Where Should You Take Retirement Money First If You’ve Saved $2M? - 551

Summary

Your Money, Your Wealth (YMYW) Episode 551 Summary

Where Should You Take Retirement Money First If You’ve Saved $2M?

Date: October 14, 2025
Hosts: Joe Anderson, CFP® & Alan Clopine, CPA (a.k.a. “Big Al”)
Producer: Andi Last

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Episode Overview:

This episode dives deep into the critical topic of which accounts retirees should draw from first when they have substantial savings, with an emphasis on tax efficiency, RMD avoidance, and risk management. Joe, Big Al, and Andi take on detailed listener questions—ranging from how to pay off debt pre-retirement, structuring Roth conversions, dilemmas with company stock concentrations, tough annuity situations, all the way to creative gifting to parents. As always, financial wisdom is served with a hefty side of humor and camaraderie.

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Key Discussion Points & Insights

1. Can Mackie Retire at 55 With $2.6M but Some Debt?

[00:53–03:47]

• Mackie, age 54 from Florida, is eager to retire, has $1.5M in an ESOP, $1.1M in a 401(k), a $200K mortgage, and $30K in credit card debt.
• The hosts poke fun at the lack of detail (“Don’t know the drink, the car, the dog’s name… zero. I got a couple million bucks and 55. Get me the hell out!” – Joe, 01:41).
• Takeaway: It’s impossible to answer without knowing Mackie’s living expenses, income needs, and whether credit card debt is recurring or one-off.
• Tactical Tip: If retiring after 55, you can access your 401(k) without a 10% penalty (02:21), but details on the ESOP and spending are crucial.

2. Withdrawing From IRAs or Taxable Accounts: G Man & Nurse Ratchet’s Dilemma

[03:39–11:19]

• Retired couple (“G Man” and “Nurse Ratchet”), age 64–65, with $2M+ (“$1.5M in traditional, $600K in brokerage”), 55:45 stock-bond allocation, $90K/yr in pensions & Social Security, want to spend $130K/yr.
• G Man’s logic: Should I burn down my taxable account first, defer IRAs as long as possible? He cites classic advice but worries about future RMD tax spikes, especially for a single survivor.
• Hosts’ Take:
  • NO! Don’t just defer retirement accounts—the “conventional wisdom” will likely leave you with a “giant RMD bomb.”
    • “This is the opposite of what we would tell you to do. The exact opposite. So you would probably want to… start getting that money out.” – Joe (08:26)
  • Ideally, use taxable withdrawals up to the amount needed, but simultaneously convert/trickle funds from IRAs to Roths each year, at least up to the top of the 12% or 22% bracket.
  • “What makes you wealthy doesn’t always keep you wealthy.” – Big Al (22:24, echoed in other discussions)
• Memorable Moment: The segment is peppered with beer/vodka jokes, and a long riff on hangover stories, lightening the tax talk.

Takeaways

• Deferring all IRA withdrawals can force you to take huge RMDs at high tax brackets later.
• Consider annual Roth conversions in low tax years, especially between retirement and RMD/Social Security ages.

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3. Mike & Carol (“The Brady Bunch”): Roth Conversion and Company Stock Strategy

[12:10–28:10]

• Background:

  • Mike (56, semi-retired M.D.), Carol (49, working, remarrying), “Brady Bunch” family (6 kids total), $6M+ net worth, including $2.5M in private company stock, $1.6M in IRAs, $500K Roth, $300K brokerage, $800K employee performance plan; no pensions/annuities.
  • Plan to work 3–7 more years, then live on ~$180K/yr before Social Security starts at age 70 ($60K/yr for Mike, $20K/yr for Carol).
  • Main Concern: How much IRA to convert now, and when? Is it worth converting at 24% bracket while working, or waiting for possibly lower brackets later? What to do with concentrated company stock?

• Key Spitball:

  • Priority #1: Manage company stock risk!
    • “That’s 44% of your net worth, that’s a lot. Sometimes what makes you wealthy isn’t what keeps you wealthy throughout retirement.” – Big Al (22:14)
    • Pursue a gradual, tax-aware liquidation plan for the private stock, even if that means paying significant capital gains—diversification is paramount.
  • Roth Conversion: Great idea—consider converting to the top of the 24% bracket while still working and immediately after, especially in years you aren’t selling company stock/realizing large gains.
    • Alternate: Alternate years between harvesting stock gains and Roth conversions, using tax mapping to avoid stacking income into the highest brackets simultaneously.
    • “If something happens to that company, your lifestyle could change a lot.” – Joe (23:29)
  • Sequencing:
    • Focus on utilizing low-tax years for conversions.
    • Use proceeds from stock sales to pay Roth conversion taxes if possible.
  • “I think you have a really good problem to have.” – Joe (28:06)

• Quote: “What makes you wealthy does not always keep you wealthy.” – Al (22:24)

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4. The $1.9M Variable Annuity Quandary (Mike in Utah Helping Mom, Age 90)

[29:25–40:41]

• Situation:
  • Mike’s mom bought a variable annuity in 2002 with $145K, now grown to $1.9M. She now faces forced annuitization or liquidation before age 95; basis is only $175K.
  • Current assets: $1.3M Roth, $275K brokerage, $290K IRA, $1.6M annuity; Social Security & pensions cover living expenses.
  • Mike began partial withdrawals to utilize mom’s 24% bracket but wonders what other strategies exist given huge embedded gains (all ordinary income).
• Key Points:
  • Annuitizing life-only is not advised—could lose principal if she dies early. Consider a 20-year “period certain” annuity if allowed, so payments continue to heirs.
  • If contract requires full liquidation by age 95, they’ll have to withdraw large chunks ($300K+/yr), which will be heavily taxed.
  • “This is the problem with annuities… you’re going to lose 20–30% to taxes at least.” – Joe (39:32)
  • If charitable, qualified gifts might help mitigate tax.
• Takeaway:
  • Next-best path: Withdraw in installments to maximize use of upper tax brackets, consider stretching payments if possible, and let listeners learn about the “no step up in basis” risk with annuities.

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5. Gifting Appreciated Assets “Up” to Parents: Doc McMuffin in Minnesota

[41:03–48:12]

• Case:
  • Doc (41, doctor, earning $650K as a couple, 35% bracket) wants to gift $75K in appreciated brokerage assets to her parents (age 73, lower bracket) so they can remodel the family cabin.
• Tactic: Gifting up to parents enables the lower-bracket parents to sell, realize gains, and pay less capital gains tax versus if Doc sold them.
  • “When you gift assets, the recipient’s tax basis is the same as yours. So your parents sell, they pay the gains at their rate, and that’s totally fine.” – Big Al (46:08)
• Can you cycle this and have parents gift it back?
  • Not advised. If gifting is only for tax purposes, could run afoul of IRS intent—honor system, but don’t push it.
    • “There’s no ‘granny tax.’" – Joe (47:34)
• Gift tax question: Doc and spouse can each gift $19K to each parent, totaling $76K (2025 rules) without filing. Even over the threshold, it just requires a form—no gift tax due unless you have a very large estate.

