinks iced coffee and seltzer water.

[Big Al Clopine]

He's got to stay sharp.

[Joe Anderson]

He's got to get jacked.

[Big Al Clopine]

Right.

[Joe Anderson]

YMYW podcast, episode 507. Oh, God, I hate it when people do that at 1320. 1320 for the very exact.

[Big Al Clopine]

Also known as 120.

[Joe Anderson]

Yeah, like, I don't know how many episodes ago was this?

[Andi Last]

13 minutes and 20 seconds into the episode, he's saying. So he's calling you out exactly where you said it.

[Big Al Clopine]

Oh, that's what he's saying. Okay, got it.

[Joe Anderson]

All right. The listener asked if he could withdraw his backdoor Roth IRA contributions to help fund early retirement. You mentioned that he would be subject to a 10% penalty if he withdrew the converted amount within five years. I was under the impression that a non taxable Conversion can be withdrawn at any time, even with a five year of a backdoor conversion without a 10% penalty. A Q and A on Ed Slot's website, along with articles from CPA Sean Mullaney and CPA Denise Appleby state that non taxable conversions like the backdoor contributions are not subject to the five year conversion rule and will be subject to a 10% penalty if withdrawn prior to the five years. These two experts appear.

[Big Al Clopine]

Excerpts.

[Joe Anderson]

Oh, excerpts appear to support the fact that a 10% penalty would only apply to a taxable conversion if. What's wrong? Within the five years. So all of this, I don't really care if you do a conversion, don't take the money out within at least 10 years. It doesn't matter, I guess, if it was an emergency. But this guy's doing a conversion to buy his house. They probably said it just to tell him not to.

[Big Al Clopine]

It could be. I forget.

[Joe Anderson]

But my personal CPA, on the other hand, said the 10% penalty would apply to the withdrawal of a backdoor conversion amount if taken in the first five years. Can you please settle the debate? Thanks again for all. You do love the show, Tyler.

[Big Al Clopine]

Well, I don't exactly remember what we said. It was a few episodes ago. However, I can tell you, Joe, that it's generally with a Roth conversion, if you're under 59 and a half, then you have to wait five years for the principal part, the part you pay taxes on, to be able to pull that out without penalty. So that's a true statement. So this question was taken as the next step, which is, what if you do backdoor Roth, get the money into a regular IRA where you didn't get any tax deduction and then you convert that amount. That makes sense to me. It kind of does. And I did a little research on this rather than kind of off the cuff. And I think Tyler is right.

[Joe Anderson]

Well, now you think about it, it does make sense because the 10% penalty on the conversion is only to avoid people to take dollars out of a retirement account before 59 and a half.

[Big Al Clopine]

Yeah, yeah.

[Joe Anderson]

That took a tax deduction. So, hey, I received a tax deduction in my 401k or my IRA, you know, was pre tax and I'm under 59 and a half and I'm going to take the money out.

[Big Al Clopine]

Yeah.

[Joe Anderson]

People would convert their retirement accounts, pay the tax, and then take the money out the next day.

[Big Al Clopine]

Right.

[Joe Anderson]

So it was a loophole in the law.

[Big Al Clopine]

Yeah.

[Joe Anderson]

And so they were like, well, let's close the loophole. So if you Do a conversion, and then you want to take the money out. Even though you paid the tax, you still have to wait five years. So with this, it was already after tax dollars that was accessible already. So you took money from your checking account or money market account or whatever, you put it into the ira, then converted it. I suppose that makes sense that those dollars could be accessible because you never got the tax benefit to begin with by putting the dollars in the retirement account.

[Big Al Clopine]

And publication 590B is 33.

[Joe Anderson]

Did you memorize it?

[Big Al Clopine]

No, I got it right here. But it says to that effect, basically, it says that you don't have to pay penalties on the part. You did not include in income on the conversion. So that seems to state that. Tyler's right. And again, I'm not sure what we said. That was a few episodes ago, but I, I, Whatever we say, you're not.

[Joe Anderson]

Going to go back and listen to it?

[Big Al Clopine]

No. Are you?

[Joe Anderson]

No. That's. No. All right, well, hey, good luck with the career in financial planning and being a federal agent and all the best. And yeah, if you're a federal employee and you need some help, you got to look up Tyler. No idea where Tyler's firm is. What's the name?

[Andi Last]

We know he's in Arlington, Virginia, which makes sense if he's a federal agent.

[Big Al Clopine]

Yeah, yeah, look him up.

[Joe Anderson]

Yeah, he's calling us out, which is fine.

[Big Al Clopine]

I'm fine with that.

