Your Money, Your Wealth Episode 557 Summary

Episode Title: UGMA, 529, HSA, RMD, and Inherited IRA Tax Bombs Defused
Hosts: Joe Anderson, CFP® & Alan "Big Al" Clopine, CPA
Release Date: November 25, 2025

Overview

This episode dives into "financial tax time bombs," breaking down the tax implications and strategic decisions around UGMA accounts, 529 plans (including the new rollover-to-Roth rules), HSAs, required minimum distributions (RMDs), and inherited IRAs. Through listener questions—paired with their signature humor—Joe and Big Al offer pragmatic advice on minimizing taxes, maximizing contributions, and steering clear of common online financial advice pitfalls.

Key Discussion Points & Insights

1. Minimizing Taxes with Large UGMA Accounts

[02:10 – 06:24] Listener: George in Torrance, CA

• Situation: Three children each have a $275,000 UGMA, set up by grandparents, to be used post-high school for education, investments, or real estate.
• Tax Mechanics:
  • UGMA account investment earnings are subject to "kiddie tax":
    • First $1,300: tax-free
    • Next $1,300: child’s tax rate (10%)
    • Income above $2,600: parents’ tax rate
    • Applies up to age 18 (or 23 if full-time student)
• Advice:
  • Invest in tax-efficient, growth-oriented ETFs to minimize taxable distributions (avoid bonds/CDs that generate income).
  • Quote: "Sometimes people are like, is there kind of a secret back door to get the money out? Yeah, not really." (Joe, 05:34)
  • Know the cost basis in the account to plan for capital gains taxation.
  • Funds can be used for anything (not restricted like 529 plans), but be cautious as the child gets full control at age 18.
• Memorable Moment: Both hosts remark on the rarity of such large UGMAs, with Joe noting, “The largest UGMA I’ve seen in 25 years is maybe $15,000…” (Joe, 04:31)

2. 529-to-Roth IRA Rollovers: When to Stop?

[06:24 – 13:37] Listener: Suzanne in Detroit

• Situation: Overfunded 529 for daughter (commuter student); did first 529-to-Roth IRA rollover; now daughter is pursuing an advanced degree costing $120,000 over 3 years, and there’s $60,000 left in the 529.
• New Rule Recap: Up to $35,000 can be rolled from 529 to Roth IRA (in $7,000/year increments), but:
  • 529 must exist for 15 years
  • No rollovers of contributions (or earnings) from last 5 years
• Host Guidance:
  • Pause rollovers and use 529 funds for upcoming education costs to minimize student loan borrowing.
  • If sufficient income, keep making Roth IRA contributions with new cash flow.
  • Quote: "Stop the rollovers, pay for education so you borrow less." (Big Al, 12:03)
• 529 Investment Allocation: Move to less risky assets since funds will be needed within 3 years.
• Memorable Moment:
  • The hosts get sidetracked (with Andi) on the difference between midwives, doulas, and anesthetists.
  • "This was way TMI on birthing a baby." (Andi, 08:48)

3. Maxing Out 529 Plans and Early Retirement Spitball

[14:46 – 23:55] Listener: "Homer and Marge" in Northern California

• Situation:
  • Mid-40s couple, $2.5M in retirement (401ks/IRAs), $105k (Bart) and $180k (Lisa) in 529s, $650k income, $20k/month spending, $730k mortgage, aim to retire early.
• Host Analysis:
  • Question skepticism: Joe doubts the math—suspects actual spending is higher than reported.
    • "There's no way they're saving everything else signaled by discrepancy in reported assets." (Joe, 19:09)
  • Based on stated savings alone, early retirement looks feasible; at $650k income, continued savings will “catapult” the couple’s net worth.
• Advice:
  • Adjust projections for possible underreported living expenses (“lifestyle creep”).
  • Confirm you’re saving as much as you think by tracking cash flow closely.
• Memorable Moment:
  • Extended banter about beer preferences and the longevity of “The Simpsons.”
  • "[Bart's] not going to go to Harvard, and Lisa will probably get a scholarship." (Joe, 16:21)