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Notable Quotes & Memorable Moments

• On classic withdrawal “wisdom”:

  • “This is the opposite of what we would tell you to do. The exact opposite.” – Joe (08:26)

• On concentrated stock risk:

  • “What makes you wealthy doesn’t always keep you wealthy.” – Big Al (22:24)

• On annuities and taxes:

  • “This is the problem with annuities… you’re going to lose 20–30% to taxes at least.” – Joe (39:32)

• On creative gifting:

  • “There’s no daddy tax or granny tax.” – Joe (47:34)

• Memorable Banter:

  • Long riffs on beer types, Sidecars, hangovers, and the Brady Bunch theme song. “He likes free. Got it.” – Joe, commenting on Mike & Carol’s drink preferences (16:54).

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Timestamps for Key Segments

• 00:53–03:47 Mackie’s “Can I retire?” spitball
• 03:39–11:19 G Man & Nurse Ratchet: Withdrawal sequencing, RMDs, humor
• 12:10–28:10 Mike & Carol: Roth conversions vs. company stock risk, alternate-year strategy
• 29:25–40:41 Mike in Utah: Giant annuity, RMDs, contract headaches
• 41:03–48:12 Doc McMuffin: Gifting appreciated securities “up,” reporting rules, cycle-back

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Practical Guidance & Takeaways

• Don’t blindly defer IRAs—combine taxable withdrawal with annual Roth conversions to avoid massive RMDs and high future tax brackets.
• Manage stock concentration risk, especially with private/company stock—even if it created your wealth, it’s risky to keep such a large allocation.
• Annuities in taxable accounts can lead to huge ordinary income tax burdens; fully review annuitization and payout options.
• Gifting appreciated assets to lower-bracket family members can reduce total family capital gains taxes, as long as not abused.

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Final Thoughts

This episode is a masterclass in sequencing withdrawals, Roth strategizing, and recognizing hidden landmines (like RMDs and annuity taxation) in a fun, approachable tone. Joe and Big Al repeatedly stress customized, tax-aware strategies over “rules of thumb”—always with a wink and a laugh.

Recommended for anyone nearing retirement with $1M+ in assets or complex financial puzzles.

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For more resources, transcripts, or to submit your own retirement plan “spitball,” visit YourMoneyYourWealth.com.

Transcript

[Andy]

We're playing which comes first today on youn Money, you, wealth podcast number 551. Retired G man and Nurse Ratched from Pennsylvania have saved $2 million. Should they withdraw money first from their IRA or their taxable accounts in retirement? Mike and Carol in Florida want to know when and how much to convert to Roth, but they're also sitting on a mountain of company stock. Should they deal with that first? Mackey in Florida is 55 and wonders if he can retire now with $2.6 million and some lingering debt. But there's an important first he's Plus, Mike in Utah asks Joe and Big Al to spitball on a plan for his 90 year old mom's $1.9 million annuity. And Doc McMuffin in Minnesota asks for the fellow's take on her plan to gift appreciated assets to her parents. I'm executive producer Andi Last. And here are the hosts of youf Money, you, Wealth, Joe Anderson, CFP and Big Al Cllofine cpa.

[Joe Anderson]

Mackie from Florida writes in Tonight was the first time I saw the podcast and it was very educational.

[Andy]

I'm guessing that means they were a YouTuber, a Spotify viewer. Thank you for watching Maggie.

[Big Al]

Awesome.

[Joe Anderson]

I turned 55 next month. No, this email was from June and want to retire. I have 1,500,000 and an ESOP and 1,000,100 and 401. I have $200,000 mortgage and $30,000 in credit card debt. What's my best option? I've been working since I was 15. Please advise. Thank you. Wow, Mackie, I could tell that you just had the show tonight.

[Big Al]

Yeah.

[Joe Anderson]

Don't really understand the rules of engagement here.

[Big Al]

We don't know the drink or the car or the dog's name and we, we don't have any detail.

[Joe Anderson]

Zero. I got a couple million bucks and 55. Give me the hell out.

[Andy]

Well, he's in $30,000 of credit card debt. How should he pay that off?

[Joe Anderson]

What's my best options? He wants to retire. I don't know. Mackie, why do you have $30,000 of credit card debt? Is that reoccurring? Do you pay that off monthly? Is that a one time expense?

[Big Al]

I'm guessing it's ongoing.

[Joe Anderson]

So what do you spend on an annual basis? What are you making currently? That's what's going to determine if you can retire at 55. So what is your best option is. I would write back in with a little bit more detail.

[Big Al]

But I will say besides that, assuming you're okay to Retire, because we don't know. We don't have any of the details. But let's just assume you're okay to retire, then keep that 401 in place. Because you retire after age 55, you can actually withdraw funds from the 401 without paying that 10% penalty. Yes, you'll pay taxes on it, but you don't have to pay the 10% penalty. That's about the only thing I could say. Well, ESOP. You know, a lot of ESOPs, Joe. There's vesting and so restrictions and restrictions, and maybe you have to take the money out. Maybe you can roll it. So you have to look at the plan and see what the option is there.

[Joe Anderson]

Yeah, I think there's. We have a lot more answers or questions than answers.

[Big Al]

Yeah, we do. That's about the best I can do with what we have.

[Andy]

And I will point out on the Ask Joe and Al form, there's a video from me that will tell you the information that we need to get you a good spitball. And after you email us, you'll get an email from me that says, did you remember to include these four things? So if you didn't, then you're just not paying attention.

[Big Al]

Got it.

[Joe Anderson]

Well, tonight was the first time I was like, wow, I got to write in.

[Big Al]

Yeah, immediately send.

[Joe Anderson]

It's immediate. I need to know now. I hate my job. I want to retire tomorrow.

[Big Al]

I want to get out.

[Joe Anderson]

All right, well, Mackie, good luck.

[Big Al]

I get it.

[Joe Anderson]

You've done a great job. He's got a couple million bucks.

[Big Al]

It's a really good job.

[Joe Anderson]

200,000. I don't know why. Do you have. Whatever. I think Mackie will be all right. All right, let's move on. Let's go to retired G man in Nurse Ratchet. Ratchet?

[Big Al]

Rats.

[Andy]

Nurse Ratchet. She was from One Flew over the Cuckoo's Nest. She was the antagonist in that movie.

[Big Al]

Oh, there you go.

[Joe Anderson]

Who's G Man?

[Andy]

I think he's a G man. He's a retired G Man.

[Joe Anderson]

Or is it like, his name's Gary.

[Andy]

He used to be in the FBI, or.

[Joe Anderson]

All right. Or is that a government man? Is that what G Man actually stands for?

[Big Al]

I don't know.

[Andy]

I think G man means that he was formerly an intelligence.

[Big Al]

Let's see.

[Joe Anderson]

Got it.

[Andy]

Yes. A slang term for agents of the United States government.

[Joe Anderson]

Got it.

[Big Al]

Well, I think you got it. Yeah.

[Joe Anderson]

Retired G Man and a nurse.

[Big Al]

Yeah. All right.

[Joe Anderson]

Hey. Hi, Andy. Here's my question. After the four things needed.

[Big Al]

Oh, so that's the thing G Man's been paying attention. Yeah. Okay.

[Joe Anderson]

All right. Okay, okay.

[Big Al]

Let's.

[Joe Anderson]

Let's see what he's got. My wife and I have two and a half million dollars, 1.5 in traditional, $600,000 in mutual funds. All monies are in index funds. With Vanguard with a mix of 55 stock, 45 conservative bonds. Fixed income is $45,000 of pensions, $45,000 combined Social Security, all before taxes. We are both retired, 65 and 64, no debt. We're looking to spend approximately 130 per year with traveling and gifting to the kids. So. He wants to spend 130. He's got quite a bit coming in.