[Joe Anderson]

I could care. All right, we got Kimberly. Kimberly from New York. Just a quick question. I have a work 403, a Roth IRA and a brokerage account. My work also offers a Roth 403. Should I be using my Roth 400, my 403 Roth? Am I allowed to have two Roths? Quick answer is yes, you can do a Roth IRA and a Roth 403. So you can do a Roth 401 and a Roth IRA.

[Big Al Clopine]

Right.

[Joe Anderson]

So 401s or 403s are different than IRAs. So, yeah, you can definitely double up there. Yeah.

[Big Al Clopine]

And I think, Joe, a lot of people don't really realize that you can completely max out your Roth 401, 403, whatever, and still do a Roth IRA contribution. So that's still available. It's considered to be different.

[Joe Anderson]

Okay, let's move on. To Kate from Cleveland, Ohio, goes. Hey, Joe, Big Al, Andy, this is Kate from Cleveland. I'm 36, single, and drive a Acra Integra. My favorite drink is bourbon. In my spare time, I try to golf as much as I can. Oh, Kate from Cleveland, Ohio. That's something in common with you.

[Big Al Clopine]

You do?

[Joe Anderson]

I have approximately $450,000 saved in investments. $300,000 in my traditional TSP, $40,000 in my Roth TSP, $50,000 in a taxable brokerage, 45,000 in a Roth IRA, $15,000 in HSA. I'm sure Al will add all that stuff up momentarily, so if you weren't following. No problem.

[Big Al Clopine]

Well, she already said it's about $450,000 total. Yep, total.

[Joe Anderson]

All right. Current income is $150,000 annually, and I'm maxing out my traditional TSP, Roth IRA, and HSA. I usually add another 5,000 to $10,000 into my brokerage account. Man, what do you live off of? What kind of bourbon do you drink? And what courses are you playing?

[Big Al Clopine]

It's the public course on Tuesday.

[Joe Anderson]

I feel like I'm in good overall financial position. However, I work in federal law enforcement, which adds some different nuances to retirement, and we'd love to hear your thoughts. Plan on retiring at age 50, and I'll become eligible for my full pension, conservatively estimated at $65,000 annually, and also have full access to my TSP withdrawals with no penalty as special category government employee. All right, so, got a couple questions. Number one, switching my TSP contributions from traditional to Roth because my pension, plus Social Security, when I take it, will pretty much always fill up the lower brackets. Two, continue traditional contributions in. Just plan for Roth conversions. Or three, lower my TSP contributions down to the match and put everything else into a taxable brokerage to limit RMDs in the future. For spitball purposes, my anticipated spending in retirement will be approximately $110,000. Appreciate any jokes, criticisms and insights. All right. Okay.

[Big Al Clopine]

Okay. So she's asking should she go Roth or traditional in her TSP contributions. And for a little context, she's in the 24% tax bracket. What do you think?

[Joe Anderson]

Let's see. She's going to have a really good science pension. 65. Well, is Kate going to get married? Because that will change.

[Big Al Clopine]

Could change.

[Joe Anderson]

It could change her tax bracket. Right. I mean, the question she's asking has nothing to do with, like, what she's going to do in retirement.

[Big Al Clopine]

Yeah. Well, she's only 36, so it's a little early. But she wants to retire at 50.

[Joe Anderson]

Yeah. She's a badass cop. 14 years, plays golf. I don't know. Yeah. At 36, you're in the 24% tax bracket. She's probably. She's saving a ton of money. She's got 450, $300,000 in the tsp. Now she's got another 15 years of fully funding that. I would go Roth if I were her at the 24% tax bracket, I still think that's a decent rate. If her income continued to increase, then I would probably. Or if tax rates changed, I would try to stay in the 24%. And so I would split the contributions. Let's say if I jumped into the next bracket. So I would just take a look at what those brackets are each year. But I like roth at the 24.

[Big Al Clopine]

I think I agree with you because she's in the 24% bracket. She makes a good salary at 36. You know, I don't know federal government, what her prospects are for higher salary or higher roles. But chances are at 36, doing as well as she is, she'll probably promote and make more money, maybe be in higher tax brackets later. You know what, if that seems like too much to go all Roth from TSP, maybe you could do 50 50, if that's a little easier to stomach. But yeah, I like the idea going Roth 50, 50.

[Joe Anderson]

That's like the worst advice I think I've ever heard.

[Big Al Clopine]

That's, that's not advice. It's a spitball you dip your toe in and see how you like it.

[Joe Anderson]

Well, you're so scientific most of the time.

[Big Al Clopine]

I know, but there you go.

[Joe Anderson]

I like roth in the 24. She creeped up. Then I would go pre tax.