4. Inherited IRA Withdrawal Strategies and “Tax Bomb” Avoidance

[24:05 – 30:15] Listener: Bill in Chicago

• Situation: Inherited $950k IRA from father-in-law; must empty in 6 years under SECURE Act; wants to minimize taxes.
• RMD Rules and Misconceptions:
  • Clarification depends on age at decedent’s death and start of RMDs.
  • Taking only minimums can result in a large lump taxable at higher brackets in year 10.
• Host Recommendation:
  • Withdraw enough each year to “max out the 24% tax bracket” rather than waiting and risking 32%+ in final years.
  • Max 24% for married couples: ~$400k taxable income, plus $30k standard deduction (2025 figures).
  • "If you don't do this, you do $35k per year...you're going to be paying 32%, 35%, 37% plus state tax. You don't want to do that." (Big Al, 27:18)
• Investment/Asset Mix:
  • Dismiss online “advice” not to hold stocks in inherited IRAs—irrational for most situations.
  • Take distributions as cash or in-kind (journal shares) into brokerage account.
  • "I'm not sure what online pundits are telling you not to invest in stocks or mutual funds inside an inherited IRA." (Joe, 28:35)

5. HSAs – To Max or Not to Max

[31:19 – 33:06] Listener: Aaron in Cincinnati

• Situation: Considering whether to always max an HSA, and its uses after age 65.
• Analysis:
  • HSA contributions are tax deductible;
  • Withdrawals for qualified medical expenses are tax-free at any age.
  • After age 65: Withdrawals for any purpose are penalty-free but taxable (like IRA).
  • Quote: "Best of all worlds right now...no reason not to max this out. It’s a good deal." (Big Al, 32:55)
• Strategy:
  • Treat HSA as a “stealth IRA” for future medical, or as an extra pre-tax savings bucket.

6. RMD Age Confusion & HSA Contribution Limits near Medicare

[33:06 – 38:07] Listener: Carl in Western Maryland

• Question 1: When do RMDs start for someone born in 1959?
  • Answer: Age 73 (if born before 1960), but technically first RMD can be delayed to April 1 the following year (results in 2 RMDs in one year).
  • "So if you were born in 1951-1959, your RMD age is 73. If born in 1960 or later, it’s 75." (Big Al, 33:53)
• Question 2: Why must HSA contributions stop 6 months before Medicare, and how does spousal coverage affect this?
  • If you enroll in Medicare after 65, coverage is retroactive for up to 6 months; must avoid an excess HSA contribution.
  • If you (or spouse) are still working with coverage, you can delay both.
  • Quote: "Just make your best guess and then readjust later if you need to. No penalty if you pull the extra out before tax filing date." (Big Al, 37:06)
  • Medicare Part A: Best signed up for at 65 unless on employer plan; late sign-up penalties apply for B (10% premium hike for each missed year).

7. RMD “Kaboom” at Age 73 with Large IRAs

[38:07 – 39:31] Listener: Mark

• Situation: Age 73, $4 million in traditional IRAs, worried about large RMDs and taxes.
• Host Guidance:
  • Best strategy: Roth conversions before RMD age (now too late for the portion represented by RMDs, but can still do conversions above RMD).
  • Qualified charitable distribution (QCD): Can send up to $100k/year RMD directly to charity to avoid taxable income (if charitably inclined).
  • If working, might delay 401(k) RMDs past 73 if plan allows.
  • "Smartest thing would've been to do Roth conversions before you turn age 73." (Big Al, 38:29)

Notable Quotes & Memorable Moments

• “Is there kind of a secret back door to get [UGMA] money out? Yeah, not really.” (Joe, 05:34)
• "There's no reason not to sign up [for Medicare Part A]." (Joe, 37:53)
• "If you don't do this, you do $35,000 per year...you're going to be paying 32%, 35%, 37% plus state tax. You don't want to do that." (Big Al, 27:18)
• Hosts’ playful banter about IPA headaches, The Simpsons' clairvoyance, and childbirth roles (midwife/doula/anesthetist) adds a light-hearted touch.

Timestamps for Key Questions & Segments

| Topic/Listener | Timestamp (MM:SS) | |----------------------------------------------------------|------------------------| | UGMA Account Tax Efficiency (George) | 02:10 – 06:24 | | 529-to-Roth and Advanced Degree Dilemma (Suzanne) | 06:24 – 13:37 | | Loaded 529s & Early Retirement (Homer & Marge) | 14:46 – 23:55 | | Inherited IRA Withdrawal Sequence (Bill) | 24:05 – 30:15 | | Should You Always Max the HSA? (Aaron) | 31:19 – 33:06 | | RMD Start Ages & HSA/Medicare Overlap (Carl) | 33:06 – 38:07 | | $4 Million IRA RMD Tax Strategies (Mark) | 38:07 – 39:31 |

Final Thoughts

The hosts stress that financial decisions should be driven by a precise understanding of tax rules, timelines, and individual goals—with an emphasis on early planning for Roth conversions and tax diversification. They also warn listeners to be wary of viral “finfluencer” advice and to consult credentialed professionals for complex scenarios.

Humor, transparency, and real-life money spitballs—this is classic YMYW.