Your Money, Your Wealth

The value of a financial advisor (aka "Advisor's Alpha") and a discussion of target date funds with Don Bennyhoff from Vanguard, estate planning and the difference between a will and a trust, and Joe and Big Al answer emails on Roth conversions, taxation on day-trading stocks, tax write-offs on retirement contributions, and why some great companies have low stock prices. Plus, the fellas discuss a recent survey where millennials said they'd rather disclose a sexually transmitted disease to a potential partner than to reveal their debt. Original publish date February 11, 2017. Note that content may be outdated as rules and regulations have changed. 00:00 - Intro 01:00 - Young Americans Would Rather Disclose Their STDs Than Their Debt 12:11 - The Importance Of An Estate Plan: Estate Planners 11 Tips for the New Year 26:47 - Should I Convert to Roth as Quickly As Possible or Over Time? 32:41 - Interview with Vanguard Senior Investment Strategist Don Bennyhoff on Target Date Funds and Advisor's Alpha 48:00 - How will my profits and loss from day trading be taxed at the end of the year? 50:46 - Can I still deduct a maximum amount of taxes on a traditional IRA if I contribute to a 401(k) plan? 55:51 - What is the best way to leave retirement accounts to children and minimize our RMD tax implications? 1:00:43 - Why do some companies have a lower stock price than other, less profitable companies?

In this engaging discussion, Andrew Fiebert, host of the Listen Money Matters podcast and expert in financial independence, shares his insights on early retirement and strategic real estate investing. He reveals essential retirement rules for those over 50, emphasizing the importance of proactive planning. The conversation also covers practical advice on capital gains tax from property sales, the nuances of purchasing a family home, and successful investment strategies, making it a must-listen for anyone aiming to secure their financial future.

Kiplinger's Retirement Report editor Rachel Sheedy tells Joe Anderson, CFP® and Big Al Clopine, CPA how to inherit a retirement account without paying a boatload of taxes all at once. Family, Inc. author Doug McCormick talks about how to use sound business principles to make the most of your family's money, and the fellas answer emails about retirement contribution limits, taxation on stock dividends and splits, and the voodoo of overfunding life insurance. They also discuss Social Security and Medicare changes in 2017, and the do's - and dont's - of saving for retirement. 00:00 - Intro 01:00 - 2016 Market Recap 07:39 - The Stretch IRA Explained, with Rachel Sheedy from Kiplinger 23:51 - 5 Ways to Become an Extreme Saver 30:20 - 2017 Social Security Changes 36:03 - Family, Inc. With Doug McCormick 47:16 - Answers to Money Questions 48:03 - I am currently contributing a company sponsored 401(k) plan. Can I also contribute to a Roth IRA? 50:52 - Are stock dividends and stock splits taxed? 56:06 - I've heard I can use life insurance like a Roth. How do I do this? And is it a good idea?