[Big Al Clopine]

But yeah, I'm, I agree with you.

[Joe Anderson]

50, 50.

[Big Al Clopine]

I'm just saying some people, some people, when they do that, then they, they, they, they have a lot less take home. And it doesn't feel.

[Joe Anderson]

If I ever saw, I'm like, why are you going 50, 50? They're like, big Al told me.

[Big Al Clopine]

Well, I'm just saying what I might do. All right, how about that?

[Joe Anderson]

Okay.

[Andi Last]

It's important to understand Roth accounts and how they work so you can take full advantage of the lifetime tax free investment growth that they offer. Click or tap the link in the episode description to download the Ultimate Guide to Roth iras for free. You'll have valuable information in print, mind you, about how Roth contributions and conversions allow you to keep and grow more of your money. Plus, you heard the fellows mention the infamous backdoor Roth strategy earlier. This guide explains how it can help even if you make too much money to contribute directly to a Roth. Plus, learn the differences and pros and cons of saving In a traditional IRA versus a Roth IRA versus a Roth 401k, the rules for taking money out of your Roth account, and much more. Click or tap the link in the episode description to download your copy of the ultimate guide to Roth IRAs and share YMYW and all the free financial resources with anyone you know who would benefit.

[Joe Anderson]

All right, let's move on. We got hi Andy, Joe, Big al. This is Neo 66 Yao from San Clemente with another no brainer spitball question for you to answer while I'm walking on the beach as I continue to recover from brain surgery.

[Big Al Clopine]

Oh boy.

[Joe Anderson]

Oh, it is going as expected and fortunately coming along. Well, I'm still going to crack an 8:05 once I'm 100% recovered on the first tee in Trinity. All right, on the first tee he's.

[Andi Last]

Going to crack an 805 on the first tee once he's fully recovered.

[Big Al Clopine]

Yep, I can picture that.

[Joe Anderson]

And then Trinity and Trinity still prefers 80. And Trinity, 63 year old. Who's Trinity?

[Andi Last]

His wife. It's Neo and Trinity.

[Joe Anderson]

Neo and Trinity, Mr. Anderson.

[Big Al Clopine]

Yeah, got it.

[Joe Anderson]

All right. You know how many times someone said that to me?

[Big Al Clopine]

I. I would imagine a lot.

[Joe Anderson]

Million millions, Mr. Anderson.

[Big Al Clopine]

Just like that.

[Joe Anderson]

Just get the hell out of here. Still prefer a pomegranate martini this time. I'm wondering about saving in traditional IRA versus Roth. IRA to self insure for long term care expenses which are way expensive to buy at my age. So self insurance seems like a logical choice. Should I convert all of my $1,200,000 IRA to Roth in the next few years before I take Social Security at 70 in 2028? $58,000. Okay. Or should I hold $300,000 plus in a tax deferred account since I think long term care expenses are tax deductible. Trans pension is about $80,000 in 2024 and his Social Security should be 50% of my FPA benefit which should be $23,000 in 2028. Currently we have about $115,000 in high yield savings once $0.2 million in an IRA, 401. $36,000 in a Roth as well as $500,000 in a brokerage account. We're going to retire this month. $330,000 in income in 2024. So already in the 24% tax bracket. Converting the. How old is this thing?

[Big Al Clopine]

He's 66.

[Joe Anderson]

No, 12. This was in December.

[Andi Last]

Emails from December. We're a little behind a little bit.

[Big Al Clopine]

Yep.

[Joe Anderson]

Converted the top of the 24% tax bracket in 25, 26 and 22 and 27 through 29. Okay. Leave somewhere around. All right. Love the show. I've learned a ton. Figured out my plan by listening to archived episodes, about 150 of them.

[Andi Last]

Wow.

[Big Al Clopine]

Neo.

[Andi Last]

Holy cow.

[Big Al Clopine]

Can you imagine 150 episodes?

[Andi Last]

And he says the real world examples set you guys apart. See, that's why we keep doing the Roth show.

[Big Al Clopine]

Okay. All right, so.

[Joe Anderson]

All right.

[Big Al Clopine]

So should he convert the whole one to 2 million?

[Joe Anderson]

No, I don't know.

[Big Al Clopine]

He's in four years.

[Joe Anderson]

No, no, no.

[Big Al Clopine]

It's too much.

[Joe Anderson]

Way too much. Stay in the 22% tax bracket. You're retiring. Go to the 22% tax bracket. And if long term care is going to be tax deductible. So you want to pull the long term care cost out of your IRA versus a Roth.