[Big Al]

Shortfall is going to be pension, Social Security, 89. Shortfall is about 40,000.

[Joe Anderson]

Yeah, 40,000. He's got 2.5%.

[Big Al]

Yeah. 1% even.

[Joe Anderson]

All right. I found your podcast on Apple and thoroughly enjoy the good info and humor. Wonderful. Thank you, G Man. I like to drink a variety of beers, including IPAs with the side of vodka. Little Sidecar.

[Big Al]

Yeah, yeah.

[Andy]

Do you do that, Joe?

[Joe Anderson]

I do the Sidecar.

[Big Al]

Do you have your own special vodka?

[Joe Anderson]

Not vodka. I like bourbon.

[Big Al]

You like Fireball?

[Joe Anderson]

I like Fireball. So all Coors Light? Little Fireball. I'm out on a little fancy place. Coors Light and maybe some Jameson.

[Big Al]

Only Coors Light, though. That's your only beer?

[Andy]

He likes to dress up his beer.

[Joe Anderson]

Yeah.

[Big Al]

Yeah.

[Joe Anderson]

I don't know. I mean, maybe Nick Ultralight.

[Big Al]

Bud Light. You do Bud Light?

[Joe Anderson]

I'm not a Big Bud Light.

[Big Al]

Pbr.

[Joe Anderson]

I would drink a pbr.

[Big Al]

Okay.

[Joe Anderson]

Yeah.

[Big Al]

You grew up with that? Yep.

[Joe Anderson]

Yeah, that's about it.

[Big Al]

Okay. Not anything else.

[Joe Anderson]

No colored craft beer? No craft. No IPAs.

[Big Al]

Hazy.

[Joe Anderson]

No. That just gives me instant headache. Yeah. Yeah. Just like that happened to you.

[Big Al]

Oh, that Marzan beer that. I. I think that was my 50th birthday party or something. Yeah, that was pretty bad. Yeah, that I think I had to do. I had to do a radio the next day.

[Joe Anderson]

Yeah, you called it sick. I had to do it myself.

[Big Al]

I can't do it.

[Joe Anderson]

We're live.

[Big Al]

I remember the one time you still came in and you had a trash can next to you and you said, al, you're gonna have to talk more than you normally do.

[Joe Anderson]

And the flu.

[Big Al]

That's not what I heard.

[Joe Anderson]

That's the flu. Many, many moons ago.

[Big Al]

That was a while ago.

[Joe Anderson]

Yeah.

[Big Al]

And we recorded live back then.

[Joe Anderson]

That was almost 20 years ago.

[Big Al]

Yeah. Yeah, you're right.

[Joe Anderson]

All right. I've done all my financial planning on my own. All right.

[Big Al]

Okay.

[Joe Anderson]

From all I read and heard, the preferred sequence of withdrawals is to pull money from my taxable assets and leave the tax deferred for last. I understand the logic for this approach. However, as I learn more, I'm concerned about RMDs in the future, especially should one of us predecease the other. Would it be prudent to start taking IRA money first, approximately $50,000 a year, and leave the mutual funds for last? In my opinion, this may be a better way to reduce future taxes on my RMDs. Your opinion is appreciated. Thank you. I'm a regular listener. I do not want to miss your spitball. Can you email or text me when the question is answered? In what episode? Thanks again. Okay, this is all the time, but hey, can you please just email me or text me? Because I have not listened to this show. And.

[Big Al]

I listened once. I wrote in, I did it wrong. I got the four questions. Here you go.

[Joe Anderson]

Yep, got it. All right. So I don't know. He's reading, he's doing this stuff on his own, and he's a regular listener, and he's asking this question.

[Big Al]

Yeah, probably hasn't listened enough.

[Joe Anderson]

Probably not. Probably not.

[Big Al]

This is the opposite of what we would tell you to do.

[Joe Anderson]

The exact opposite. So you would probably want to. Yeah, I think that's the advice, though. All right. You want to defer, defer, defer, defer, defer. Right.

[Big Al]

And that was written by people from my profession, CPAs. Deferring is better than paying. Defer, defer, defer, defer. And that's generally a pretty good idea, except for required minimum distributions. And that happens at age 73, soon to be age 75. That's when you have to take money out of those IRS IRAs and 401 s. And if you kept deferring, deferring, deferring, then you might have a pretty big required minimum distribution. If you did a good job saving. And that's the problem. And in this particular case, there's Joe, a million and a half in tax deferred. You want to start getting that money out, whether it's a Roth conversion or using that money to live off of, you start getting that money out so you're not killed by RMDs later.

[Joe Anderson]

Because here's the issue that I see with the G man in Nurse Ratched is he's taking 2% out of the portfolio total. He's got a million and a half in traditional IRAs, $600,000 in a brokerage account. You pull two, let's see if it grows at five, you still have a 4% growth rate that 1.5 by the time he turns 70. I mean, his RMDs are going to continue to increase on him because he's not taking enough out of the portfolio.

[Big Al]

Yeah. If he does what he's read to do, then that 1,500,000 will be like 3 million.

[Joe Anderson]

3 million.

[Big Al]

Right. And his RMDs will be 120,000. On top of everything else, he on.

[Joe Anderson]

Top of another 90 or 95. So you're looking at 200, 250, 225 of income.

[Big Al]

That's right.

[Joe Anderson]

You're going to be potentially in a higher tax bracket. So you want to look at the taxes now, taxes in the future, and then figure out, all right, does it make sense? If you want to pull from the mutual funds first, that's fine, but don't leave it deferred. Take the money out of the retirement account and convert it because you're going to be in very low tax brackets there as you're taking money and you're wasting that. The 10% and 12% tax bracket. That's what we see often is that that's the advice that people are hearing. So they're taking from the mutual funds, they're living off of that. They might have Social Security. You have a little bit higher fixed income than most. You're still in a low tax bracket. If you just took from the mutual funds, your capital gains are going to be tax free because you're still in the 12% tax bracket. I would have the extra distributions that you need. The $40,000 a year, take it from the mutual funds. But then I would also convert the retirement account to the top of the 12 or the 22.

[Big Al]

Yeah, I agree with that. Yeah. And Joe, I mean, we've heard this several times where people, they retire and their taxes are very low because they haven't taken their Social Security and they're just living off their savings and they're not pulling money out of their ira. They're going, what are you guys talking about? There's no taxes in retirement. And Then they hit 73 required minimum distributions kick in. And Social Security, it's a different story.

[Andy]

For those of you joining us for the first time or those who have caught the show but didn't really catch the show, our website, YourMoneyYourWealth.com is packed with free resources. You can ask Joe and Big Al on air for your own retirement spitball analysis. Just so long as you give us your deets. And read the latest blog posts from the Pure Financial Advisors team on topics like alternative investments coming to your 401k, whether US stocks are overpriced and the rise of AI. See when Pure's free retirement workshops are happening next in your city. Download guides on everything from withdrawal strategies to Medicare tax planning to Social Security. Or binge watch YMYW TV all the way back to 2014. Yep, Joe and Big Al have been making fun of finance for a long time. When I mention free financial resources every week, this is what I'm talking about. Check it out and tell a friend.