With so many retirement planning strategies and the plethora of information on the internet, it can be hard for some to prioritize where to start when it comes to planning for their retirement. Joe Anderson, CFP® and Alan Clopine, CPA share eight proven ways to boost your retirement income. Original publish date January 28, 2017 (hour 2). Note that content may be outdated as rules and regulations have changed. 02:02 "After age 70 ½, you cannot do an IRA contribution but you can do a Roth IRA contribution." 04:49 "Why do we not want to solely focus on dividend paying stocks? There's a lot of risk involved." 07:52 "If you are in a high dividend strategy and you don't necessarily need the income, you may want to readjust and be more sophisticated in your strategy." 10:18 "Delay your retirement by a few years…sometimes we run analyses for people if they retire at 65 versus 68 and it's incredibly different because what happens in a lot of cases is people are in relatively high earning years so they're putting maximum amounts in their 401(k) and getting maximum matches from their employers." 12:17 "When you add the Social Security to components, sometimes working just a few more years could add ten years to your portfolio." 12:35 "See whether a reverse mortgage makes sense for you…we did a webinar on home equity and that was one of the things we talked about." 17:59 "Can I claim a loss from my Roth IRA? I have a Roth IRA open for over 10 years now. I have contributed about $15K, but I lost around 80% of it due to some stocks that I invested in. Can I claim this 80% lost in my tax return? I know that I can claim up to $3,000/year for capital losses in regular investment, but can I claim my losses in the Roth IRA when I withdraw the money, or sell the stock(s)?" *Question from Investopedia Advisor Insights 18:35 "Once any dollar goes into a Roth IRA or regular IRA, the capital gains rules don't apply anymore, so you don't get to claim the gains or losses." 20:26 "It's difficult to get money into a Roth IRA because a) there are contribution limitations…b) if you convert money, that's unlimited but realize that you're paying tax as you convert those dollars." 29:35 "Should I retire early to take care of my parents? Within the next six months, I plan to quit working so that I can relocate and take care of my parents. I will be 50 years old at that time. I have no debt, am not married, and have no children. All of my living expenses will be paid for by my parents as compensation for taking care of them. In addition, I have a $700,000 nest egg. Many friends and colleagues are telling me I am ridiculous to retire so early. I don't agree. What is your opinion?" *Question from Investopedia Advisor Insights 31:44 "Well, how bad of shape are mom and dad? Are they going to live another twenty years or two years? If they're going to live another twenty years, then sure, go for it." 32:53 "This may not be forever; you can always go back to work."

How do you get motivated to save for retirement? Joe Anderson, CFP® and Alan Clopine, CPA share smart saving tips for retirement then shed light on why you shouldn't depend solely on your pension for future income. They close the hour with seven reasons why you should say yes to a Roth IRA. Original publish date January 28, 2017 (hour 1). Note that content may be outdated as rules and regulations have changed. 02:06 "I want to go over in this segment a few ways to motivate yourself to save more for retirement, and I think this is something that's true for all of us – whether you've saved little, none, or a whole lot." 04:48 "No matter where you're at – whether you're in your thirties or in your sixties, you want to be saving as much as you can because retirement is going to happen." 07:46 "If I save $10,000 after tax (let's say I have a Roth component in my 401(k) plan), I forgo the $2500 savings today and then it grows to $100,000 and then [when] I pull out the $100,000 I don't pay any tax at all. Let's assume we're in that same 25% tax bracket – that's a $25,000 savings. So I forgo the $2500 to save $25,000 down the road, versus a $2500 tax deduction today and then down the road paying $25,000 in tax." 09:25 "If you have the discipline to save that tax savings and you're in a higher tax bracket, by all means, go for the pre-tax and get that deduction… take that $2500 and save it - put it in a Roth IRA as a contribution; that would be the best [case scenario]…people forget about this because they just spend it." 16:17 "A lot of companies, as ours, we do have a 401(k) and a match, but it's not the same amount as a pension plan." 17:05 "If you do have a pension, private or public – that doesn't necessarily mean you should just coast." 19:28 "The most obvious benefit of a Roth IRA is it can provide you with tax-free income in retirement." 22:56 "A couple of things when it comes to RMDs (required minimum distributions) – you don't necessarily have to sell the investment. You're taxed on it, but you don't need to sell it if it's in an IRA. You can transfer shares out and put it into a brokerage account." 27:36 "If you don't have a Roth, we would encourage you to at least open one up because then that starts your five-year clock." 28:06 "A Roth IRA can be a great compliment to other retirement accounts. A lot of people don't realize the power of this." 32:22 "Roth IRAs are great for estate planning as well because your kids get them tax-free as well."