[Big Al Clopine]

Yeah, you kind of. You don't really necessarily want to convert everything just for that reason. And plus, I mean, the other thing too is you look at your tax bracket when you're paying the tax on the conversion versus your retirement bracket and being retired, it's going to be in a lower bracket. Something you have to consider though, at the end of 2025, unless the tax laws are extended, we go back to the old laws from 2018, which are no longer 10, 12, 22, 24, they're 10%, 15, 25, 28, and then they ratchet up from there.

[Joe Anderson]

What do you think they're going to get extended?

[Big Al Clopine]

I think that's a good, like, I mean, it seems like they get extended, but you got to watch that though. Right. If you're thinking about a four year plan, you got to make sure that the taxes are where you want them to be when you do these conversions. But I would say in 2025, if you want to do a bigger conversion in 25, you could even do the top of the 24. But there's no reason why you would convert the whole 1.2 million.

[Joe Anderson]

No.

[Big Al Clopine]

And in fact, there's no reason to stop doing conversions. When 58,000 of Social Security comes in, you still have an opportunity before RMDs.

[Joe Anderson]

Yeah, there's an $80,000 pen. I mean, it sounds like the fixed income is good. Yeah, the RMD. And they're still young. 66 and 63.

[Big Al Clopine]

Yep.

[Joe Anderson]

So they have roughly 10 years to get a lot of this out.

[Big Al Clopine]

That's right.

[Joe Anderson]

1.2 million. I mean, if you just, you know, if you go big in 24, I don't know, I went 24% tax bracket's giant. If they don't have A ton of income. They can probably convert 24%. I mean, like, 200 grand.

[Big Al Clopine]

Yeah, if they want to go that far. And they've got the brokerage account to pay the tax again, that could make sense mathematically, but it's another thing where you can, you know, when you get your tax return and you got this big tax bill. Are you okay with that?

[Joe Anderson]

Yeah. All right. Well, I'm glad that you're doing all right, bud.

[Big Al Clopine]

Yeah, me too.

[Joe Anderson]

Keep plugging and chugging. And that 805 is coming right down the pike here for you. We got Mike from Western pa. Thank you in advance for your evaluation. It's not an evaluation, Mike. It's not advice. It's a spitball. I'm 67, yo. My wife's 69, yo. I plan to retire with my wife at age 70, a couple of years. We have $5 million in retirement, $1 million in Roth. $400,000 of that is for me. What are you going to do with that, Mike? $400,000 of that is for me. Or is $400,000 of the million dollars yours?

[Big Al Clopine]

I think that's what he means.

[Joe Anderson]

But it's all for me. It's not like my 3 year old. That's mine. That's for me. Don't touch it. $600,000 of the Roth belongs to my wife. We have $700,000 in a brokerage account. We plan to spend $20,000 to $25,000 per month in retirement. Does it make sense to do Roth conversions with the remaining $4 million? Alternatively, could we just leave the accounts alone since we'll be taking RMDs at different stages based on our age difference. Okay. We're currently in the 22%, 24% tax bracket. Thanks again for any thoughts. Yeah, $5 million. He's 67. 69.

[Big Al Clopine]

So, yeah, four is in tax deferred, one's in Roth.

[Joe Anderson]

Right. So, Mike, no, you still want to do conversions? Let's say $4 million. 4 times 4 is 16. Your RMD is 160 plus, and it's only going to go up from there. So. Yeah, you want to continue to convert out. How you think about it from an age difference is that you would want to convert your wife's out first because she's going to hit the RMD age sooner, or you look at who has the larger balance. But I would usually go with the older person to convert that out.

[Big Al Clopine]

I would, too. I'd go with the older person just because they'll hit RMD first. Yeah, no, there's definitely looks like be some good room to do conversions. How much should you convert? I mean, basically you look at that, you look at your tax bracket between now and RMD age, what the tax bracket's going to be, then, then that'll give you a better sense on how much to convert. But let's see, you say you're in the 22 to 24% bracket. You could go to the top of the 22 or even to the top of the 24 if you want.

[Joe Anderson]

So their Social Security is going to be $72,000 a year at age 70. So 72,000, minus the, you know, standard deduction, go to the 24. You could probably convert $300,000 out.

[Big Al Clopine]

Right.

[Joe Anderson]

I would definitely be thinking about that over the next few years at $5 million. I mean that RMD only gets higher.

[Big Al Clopine]

It does.

[Joe Anderson]

And then if one person dies, even though this morbid, but guess what, it's still the same rmd. But then you just cut your tax rates in half. So you hit those higher tax rates a lot quicker with income because the top of the 12%, the 22% and 24% tax brackets are cut in half. So I would utilize the 24% as much as you can while you're both young and healthy, because as you age, that RMD continues to increase and unfortunately one spouse usually dies before the other. And then you want to give a lot of that maybe to the next generation or things of that nature. And the IRS ends up getting a lot more than maybe than you thought, especially with that big of a balance of a retirement account.