[Joe Anderson]

We got Greetings, Joe, Al and Andy. Love the podcast. Have listened all the way back since 2019 so far while driving and working out. Great job on the show. Much appreciated. Love the spitball and how you think about retirement income strategies and Roth conversions. Call us Mike and Carol from Florida Brady Bunch. Ah, but they didn't live in Florida, did they?

[Andy]

No, but Mike and Carol, I mean, it's in California.

[Joe Anderson]

Where was it? Where was the house? What?

[Andy]

Good question.

[Big Al]

Yeah, let's see.

[Joe Anderson]

Yeah, I think it was. It had to been California.

[Andy]

Yeah, the. The house itself is in Studio City in la.

[Joe Anderson]

I just remember when they went to Hawaii. Remember that?

[Big Al]

I don't really.

[Joe Anderson]

They found the Little Taboo. Bobby did or Cindy one of them.

[Big Al]

I know. I don't think I've seen that.

[Joe Anderson]

Oh, well, there you go. Now you got something to bend, man.

[Andy]

Joe watched Little House on the Prairie and the Brady Bunch and what was the other show that we just recently found out that Joe watched? Oh, Seinfeld. Your tastes in TV is surprising to me.

[Joe Anderson]

We're living Brady Bunch in the Little House.

[Big Al]

And that's shifting now. No, you don't watch those shows.

[Joe Anderson]

No, that was purely my mother.

[Big Al]

You were forced to watch.

[Joe Anderson]

Yeah. So if I wanted to watch tv, it was Little House on the Prairie. And my mom was huge, huge fan of the Brady Bunch.

[Big Al]

Yeah. Yeah.

[Joe Anderson]

So then how about the Waltons?

[Big Al]

Did she watch that?

[Joe Anderson]

Yeah. Good night, John boy.

[Big Al]

Yeah, all that stuff.

[Joe Anderson]

I mean, so. Yeah, Leave it to Beaver.

[Big Al]

Okay.

[Joe Anderson]

Oh, wow.

[Big Al]

I remember that one well.

[Joe Anderson]

Yep. Eddie Haskell and Beef and.

[Big Al]

Yeah.

[Joe Anderson]

What was Wally. Wally. Yeah. Yeah. Okay. All right, let's go. But let's get back to Mike and Carol. He's 56 years old, semi retired physician, making $182,000 per year, working part time. I'm divorced, have three grown kids, all post college and well employed. Getting remarried later this year. My beautiful 49 year old fiance Carol makes about $70000 per year. Also has 3 kids from a previous marriage. All fully launched. We are Florida residents and we will use my beach condo as our main residence. I also have a summer lake home in the mountains out west. Now I get the Mike and Carol reference. He's got three kids.

[Andy]

They are literally the Brady Bunch.

[Joe Anderson]

Oh my God.

[Andy]

I wonder if the girls are all blonde and the guys are all dark haired.

[Joe Anderson]

I don't know. There were four men living all alone.

[Big Al]

Yeah, that's right.

[Joe Anderson]

Until the one day.

[Big Al]

Oh, you remember the theme song.

[Joe Anderson]

Even when Mike met this beautiful 49 year old Carol.

[Big Al]

That's right.

[Joe Anderson]

Okay. I drive an older Toyota and Honda's purchase used as Sienna minivan at each home respectively for when the kids, friends, guests visit. My daily driver. My daily driver in Montana is a 2013 Honda Ridgeline pickup. In Florida, my daily driver is a 2000 Lexus sedan with 44,000 miles on it. P.S. i smile every time I park it in the doctor's parking lot because all the Teslas in European luxury. So he's driving a little P.S.

[Big Al]

Right.

[Joe Anderson]

P.O.S pickup truck there. My functional and practical vehicle ever. My summer drink of choice is. No idea. Caparina. Caparana. Cake cop. Help. Andy.

[Andy]

I'm guessing it's Kyperina.

[Joe Anderson]

Caipirina.

[Big Al]

That's what I get too, probably. Yeah, let's go with that. Caipirina.

[Joe Anderson]

I don't know, it's got me intrigued. What the hell is it? It's got to be like a liqueur of some sort.

[Andy]

Let's see.

[Joe Anderson]

Is that Capari? No, that's not.

[Andy]

Brazilian cocktail with cachaca, sugar, lime and ice. See, how is it pronounced?

[Joe Anderson]

Well, I enjoy almost as much as thinking about Joe pronouncing it on the air. Thank you very much for that, Mike.

[Andy]

Caiprinha.

[Joe Anderson]

Caprinha. He had to pick like the most obscure thing possible.

[Big Al]

Probably never drank it. He just was googling. Let's try this one.

[Joe Anderson]

Yeah. In cooler weather, I enjoy Old fashioned in some luxurio. Luxardo cherries.

[Andy]

Luxardo. That makes it a little bit easier. Luxardo.

[Joe Anderson]

Yeah. Not for me. Not for me. However, I'm not too picky and most anything you offer will likely be one of my three favorite drinks. All right. Or he likes free. Got it.

[Big Al]

Yeah.

[Joe Anderson]

So Caparia an old fashioned or free? Carol prefers a little chardonnay. No pets, travel too much. Current assets, $1.2 million Florida condo, $2.5 million Lake Home. Only debt is $300,000. Mortgage remaining at 6% combined liquid assets. $300,000 in a brokerage account, $45,000 in an HSA, $1.6 million in traditional retirement accounts, $500,000 in a Roth and $800,000 vested in an employee performance plan. And $2.5 million privately held company stock with very low cost basis which I'm planning to liquidate as able in adding that to the brokerage, no pensions or annuities. I plan to take Social Security starting at 70, $60,000 a year. Carol will receive $20,000 a year starting at 62. I intend to work part time as I am now for another three to seven years. Carol will likely continue her job until I retire, but not a second longer. LOL. I put in $31,000 into my pre tax 401k and additional approximately $30,000 Megatron annually. For those of you keeping score, that's a little backdoor.

[Andy]

Mega Backdoor Roth.

[Big Al]

Yeah.

[Andy]

Apparently Mike and Carol have been listening for a while.

[Joe Anderson]

Megatron.

[Andy]

We haven't referenced that in quite some time.

[Big Al]

That's correct.

[Joe Anderson]

So after tax and then dump that right into the Roth combined with my company contribution to reach the 415 limit. That's around 70 some odd thousand bucks.

[Big Al]

Yeah, 70ish. Somewhere in there.

[Joe Anderson]

I did the pre tax to stay out of the 32% bracket when I was single, but once married, I may do all Roth if you agree, and will be taxed at 24% if I do. So we'll also max out our backdoor Roth IRAs and another $15,000 a year Carol work. Carol's work doesn't offer a retirement plan, but I'm investing in IC status.

[Andy]

Investigating.

[Joe Anderson]

Oh, I'm investigating independent contractor status.

[Big Al]

That's what he means.

[Joe Anderson]

All right, then he said investing IC status so she can do a solo 401.

[Big Al]

Right.