Joe Anderson, CFP® and Alan Clopine, CPA interview Tom Anderson, author of The Value of Debt in Retirement, to discuss why debt isn't always a bad thing in retirement. The Value of Debt placed #2 on Forbes List of Personal Finance Books Financial Experts Say Will Change Your Life. Plus, Joe and Al answer more email questions on-air. Original publish date January 21, 2017 (hour 2). Note that content may be outdated as rules and regulations have changed. 0:58 "We're answering email questions as well, and this is fitting for our next segment." 1:03 "I have a large 401(k) plus a pension. I want to retire before the end of 2017. I will be 62 years old in September. Would it be wise to pay off my car loan so I don't have any debt when I retire? Should I withdraw from my 401(k) to do this?" 2:56 "Maybe this will work for you…I would look at my income over the next eight, nine months and try to budget extra payments so that by the tenth month I can have it all paid off with my salary." 3:35 "A lot of people go into retirement thinking they have to have their mortgage paid off; that's not necessarily true." 6:28 Start of Interview with Tom Anderson Joe (7:11) "Tom, let's talk first of all about the title [of your book], 'The Value of Debt in Retirement' – when you think of most financial pundits, that's the opposite take of what you might hear when you approach retirement." Tom (7:27) "That's the general plan, is people are saying they need to rush in and get rid of all their debt before they retire – so we went with a more controversial title…we tried to put the math around it and explore that topic." Joe (7:57) "Most individuals, as they approach retirement, don't necessarily take a look at both sides of the balance sheet. They might focus on the debt side a little too much where they pay extra on their mortgage payments and they have very little liquid capital to provide any type of retirement income, and they might think that will be a safer route approaching retirement where in actuality that might be the opposite thing they should be doing." Tom (8:25) "That's exactly right…what happens is a lot of people find that they don't have enough retirement savings…while many people feel they've under-saved for retirement, what they're doing is they're rushing in to pay off their debt, and they're finding that they don't have the liquidity or flexibility or the resources to put them on track for retirement." 9:03 "Your listeners have to know that I don't think all debt is good." Joe (9:37) "Right, it's figuring out what is good debt and what is bad debt. I think people just lump debt into one category and say 'no, it's all bad – I want to be debt-free' and then all of a sudden when they get into retirement they may have a paid off house but they have very little liquid assets and don't have the retirement income they need long-term." Tom (10:09) "I would love for everybody to be able to pay off their house, but what happens is when you're getting close to retirement, until you have enough money to pay off all of your house, I suggest why pay off any of it, because it's a one-way liquidity trap." 10:34 "What readers need to be thinking about is how to protect the liquidity and flexibility and make sure there are enough resources; [consider] working with an advisor…" Joe (10:55) "What are the right types of debt?" Tom (10:58) "Any debt that has a rate of return or a cost of it less than what you think you're going to earn long-term in your portfolio…" Joe (11:47) "Are there certain ratios that you take a look at?" Tom (12:00) "When you retire, you basically have a pod of money that you're trying to create an income stream from in retirement…there's no clear math-compelling case that debt will add value. If you need to have between a 4% or 6% distribution rate – let's say I have $1 million and I want to spend $50,000 a year, then I show that a 30% debt to asset ratio actually can add value. Those people have to take risk either through investing in risky assets or debt…some debt, the right kinds of debt, the right way, can actually reduce that risk." 13:40 "It is a mathematical fact that debt can increase the rate of return in your portfolio. It is a mathematical fact that debt can reduce taxes; it is a mathematical fact that counterintuitively debt can reduce risk…it is a fact that this is not a guaranteed path and that you're basically choosing between two different risks." 18:36 End of Interview with Tom Anderson 19:34 "It's not the end of the world to have a mortgage these days, particularly because interest rates are low, and this is what we call good debt because your home should continue to appreciate." 24:54 "Which retirement account should we set up for our children? We would like to set-up accounts for our three kids, who are young adults. We are not sure if it is smart to make them wait until they are 59 1/2 years old. Would you recommend we set up a Roth IRA or a low cost index fund?" 26:45 "With a Roth contribution, the kids can always pull the money out – I would have them put it in a Roth IRA."