[Big Al Clopine]

Yeah, I think to me that that's the key. Given their age, they got $4 million in a retirement account. The thought of getting more of that out with a Roth conversion, to me that makes a lot of sense. You could look at the 22% bracket, you could look at the 24% bracket. I would not go above 24%. Be careful there. There's no reason to pay any more tax than that. But yeah, certainly this year we know for sure we have the 24% tax bracket. Next year we'll have to see. It may be extended, but it may not. We'll just have to see.

[Joe Anderson]

Okay, moving along, we got. Hi, Joe, Big Al and Andy. This is Joe from North Carolina. I'm 38 year old, single, no children. I've been listening to your show for about a year while on my daily four mile walks. Four mile walks a day.

[Andi Last]

That's a lot of listening.

[Joe Anderson]

That's impressive. How many times do you have to go up and down your stairwell to get four miles?

[Big Al Clopine]

Well, I do. I typically walk about five a day. Five miles a day, but that includes everything, like walking from my car to the office. Because I just tracked my steps in my phone and my miles that way.

[Joe Anderson]

What is it?

[Big Al Clopine]

10,000.

[Joe Anderson]

That's five miles for me.

[Big Al Clopine]

Yep.

[Joe Anderson]

Wow.

[Big Al Clopine]

Yep. How about you? How much do you walk?

[Joe Anderson]

I don't know. I bike. I bike like probably on the old peloton.

[Big Al Clopine]

Well, that counts. That works.

[Joe Anderson]

That's about 60 miles.

[Big Al Clopine]

Yeah. Okay. There you go.

[Joe Anderson]

My drink of choice is a craft beer. It's a little too early for me to be thinking about retirement, but I like your spitball about whether I should contribute to guess what, a Thursday show or a Roth. Here we go.

[Big Al Clopine]

We got a theme going.

[Joe Anderson]

38 years old, he's got $1,300,000 in savings.

[Big Al Clopine]

How can that be at 38?

[Joe Anderson]

How much money did you have at 38?

[Big Al Clopine]

$4.

[Joe Anderson]

Yeah, I didn't have 1.3. Oh, my God. I currently rent, have no debt. My gross income is $200,000 a year. I spend about $50,000. Spend more money. Dude, he's walking. Stop walking. Maybe sit down, get a car, watch a movie, spend a little cash. No. 50,000. Good for him. About five years ago, I realized my company allowed for the Megatron. He has been listening for a while. In addition to the regular backdoor Roth, my yearly Savings is roughly 34401k + match 35 backdoor, Megatron, 35 brokerage. Since the pre tax contributions keep me in the 24% tax bracket. I find it difficult to give up all that tax break now. Although I know Joe, he's going to tell me, try to convince me to go on roth. Yeah. You're 38 years old. You're in the 24% tax bracket. That's a low bracket. Historically, we would have loved just to be in the 24% tax bracket just a few years ago. You're going to be in the 28, Joe. Take advantage of the 24. Thanks for all the great content. I recommend your show to as many people as I can. All right, well, thank you very much. Congratulations, by the way. 38 years old, 1.3 million. Saving a ton.

[Big Al Clopine]

It's pretty amazing.

[Joe Anderson]

He's single.

[Big Al Clopine]

Yep. No children, Doing a lot of things right.

[Joe Anderson]

Just wait till he finds that significant.

[Big Al Clopine]

Other beautiful lady and starts to have kids. Does the things change?

[Joe Anderson]

Yeah.

[Big Al Clopine]

From experience?

[Joe Anderson]

Yeah. Yeah. I waited a couple years. I waited until I was in the. Yeah. My late 40s.

[Big Al Clopine]

Yep.

[Joe Anderson]

Yep. I was living Joe's life.

[Big Al Clopine]

You were? I was. Yeah.

[Joe Anderson]

It was great. My life is perfect.

[Big Al Clopine]

Yeah, I know it is.

[Joe Anderson]

Okay. What? I don't know. I already said my answer.

[Big Al Clopine]

Yeah. No, I agree with you.

[Joe Anderson]

Yeah.

[Big Al Clopine]

Yeah. I guess maybe I'll just say this. If you get into the 32% bracket, you might want to do the traditional just to get back to the 24, but make sure you utilize all the 20. The 24% bracket, so you're taking advantage of that and getting the Roth doll while you're in that bracket.