[Joe Anderson]

All right. We will be into the expansive 24% tax bracket while she is working and then potentially much lower when we retire in about six to 10 years before we start Social Security, we plan on spending $180,000 a year in retirement. Okay. How much 401 would I convert to Roth and when? If you were me, after retirement and before Social Security, I could draw the $180,000 needed from traditional accounts in the 10, 12 or 22% tax brackets. I could liquidate the $180,000 from my brokerage with the first $130,000 of gains at 0% tax, but only if I don't take taxable withdrawals from retirement accounts. That would push some of the gains into the 15% tax bracket. Interested in your thoughts? Should I alternate years? I want to avoid the 30% brackets in wondering if we can stay mostly out of the 22, 24% in retirement, 0, 10 and 12 for retirement withdrawals or conversions in 0 to 15% on the capital gains. If so, does it make Sense to pay 24% to convert over the next three to seven years while working once we're taking Social Security, using the remaining traditional money for income, blah, blah, blah, blah, blah. Okay, so he wants a conversion strategy. He's got some assets. He's going to work a few more years. He's saving quite a bit of money. He's dumping a lot of money into the Roth with the Megatron. And so let's just see what we have in store here for Mike and Carol. Couple of things I have questions on. He's got $2.5 million in a privately held stock.

[Big Al]

Yes.

[Joe Anderson]

Very low basis.

[Big Al]

Yes.

[Joe Anderson]

So if it's privately held and he wants to get the stock out of the privately held company, he's going to do that all at once and it's going to be taxed that year, presumably.

[Big Al]

Well, or maybe, you know, some private companies allow you to sell a certain amount of shares per year. So, you know, we, we don't know the details, so it could be that, too.

[Joe Anderson]

What do you think?

[Big Al]

Well, he said he's going to sell it as he's able, so.

[Joe Anderson]

Oh, do you think it's just a certain dollar figure, maybe amount each year? There's only some liquidity events within the company.

[Big Al]

Maybe, you know, hard to say, but. But it's funny how you went right to that. So did I. To me, that's the most important thing in the poll case. You look at the private company stock, 2.5 million compared to his liquid assets, 5.7, which, by the way, is fantastic. Great job. Great job saving. But that's 44% of your net worth. That's a lot. To me, that's the biggest consideration here is diversifying, getting out of that, because private companies, sometimes they keep doing well, sometimes they don't. Right. And this is almost half of your net worth, or at least liquid net worth tied up in this one stock. So I would be more concerned about liquidating it as you could. Roth conversions are still quite important, Joe. I mean, he's already got $1.6 million. He's only 56. I mean, that could double twice.

[Joe Anderson]

Because if he could get the two and a half million dollars out, you could live off of the non qualified dollars and then you do the conversions in the 10 or 12% tax.

[Big Al]

I think that's right too. I think that's the priority is trying to get diversified in the private company stock. Really.

[Joe Anderson]

Yeah. Or you pull out. But that's where he's made most of his money though too. I know he's got very low basis, but imagine it's.

[Big Al]

Yeah.

[Joe Anderson]

And they're very low.

[Big Al]

There's a reason why he's got this much money because he picked the right company. So I, I get that too. But all I'm saying is what. Sometimes what makes you wealthy is not what keeps you wealthy throughout retirement. Just think about this. If that two and a half million, something happens to the company and I've seen that happen before. That's why I'm bringing this up. If something happens company and this $2,500,000 goes down to a lot lower figure. Does your lifestyle change? And it probably does. Right. So you got to consider that.

[Joe Anderson]

All right. So let's see how much it would change because he wants to spend $180,000 a year in retirement. Yeah.

[Big Al]

Well, if you take that out, you're looking at about, let's say $3,200,000.

[Joe Anderson]

He needs $4,500,000. At $180,000. At a 4% distribution rate. He's got to bridge the gap to Social Security. Social Security is going to give him what, six, eighty thousand dollars. So he needs a hundred. Yeah, so he needs three and a half. Call it. That's including tax. So if he loses two and a half, he's going to be tight.

[Big Al]

It's going to be pretty tight.

[Joe Anderson]

Right. That double home on Montana, all these little minivans in the Caparrari. Whatever the hell he's drinking, he's going to have just to suffice that. But yeah, or that two and a half could go to five easily.

[Big Al]

It could, yeah.

[Joe Anderson]

But I think you, if there's certain dates or trigger dates when you can sell the stock or who's buying it, are the, you know, the employees of that particular company are the principals buying it back? Is there, you know, some sort of capital partner involved that is buying some of the stock back? I would try to be thinking about a distribution or liquidation strategy within that where you feel comfortable because that's your liquidity to live off of while you do all sorts of other tax planning. Because he's going to get bit hard on the tax on that too. He's got net investment income tax. He's going to have capital gains tax. It's going to push him up depending on how he gets that money out. I think that's probably a bigger problem than he has than doing a Roth conversion. We talk about conversions all the time. But he's, he's. This is almost like a big retirement account, right? It's almost. His taxes high just because he's stuck with a high capital gains rate. Depending on how much that he has to pull out.

[Big Al]

Right.

[Joe Anderson]

He could be taxed at 20% plus the net investment income tax. Call it 25% plus state. Well, he lived in Florida, so yeah. So he's in the 25% roughly tax bracket where he's thinking about converting in the 24. He potentially will pay more tax on that stock than he would from his retirement accounts.

[Big Al]

But that's the thing. If the stock, if something happens to.

[Joe Anderson]

The company, then he doesn't pay any tax. I don't know what's better.

[Big Al]

It's zero, I'll tell you. And we're sort of discounting, talking about Roth conversions. We're sort of focused on the private company stock. Yes, Roth conversions, for sure. You got 1.6 million and you're only 56. So the rule of 72, 7% interest rate, it's going to double every 10 years. So it could be like $6 million when you retire. 4% of that is kind of the beginning RMD, and then it goes up from there. So what, 240,000 would be your RMD on top of all your other income. So, yeah, no, it's a big deal. But let's just. If it were me, I would be a little bit more concerned about the private company stock having a distribution liquidity that, you know, that that's within the bounds of the company, what they allow you to do. So you can diversify more, take some of that off the table. I get it. May go up to 5 million or more. I get that. But it also could go down to 500,000. I've seen that enough times that. That's why I'm saying this. Just, just be a little bit careful. But on top of that, when you get that settled, by all means, I would be converting into the 24% all day. And if you, if you sell some of the stock, you'll have more cash to pay the taxes on the conversion. So that would be another benefit there.

[Joe Anderson]

Yeah, I don't know if I'm 100% on board with that. Because he has to spend. He wants to retire in seven years. He's continuing to save $70,000. Even though he's doing the Megatron, he's in a high bracket now. So he's adding a lot of money to the pre tax. But then from age, call it 65 to 75, that's 10 years that he wants to spend 180,000.

[Big Al]

Right. And well, but he's in the same tax bracket then as now because that's what he's making currently. So.

[Joe Anderson]

No, I agree.

[Big Al]

You could say maybe to the 22. I like the idea of Roth conversions. I just would focus more on the private company stock diversifying if it were me. Now that's not knowing anything about the company. So I'm kind of talking about this blindly in a sense. Right. But I've just like I say, I've seen this happen to others. So I just want you to be careful.

[Joe Anderson]

Yeah. And I think your conversion strategy coincides with the distributions of the private company because then you have to map this thing out depending on what the tax is going to be on that, like he said, you don't want to take retirement distributions on depending on how much money that he can get out of that private company because that's just going to potentially increase his capital gains rate.

[Big Al]

Right. I do agree with his thinking, which is you kind of do one or the other.

[Joe Anderson]

Right?

[Big Al]

Yeah.

[Joe Anderson]

You flip flop every other year depending.