[Andi Last]

How much money will you need to have saved by the time you retire? It's probably more than you think. And many factors impact whether your retirement savings will last as long as you do. This week on a brand new episode of youf Money, you, Wealth tv, find out from Joe and Big Al how your lifestyle and spending, your longevity in health care, inflation and taxes, and where you retire all impact the kind of life you'll live in retirement. They'll teach you financial moves that can help you become a millionaire and income strategies so you don't run out of money. Plus, download the retirement Lifestyles Guide to make the most of your lifestyle growth, health and relationships in retirement. Click or tap the link in the episode description to watch will your money last through retirement? And to download the Retirement Lifestyles Guide. Yours free, courtesy of your money, your wealth and pure financial advice Advisors.

[Joe Anderson]

Hi, Joe. Big Al and Andy. I'm Herrick. Herc.

[Andi Last]

Herc and Angel. Hercules, I think so.

[Joe Anderson]

That's kind of a cool name.

[Big Al Clopine]

Herc.

[Joe Anderson]

61. 61 and a half. She is angel at 60 and a half. We are both divorced. We've been together for 13 years. So they were married and divorced and still together.

[Andi Last]

I have a feeling they were each married to other people and they are each divorced and have been together since.

[Big Al Clopine]

That's what I get of it too. They were divorced with other people.

[Joe Anderson]

Got it. Okay. We haven't yet gotten around to getting married. Oh, well, I should have just read one more sentence. I enjoy your podcast and I hope you can help us out. Drink of choice for me is a lager, vodka or whiskey. All right. Hers is Sherry. Wow. It's the last time I had a sherry.

[Big Al Clopine]

I didn't even know they made that stell.

[Joe Anderson]

Well, screwball. All right. That's made right here in Southern California, San Diego. And Pinot Grigio or tea with honey? Bourbon. Wow, you guys have a lot of little favorite.

[Big Al Clopine]

Yeah, they do.

[Joe Anderson]

We also like martinis and margaritas. And just anything else that has booze in it.

[Andi Last]

Yeah, they're kind of like those people that said we'll drink anything alcoholic.

[Joe Anderson]

Yeah, we'll just drink even gasoline. She drives a 2015 Nissan Rogue. I drive a 2015 Toyota RAV4. I plan to buy a new or slightly used SUV and the next year with cash. We both work local government in Massachusetts and both will collect traditional pensions. We would both like to retire in 2026 at the ages of 63 and 62 respectively. At that point, our estimated combined pensions will be $216,000. There's a survivor benefit equal to 2/3 of the pension allowance. There is a modest COLA 3% on the first 16,000. But we are not factoring that. We are subject to the windfall elimination provision and we are not factoring in Social Security. When did he write this?

[Andi Last]

This was also in December. This was before the Social Security weapon GPO change.

[Big Al Clopine]

Yeah. So it's going to be even better.

[Joe Anderson]

Our house is worth $620,000 and we have $220,000 remaining on a mortgage of 3.75%. Angel has about $2,500 remaining in her car loan. We have no other debt. My two kids are on their own and her son will graduate College in May 2025. We have no college debt and expect the kids will be self sufficient. Current annual expenses, including the mortgage and contributions to savings of brokerage accounts are approximately $180,000 a year. Expenses in retirement expected to be $200,000 a year. We're planning to travel extensively in retirement. Our mothers are in their 90s and we're each to stand to receive an inheritance. Unknown amounts. We're not factoring inherits into the planning. It feels like we are in pretty good shape. Well, you have a $220,000 pension and.

[Big Al Clopine]

They have a million bucks, so that's pretty good.

[Joe Anderson]

And you want to spend $200,000, so you're good. There's the math. Herc, I think you're good.

[Big Al Clopine]

Oh, here's the questions.

[Joe Anderson]

I am concerned about our tax liability in retirement due to our pensions at 457s that will grow for the next decade. Plus before our RMDs kick in. Here's the spitball. Should we start doing conversions? Yes. Should we dial back our pre tax contributions and put more into a taxable brokerage account or cash? No. I would go all Roth. At what point should we reduce our stock holdings and move towards bonds? I wouldn't. You don't need the money. You're Living off your pension in Social Security. What pension and stocks and bonds? Should we aim for whatever your risk balance is? This is just rapid fire.

[Big Al Clopine]

It is. I like it.

[Joe Anderson]

Should we ditch the annuity? Yes.

[Big Al Clopine]

Okay, I'm going to read my answers.

[Joe Anderson]

All right. There you go.

[Big Al Clopine]

Should we start doing Roth?

[Joe Anderson]

This is the Family Feud.

[Big Al Clopine]

Should we start doing Roth conversions? Yes. Should we dial back our pre tax contribution, put more into tax brokerage? No, but go into the Roth.

[Joe Anderson]

Oh, wow. Okay, number one answer.

[Big Al Clopine]

At what point do we reduce our stock holdings and moved into bonds or safer investments? Depends upon your goals, which is the same answer for the next one. How much to have in stocks and bonds? Last one. Should we ditch the annuity? Need more info, but likely yes.

[Joe Anderson]

All right, very good.

[Big Al Clopine]

Okay, I guess we're on the same page.

[Joe Anderson]

Yeah, we're on the same page there.

[Big Al Clopine]

Yep.

[Joe Anderson]

Yeah, you're doing fine. You're doing great. You got great pensions. I thought the question was going to be, do we get married? I thought that was coming.

[Big Al Clopine]

Yeah.

[Joe Anderson]

With a couple hundred thousand dollars pensions and then with a million dollars in.

[Big Al Clopine]

Retirement accounts, it's looking sweet.

[Joe Anderson]

Yeah.

[Andi Last]

This is the bonus round of Family Feud.

[Joe Anderson]

Well, no, it's just like. Well, I don't know if they get married from a tax perspective. We're getting a lot of those questions, right? We get married because of tax. Because that. Anyway.

[Big Al Clopine]

Well, you get married for love.

[Joe Anderson]

Yes. Thank you, Reverend Al.

[Big Al Clopine]

You're welcome.

[Joe Anderson]

All right, we got Ricky Bobby from Charlotte, North Carolina. Shake it, Bake. Hey, John. Big Al. I've listened to your podcast twice after seeing my suggested list on Apple Podcasts.

[Big Al Clopine]

And I will never listen to it.

[Joe Anderson]

Yeah, this is the worst I've ever heard in my life.

[Andi Last]

Beep.

[Big Al Clopine]

Leap.

[Joe Anderson]

Yeah, that's funny. All right, now what did he say? And I think I may be hooked.

[Big Al Clopine]

Oh, that's different than what you thought.

[Joe Anderson]

Yes. I wanted to send you my family situation to get your thoughts on a little spitball. Okay. Currently, my wife and I, we're both 33 years old, both work in tech consulting and make $310,000. Combined bonus puts us closer to 330 or 350. The problem is both of us really don't enjoy our jobs and we both want to stop working in the field as soon as possible. Whether that looks like switching careers or finding a much less stressful job, we're not sure yet. Here's our financial picture. We spend $80,000 a year on expenses and expect to increase that to about $100,000 annually for the next four years that our daughter is about to start daycare. All right, we have two paid off cars, a paid off house purchased in 2019, $150,000 in a taxable brokerage, $40,000 in a rainy day savings account, $600,000 in traditional and Roth 401s. We've also managed to save over $80,000 per year the last three years while we attacked our mortgage payoff and stacked up our taxable brokerage so we have the ability to mega save. I love mega save.

[Big Al Clopine]

Yeah, me too.

[Joe Anderson]

But it gets a little trickier with kids moving forward. What would you suggest the plan of attack be? Stack up brokerage as high as possible while we are in tech and fed up and feed off of that account. When we're done with tech, get the brokerage high enough for it to be sufficient in. We take significantly lower paying jobs that can pay for our day to day expenses in healthcare. We both love to be working part time jobs and financially independent by the time we're 43 so we can enjoy our kids and have more freedom. Happy to hear your thoughts. Thanks, Ricky. Okay. Hates his job. Makes 300.

[Big Al Clopine]

Almost $400,000 between the two of them.

[Joe Anderson]

Okay. They have, let's see, 600,000. Six, seven, five, zero.

[Big Al Clopine]

Yeah, call it 800.

[Joe Anderson]

$800,000 at 33 years old.

[Big Al Clopine]

Yep.

[Joe Anderson]

God bless you, Ricky. Man. We got some savers in the group.

[Big Al Clopine]

We sure do.

[Joe Anderson]

Okay. And he's saving $85,000 a year. So he's like, all right, where should I put this? $85,000.

[Big Al Clopine]

Right.

[Joe Anderson]

So he's 33, wants to retire at 43. But does he want to retire at 43 and then just work part time jobs or is it, hey, I want to retire right away and then work part time jobs?

[Big Al Clopine]

I think what I'm getting is they want to work, they want to, they want to stockpile a bunch of money at 43. They want to either work less or work part time or change careers. That's what I think he's saying.

[Joe Anderson]

Okay, all right.

[Big Al Clopine]

I think, yeah. Building up the brokerage account. Yeah, that's, that would be a good thing to do. I mean, that's kind of true. In all three of these scenarios, I.

[Joe Anderson]

Would fully fund the 401k plans. Here's, here's what I'm going to.