[Big Al]

Upon when you can sell and what makes sense to sell. I think you kind of focus on one or the other.

[Joe Anderson]

Yeah. I think there's a lot of mapping that you would want to do. I think he's got a really good problem to have. He got $6 million. He's got pretty big. He's got some tax issues.

[Big Al]

Yes.

[Joe Anderson]

But I think at the end of.

[Big Al]

The day, oh, I think we'd all love to have this problem.

[Joe Anderson]

Yeah. Mike and Carol in the Brady Bunch. Greg.

[Big Al]

Yep.

[Joe Anderson]

Marcia, Bobby. Peter.

[Big Al]

I forget the other girls names.

[Joe Anderson]

Jan. Jan. Cindy.

[Big Al]

Yep, I remember Cindy now.

[Joe Anderson]

Jan's the number one.

[Big Al]

Yeah, I got it. Okay.

[Joe Anderson]

Remember she lost.

[Andy]

Marcia. Marcia. Marcia.

[Big Al]

Got it. Okay.

[Andy]

You've heard the saying, no regrets, Right? Something we all aspire to. Unfortunately, plenty of retirees do have regrets. Big ones. On this week's episode of youf Money, you, Wealth tv, Joe and Big Al show you how to avoid the 10 most common retirement mistakes so you can retire happy and regret free. You'll even hear real retirees reflections on everything from lending money to fighting boredom. Get the wisdom of the ages without having to learn it the hard way. Then find out if you're on track for retirement with a Financial Blueprint. This tool is a free and self guided. Check in to see how you're doing as you head down the path to retirement. Just input your cash flow, assets and projected spending and you'll get a personal report showing three scenarios for your retirement success with clear next steps to improve your plan. Watch 10 Big Retirement Regrets to Avoid on YMYW TV and calculate your financial blueprint for free. The links are waiting for you in.

[Joe Anderson]

The episode Description all right, let's keep. Let's keep a truckin'. Let's keep this train going. Here we got. Let's see. Mike from Utah, hello. I'm a longtime listener and enjoy your podcast. First, the important stuff. Drink of choice My wife Tee Do's Tea, Tito's and Mixer. Me Diet Coke and cheap rum. All right. Cars. My wife 2024 C8 Corvette. Wow. That's kind of badass. Yeah, me 2023 Chevy Bolt. Okay, so she drinks Tito's and drives.

[Big Al]

A Corvette and he's drinking cheap rum and drives a heavy electric vehicle.

[Joe Anderson]

He said that's great. Okay, no pets. Although we dogs at my son's Dalmatian doodle. Dalmy doodle down the doodle. Alma doodle puppy got everything is a.

[Andy]

Doodle, which I have to say they're pretty darn cute when you mix a.

[Big Al]

Poodle and a formation. I never even heard of that.

[Joe Anderson]

Everything.

[Big Al]

We've got a Cavapoo which is a Cavalier poodle.

[Joe Anderson]

Yeah, everything's a doodle. The world is going to be taken over by doodles.

[Big Al]

I think so. Yeah. It's not AI.

[Joe Anderson]

It's not AI. Yeah. Look at this. It's a Dalmatian doodle. Dimal Doodle. Yeah, they have a demo doodle. How about like a pit bull doodle.

[Big Al]

Pit little that might bellow out the pit bull. Maybe be kinder.

[Joe Anderson]

All right. 2022 or 2002, my father passed away and I became more involved in my mother's estate. At the time she had $145,000 in extra cash to invest in the market. She did not need the money to cover day to day expenses. So we thought of a long term investment approach that made sense. We also working at the time and did not have a lot of time to keep close enough eye on her investments in addition to ours. So we decided to purchase a variable annuity invested in an S&P 500 primary to defer the taxes, set it and forget it for the next 15 to 20 years. Seemed to make sense at the time. Well, at that time I'm not Sure. I understood the concept of step up in cost basis of a taxable account when it is inherited. Or I might have selected a different path.

[Big Al]

Sure.

[Joe Anderson]

So I dumped it in the old.

[Big Al]

Variable annuity and I guess it. Well, I guess you'll read further.

[Joe Anderson]

Yeah, it's just going to grow. Tax deferred. It's great.

[Big Al]

Pretty well, yeah.

[Joe Anderson]

Yeah. Well, that insurance company loved it too. That agent was super happy. Probably bought you a little bottle of cheap rum. I knew we would have to do something with the annuity. She approached 90 years old. Wow.

[Big Al]

Okay.

[Joe Anderson]

That's some longevity there.

[Big Al]

Wow. Okay.

[Joe Anderson]

October 2025. The contract states we have to annuitize the contract or close it before she turns 95. Annuitizing. That contract does not seem like a good option to me. Well, the good news is the count grew to $1.86 million by late 2024, before I started to make some change.

[Big Al]

Wow, that's amazing.

[Joe Anderson]

$145,000 grew to 1 million 86 million in 23 years. What's the rate of return on that?

[Big Al]

It's a lot. I mean, that's beyond. Maybe they added more at different points. That can't be.

[Joe Anderson]

That'd be how many years? 26 years.

[Big Al]

Call it 23.

[Joe Anderson]

23 years. Zero.

[Big Al]

That's got to be 12, 15, 10%.

[Joe Anderson]

That's not bad. That's right.

[Big Al]

Yeah.

[Joe Anderson]

That's compounding for you.

[Big Al]

Yeah. Yeah. Okay.

[Joe Anderson]

10% rate of return over the. Yeah, okay.

[Big Al]

Well, it was a bull market in.

[Joe Anderson]

S and P. Yeah, the market actually did a lot more than that.

[Big Al]

Yeah, that's true.

[Joe Anderson]

Cool. Okay. So now he's got a little bit of an issue here. He's got $1,086,000,000. Mom's 90 years old. He's got an annuitizing contract. He's got a basis of $175,000.

[Big Al]

Yeah. So there's $45,000, wasn't it 145,000.

[Joe Anderson]

Yeah. $150,000.

[Big Al]

Yeah. Right. So it's a lot of tax in there.

[Joe Anderson]

Yeah. He's got a million.

[Big Al]

And it's all ordinary income.

[Joe Anderson]

It's all ordinary income.

[Big Al]

No step up.

[Joe Anderson]

No step. Okay. He's in a bit of a panic now.

[Big Al]

I see why.

[Joe Anderson]

Has set in. Is she now within five years of having to do something with this money in 2024? And already in 2025, I've started to sell some of these funds and move them to a brokerage account and take the tax hit. The future. IRMAA charges each year basically $200,000 across both years, with the goal of taking her taxable income to the top of 24% federal tax bracket, 4.5% state tax bracket. This strategy will slowly reduce the value of the annuity, but not really make much of a dent in the value, especially if the market continues to move higher. I plan to continue to do this for the next three to four years, but realize some large changes have to happen very soon. For Context, as of June 2025, her account balance are Roth 1.3 taxable $275,000 IRA $290,000 annuity $1,600,000. Her Social Security RMD in the small pension pretty much covers her current living expenses. Annual expenses are approximately $60,000 a year. Eventually, her estate will be inherited by myself and my two siblings. All of us are in the 22, 24% federal tax bracket. All of us are retired or near retirement in our early 60s. Any other options I should consider would be much appreciated. I enjoy listening to the podcast while hiking, skiing in the Utah mountains. He's skiing, listening to this garbage. Who listens to a podcast while they're skiing? Is that like cross country skiing?