[Big Al Clopine]

For sure. Yes.

[Joe Anderson]

Here's my suggestion. Both of you fully fund the 401 plan. Anything after that, then I'm doing Roth IRAs if I qualify. If not, I'm going to do the backdoor Roth ira. And then from there, anything after that, I'm going to funnel into the brokerage account under that $85,000. That's what I would do. And then at age 43, you have $800,000 and say he's got 10 years. And let's say you get 7% over that 10 years, hypothetically, and you say $85,000 a year, you're going to have roughly $2,700,000 at age 43.

[Big Al Clopine]

And if you're spending $80,000 plus a little more for kids. Right.

[Joe Anderson]

It's $82,000 at 3%. But I bet you don't even have to touch that. Both of you get a little part time kind of hobby work. That's a lot less stressful. But the trick is, can you make it another 10 years of saving $85,000 a year and working in a job you hate? 10 years? Well, I don't know. I've done it 17.

[Andi Last]

Are you saying you hate your job? Come on now.

[Joe Anderson]

I was seeing if Alan was listening to me.

[Big Al Clopine]

Back at you. How about that?

[Joe Anderson]

Hated doing this for the last 18 years, Al, but I keep coming back because that fat paycheck, you know, for.

[Big Al Clopine]

Me it's been 19 years of drudgery.

[Joe Anderson]

Well, 10 years, you can make it 10 years, Ricky Bobby, you got this.

[Big Al Clopine]

Now if we read this wrong, if they're wanting to retire sooner, they've got good savings. Get as much as you can into savings, but then have jobs that at least pay for your expenses. So you're not touching your principal.

[Joe Anderson]

Yeah. 800,000 will turn to 1.6 million. Let's say just do the rule of 72. Just double that money every 10 years.

[Big Al Clopine]

Right. And live. And make enough to live off what you need. Right. And then let that keep growing. And then when you want to stop working altogether, you'll probably have enough money to do it.

[Joe Anderson]

Yeah. So at age 53, you're going to have a roughly, I don't know, three and a half million dollars, give or take. Yeah. Then that probably given inflation, you're still going to be a little bit short.

[Andi Last]

Yeah.

[Joe Anderson]

But you're cutting cold turkey at 33, you've already saved a ton. You can save a little bit more over the next couple of years.

[Big Al Clopine]

I think you're going to be. I would keep grinding a while and then. And then go part time, change careers, whatever, and make enough to cover your expenses.

[Joe Anderson]

Yeah. With kids, though, it's always tough.

[Big Al Clopine]

It is. No, Yeah. I mean, do you think I would.

[Joe Anderson]

Have left a long time ago if I didn't. We kept these little ones.

[Big Al Clopine]

You have to worry. You have to get out of the house.

[Joe Anderson]

Yeah.

[Big Al Clopine]

Can you imagine that? And 24 hours a day.

[Joe Anderson]

They're expensive.

[Big Al Clopine]

I know they are.

[Joe Anderson]

You want to spoil them. You want to make sure they're taken care of. You want to, you know. So that's it for us. Hopefully you enjoyed the show. Bring your questions in. We'll answer them. Is that it, Andy? Are we good?

[Andi Last]

Sure. Thanks for doing that.

[Joe Anderson]

You're welcome. Thank you, Alan.

[Big Al Clopine]

It was fun.

[Joe Anderson]

Thank you, Aaron. All right, we'll see you again next week. Show Scout. You'd money you well, those of you.

[Andi Last]

Who watch us do the YMYW podcast on YouTube have been getting feisty in the comments lately, especially in response to episode 513. So last week we made a video just to address your questions and feedback. Find it exclusively on our YouTube channel or just click the link in the episode description to watch is a market Correction Coming in 2025 YMYW podcast Q and A and Feedback. Click or tap Ask Joe and Al to send us your questions or comments, even the feisty ones. YMYW is your podcast. We just make it for you. Tell a friend we're over here making fun of finance on youn Money, you, Wealth, you, Money, you, Wealth is presented by Pure Financial Advisors. Click or tap the free financial assessment link in the episode description or call 888-994-6257 and Schedule A comprehensive review of your entire financial picture with one of the experienced professionals on Joe and Big Al's team at Pure. It doesn't cost anything and you aren't committed to anything, and they'll help you craft a plan that meets your unique needs and goals in retirement. Meet in person at one of Pure's offices around the country or online at a date and time convenient for you no matter where you are. Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this podcast and does not represent that the securities or services discussed are suitable for any investor. As rules and regulations change, podcast content may become outdated. Investors are advised not to rely on any information contained in the podcast in the process of making a full and informed investment decision.