[Big Al]

Well, don't you have to pay attention when you're skiing?

[Joe Anderson]

I've never skied.

[Big Al]

One time I have skied and I always pay pretty close attention because, you know why? There's rocks and trees and other people.

[Joe Anderson]

Well, I guess he's not paying attention to us and. Oh man. So this is an interesting, interesting case here.

[Big Al]

So. Well, let's talk about this. So at, at age 90. So if she annuitized that, I guess that means she'd have to. She'd take an income stream for the rest of her life. But if she dies, does that mean it goes away?

[Joe Anderson]

She could do. I don't know. I would have to look at the.

[Big Al]

Yeah, I mean, we don't know if there's any residual for beneficiaries.

[Joe Anderson]

Or you could probably do a period, certain one a year.

[Big Al]

Okay. If that's an option.

[Joe Anderson]

Right.

[Big Al]

Yeah.

[Joe Anderson]

And then. So you annuitize the contract in. Let's say if you do 20 years and it comes out in 20 years and at least you get the pro rata because you get the. You get a little bit of a.

[Big Al]

Basis, which was not much. Yeah, right.

[Joe Anderson]

90%. Not even whatever payment is going to be taxable.

[Big Al]

Yeah. Okay, well that's not a bad idea. So if, if they can do that as some certain, then they'll get the money and of course they'll pay taxes on it. But it'll be little chunks.

[Joe Anderson]

Yeah. You just spread that out over a period of time. Unless.

[Big Al]

Yeah.

[Joe Anderson]

Something happens to the contract at age 95 where they have to close out.

[Big Al]

The rest maybe and the rest of it comes out.

[Joe Anderson]

I don't know. I mean each contract is. But let's. All right, there's two things be my first option to say. All right, well, let's say if I annuitize the contract. How far can I annuitize the contract.

[Big Al]

Yeah. For something.

[Joe Anderson]

Yeah.

[Big Al]

Very clear about that.

[Joe Anderson]

Period certain, not life only.

[Big Al]

Yeah, right.

[Joe Anderson]

If you do life only and she.

[Big Al]

Dies next year, it's.

[Joe Anderson]

Yeah. A period certain. Let's see how far that you can drag out those payments. And if he can do so after the age 95 is kind of my first guess. But let's say if he has to get everything out of there before she turns 95 in five years, you just.

[Big Al]

Have to grin and bear it. You have to get it out.

[Joe Anderson]

Right.

[Big Al]

There's.

[Joe Anderson]

She charitably inclined. Is there?

[Big Al]

I mean there's some chair potentially, but yeah. So she. They'd have to pull out 300,000 a year or more to make this happen.

[Joe Anderson]

That's that. That pushes her above the 24% tax.

[Big Al]

It does. Yeah.

[Joe Anderson]

Maybe she can get married.

[Big Al]

Now you're outside the box. Yeah.

[Joe Anderson]

That could increase her. You know, those tax brackets.

[Big Al]

She could move to Florida so she didn't have state tax and get married in Florida.

[Joe Anderson]

That's probably not going to happen.

[Big Al]

Nope, Nope.

[Joe Anderson]

Let's see what else.

[Big Al]

I think you're right. It boils down to what's allowed in the contract. I think your idea is perfect if you can get a period certain for like 20 years. So in other words, if she passes away, then the beneficiaries, you and your siblings get to continue on the payment through that 20 year period. So say she lives five more years, then 15 more years. It'll come to you as a payment stream. That's how that would work. If it's allowed in the contract.

[Joe Anderson]

Yeah. So then you just have you and your two siblings as the beneficiaries. So then those payments would get split three ways when she passes you and, you know, your brothers and sisters, which would, you know, it would still be a tax hit, but maybe it would be a lot lesser. Yeah, but it depends on who's in the 22 and who's in the 24. The person in the 22% tax bracket is going to get more after tax dollars.

[Big Al]

Yeah, right.

[Joe Anderson]

Maybe you put them at a lower percentage so it all Evens out from an after tax perspective.

[Big Al]

Maybe.

[Joe Anderson]

Yeah, it's kind of getting to the nitty gritty there.

[Big Al]

Right.

[Joe Anderson]

But you know, this is the problem with annuities.

[Big Al]

I was going to say we hardly ever talk because you usually don't see these go up that much.

[Joe Anderson]

Right. And then from a 90 year old of like, all right, now what the hell do I do with this? Yeah, forget it. You know, it worked out well from a rate of return perspective.

[Big Al]

Great.

[Joe Anderson]

But they're going to lose 20, 30%.

[Big Al]

Yeah.

[Joe Anderson]

You know, to tax at least.

[Big Al]

Yeah.

[Joe Anderson]

So, I mean, the good news is.

[Big Al]

Is that, hey, they got something to.

[Joe Anderson]

Get, you got something to lose, you.

[Big Al]

Get to keep 70%.

[Joe Anderson]

Right. But let's. But, but, yeah, I don't know, you're tied up, you're locked up. The fees, the cost and everything else, I mean, there's a lot of better options. Not saying, hey, let's go back 20 years and buy something different or do a different investment. I think he' realizes that it worked out. Now you have to pay the piper, but hopefully you can just pay it out slowly.

[Big Al]

Yeah. But I'll say for our listeners and viewers out there. So a better way would take the $145,000, put it in S&P 500 in a brokerage account. It grows over time. You never have to sell, she never has to sell it, can keep it and sell whatever she needs at certain points, if she needs the income, keep it in the account, don't do anything, she passes away. There's a full step up in basis so the generation gets it, can sell it the next day and pay no tax. That would have been the preferred way. I think Mike realizes that now. But just if you're thinking about doing this in a similar situation, it may not be your best choice.

[Joe Anderson]

All right. Enjoy the slopes. Skiing in Colorado, when does it start snowing there? Soon, probably. Huh? November.

[Andy]

Utah, isn't it?

[Joe Anderson]

Oh, Utah, Utah.

[Big Al]

Same idea though, probably. Yeah, probably November, I'm guessing.

[Joe Anderson]

All right, you'll be here before you know it, Big Al.

[Big Al]

Yeah, that's right.

[Joe Anderson]

We got Doc McMuffin from my home state of Minnesota.

[Big Al]

There you go.

[Joe Anderson]

Hey, Joe, Al, Andy, you guys are the best. And this is my favorite finance podcast. Thanks for all the spitballing and laughs. I'm a 41 year old from Minnesota and Mr. McMuffin is an engineer and she's still drinking. Oh, I'm a 41 year old doctor.

[Andy]

Yes, that's why she's Doc McMuffin. You just said she's a 41 year old.

[Big Al]

Skip the word doctor.

[Joe Anderson]

Oh, so she's a doc and he's an engineer.

[Big Al]

Yeah.

[Joe Anderson]

That must be a fun cocktail hour.

[Big Al]

You know, I wish I. I knew them. I could have a drink with them.

[Joe Anderson]

Well, there you go. She likes to drinking a little Chardonnay and IPAs. Mr. McMuffin is still drinking Punky weird sour beers.

[Big Al]

Sour beers? Yeah.

[Joe Anderson]

No, thank you.

[Big Al]

Yeah, I don't think I'd like that either.

[Joe Anderson]

All right, you just got a new 2025 GMC Sierra, and I'm still driving my 2012 CRV. All right, so we got questions about gifting brokerage account assets to my parents. Okay, so they're. They're gifting up.

[Big Al]

Gifting up instead of down. Yeah, gifting up a generation.

[Joe Anderson]

Yeah, Okay. I know all about that.

[Big Al]

Like it.

[Joe Anderson]

Mr. McMuffin and I have an annual combined W2 income of $650,000. So solidly in the 35% tax bracket, plus Minnesota income tax. My parents are 73 and have about $84,000 in retirement income annually between their Social Security and pensions. Plus this year, add an extra $10,000 in RMDs. We want to gift them $75,000 to remodel the family cabin that they own. $75,000 keeps us under the gift tax reporting limit, since there are two of us and two of them. You want to explain that real quick, Big Al?

[Big Al]

Yeah. Okay. Yeah, so the way it works is you can actually give to anybody that you want to $19,000 a year. That's what's true in 2025, and that gets indexed for inflation. So in other words, Doc can gift to mom and Dad $19,000 each, and so can Mr. McMuffin $19,000 each. So in this case, two people are giving to two people. So that's 19,000 times four, which, if you're keeping track as Joe, is about 76,000. So she's right. $75,000 is under that limit.

[Joe Anderson]

All right, $75,000 keeps us under that gift. But even if she gave $100,000.

[Big Al]

Yeah, so here's how that works.

[Joe Anderson]

It's not the end of the world.

[Big Al]

No. What happens is you have to file a gift tax return, and all that happens is you get a little bit less credit against estate taxes, which right now it's. What are we now, 15, 13 it. 14 million each. 14, 15 million number. Yeah, yeah. I think the Big Beautiful act changed that just a little bit. But anyway, roughly 28, $30,000. You can gift or not gift. You can pass to the next generation if you're a married couple without any estate tax. So there's a pretty. So all that would happen if you gave a hundred thousand dollars. That would be. Call it 30,000 over the limit.

[Joe Anderson]

Just how many people do you think actually files a gift tax return?

[Big Al]

Not many.

[Joe Anderson]

But how many did you do in your. In your days of taxes?

[Big Al]

Not too many. Usually. No one tells you. Right. But you're supposed to.

[Joe Anderson]

Got it.

[Big Al]

Yeah.

[Joe Anderson]

The honor system.

[Big Al]

The honor system. Which is true of a lot of our taxes.

[Joe Anderson]

Yes. All right. $75,000 keeps us under the gift tax reporting. Since there are two of us, two of them. We are planning to give them $75,000 of our most appreciated brokerage account assets. It's all invested in the s and P500 index fund. With the $35,000 the basis of $40,000 to gain, I figure we can give the index funds from our brokerage to theirs. They sell them, pay the 15% capital gains as opposed to our 23.8 capital gains, plus the Minnesota capital gain taxes, and then use what's left for the remodel. I don't think this screws them up for their Social Security taxability since they are already at the maximum. And I think it keeps them under IRMAA increases because they'll still be under $212,000 from their annual income. All right. It ends up saving close to $5,000 in taxes to have them sell the assets rather than us. Right. Am I missing something? Furthermore, is it crazy to think this is set up? Hold on. Is it crazy to think this is set up? We should keep using.

[Andy]

I think she's missing the. The setup. We should keep using.

[Big Al]

Yeah, I think you're right.

[Joe Anderson]

I'm just reading what is written.

[Andy]

I know. Yeah.

[Joe Anderson]

It makes me sound like I cannot read.

[Andy]

So I don't think she did it on purpose just to trip you up.

[Big Al]

But maybe I don't think so either.

[Joe Anderson]

Like, keep gifting them our appreciated brokerage assets, keep it under the gift tax reporting limit, then they sell at their capital gains rate, and then they gift it back to us. Is that a thing?

[Big Al]

I like your accent.

[Joe Anderson]

Yeah. A Minnesota accent.

[Big Al]

Yeah. Okay.

[Joe Anderson]

Thanks so much for all you do. You guys roll. Cheers, Doc McMuffin.

[Big Al]

You guys rule. Awesome. Very good. Well. Well, first of all, Joe, it's completely fine to gift assets to anyone you want to. Like we just talked about. And when you gift assets, by the way, here's what happens is, whatever your tax basis is, the person that receives the assets, that's their tax basis. So in this particular case, your parents receive the assets, they sell the assets, they pay the capital gains at their rates. No problem. By the way, the $75,000 gift is not a taxable event. It's just a transfer of a gift. What is taxable, though, is the $40,000 capital gain, but it's taxed at the parent's rate, which is lower. So there's absolutely nothing wrong with that. In fact, that's a really good strategy if you want to get money to your kids or your parents in this matter to get.

[Joe Anderson]

The only thing that's a little bit unique here is that they're gifting up instead of down.

[Big Al]

Usually goes the other way.

[Joe Anderson]

And then if you gift down. So this was a strategy is like, all right, well, here I'm going to give it to my kids. They're in a low tax bracket or maybe they're teenagers and they don't have a tax bracket. And then. So they had to come up with the kiddie tax to avoid that strategy of people gifting down, having their kids sell it at zero capital gains rates and then giving it back.

[Big Al]

It's true. So you. Yeah, because of the kiddie tax, you have to. You can give to your adult children, but not.

[Joe Anderson]

But you could give to your parents all day long. There's no daddy tax or granny daddy.

[Big Al]

No, nothing like that. Maybe there should be, I don't know, but there's not. So whether you can sort of keep doing this and do a little gift and then they sell it and gift it back, I wouldn't do that.

[Joe Anderson]

I mean, save a couple bucks.

[Big Al]

Not that the IRS is going to catch you, but it's if.

[Joe Anderson]

If they're honor system.

[Big Al]

The honor system. I'm honorable because here's the thing. If there's a reason for you to make a gift and then your financial situation changes, there's a reason for them to make a gift back to you. Totally fine with that. But if you're just doing this to reduce taxes, I wouldn't do that. That's sort of going beyond the spirit of the law.

[Joe Anderson]

Alrighty.

[Big Al]

That's my opinion, Papa Al.

[Joe Anderson]

And I think that's all we got for today. All right, so that's it, folks.

[Big Al]

Another amazing show.

[Joe Anderson]

Another amazing show in the books. We'll see you next time. This is yous Money, you, Wealth.

[Andy]

Next week on YMYW. Should Dan in Florida contribute to his Roth 401K or do Roth conversions? Should fired up in Chicago contribute to his Roth 401k or pre tax accounts to go fire and leave his kids a pile of cash. Big Wallet Barbie and Ken need a Roth conversion and home purchase strategy and the fellas address a few of your comments this is your Money, you, Wealth, you podcast. If you get a kick out of the show, share it your financially savvy or not so savvy friends will thank you. Subscribe on YouTube and join the fun in the comments and leave your honest reviews for your Money you Wealth in Apple Podcasts, Amazon Music, Castbox, GoodPods or any other app that accepts them. Your Money, you, Wealth is presented by Pure Financial Advisors. To go beyond the spitball and begin crafting a real plan for your retirement schedule, a no cost, no obligation comprehensive financial assessment with Joe and Big Al's team at Pure. Click or tap the free financial assessment link in the episode description or call 888-994-6257. Meet in person at any of our nationwide offices or online from your couch. The Pure Team will work with you to create a detailed plan tailored to your unique retirement goals. 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.