Asking yourself these important questions before retiring helps rule out any unwanted surprises. Joe Anderson, CFP® and Alan Clopine, CPA dig into the email bag to answer your questions. Original publish date January 21, 2017 (hour 1). Note that content may be outdated as rules and regulations have changed. 2:48 "When you use debt properly, it can actually be pretty effective." 9:32 "Here are 18 questions to ask yourself before you retire…let's start with the first one: what does being retired mean to you?" 13:02 "Absolutely make sure you communicate what your retirement vision looks like to your spouse." 16:58 "What would you like to add to your life and eliminate from your life?" 20:19 "How do you feel about downsizing? A lot of our equity and net worth is pent up in our home." 25:06 "Should I recharacterize my Traditional IRA contributions to a Roth IRA?" 26:12 "Virtually anyone that's working and has earned income can do a regular IRA contribution as long as you're under 70 ½, however here are a couple stipulations…" 27:31 "If you're single and your income is in between $118,000 and $133,000 you can do a partial Roth contribution." 28:48 "You can do a Roth conversion regardless of your income level and age, and you don't have to be working." 30:33 "Recharacterization means you're undoing your contribution that you made." 31:36 "Control is everything when it comes to your money in retirement, because in retirement you actually do have more control over how much you pay in taxes [according to] which accounts you take money out of, and each account may be taxed differently."

Paul Sullivan joins Joe Anderson, CFP® and Alan Clopine, CPA to discuss the biggest lessons from his book The Thin Green Line: The Money Secrets of the Super Wealthy on creating and maintaining wealth. Also in this hour: answers to financial questions. Original publish date January 14, 2017 (hour 2). Note that content may be outdated as rules and regulations have changed. 00:00 - Intro 02:38 "[With] the 60-day rollover, you can only do one per year for all of your IRAs (individual retirement accounts) so all of your IRAs are considered to be one account." 04:18 "I don't think this one is widely known, and when you have a 401(k) that has company stock and you roll it over into your IRA, you completely lose a strategy called net unrealized appreciation (NUA)." 08:07 Start of Interview with Paul Sullivan Joe: (08:30) "Tell us the genesis of the book. It's the secrets of the ultra-wealthy – what did you learn and what are some of the things that we can give to our listeners?" Paul: (08:58) "The gist of the book is this: how we think about money matters more than anything else…" Joe: (10:15) "How did you come up with the title?" Paul: (10:20 "If you think about the S&P 500 or your favorite stock index over the past 50 years – it starts low, goes high but it's not in a straight line, it's a little bumpy along the way. That's the thin green line; the people who are on top of it – they're wealthy, whether they make a little money or a lot of money. Everybody else is rich and poor so you could be at the very tippy top making a ton of money each year but you're really rich. The difference is freedom. The people who are wealthy are able to make all the decisions and choices that they want to make with their money. They're in control, they control life. 10:57 "The people who are rich – you can think in the most simple context – is someone who is wildly over-leveraged. They may make $1 million a year but they have $5 million in debt obligations. Life is going to control them." Joe: (11:51) "So wealthy is not necessarily a dollar figure in your bank account – it's basically the control that you have within the wealth you've created." Paul: (12:13) "It's all about having those choices and knowing that when you make them you're not endangering some of the essential things in your life." Joe: (15:01) "Give us some tidbits about your own personal journey." Paul: (15:54) "It's been an interesting journey but it gives me perspective on [the fact that] it (wealth) can go away, how do you make sure it does go away and more importantly, how do I talk to my kids and my kids' friends so they understand that a lot of this is decisions and being aware of the decisions you make; and just as important is your behaviors." 17:27 "You can save money, you can spend money, you can give it away – but most importantly, you can think about it, and it's how those four work together that I hope will allow people to make better decisions in their own lives." 19:35 "The Château Margaux is something I like, but if I'm going to have it once a year, there are other decisions I'm going to have to make to offset the splurge for that amazing bottle of French wine." Joe: (20:02) "Where can people find more information about you?" Paul: (20:04) "Go to my website: pauljsullivan.com or go to the New York Times website and type in my name." 20:23 End of Interview with Paul Sullivan 25:00 "I have a beneficiary IRA that I doubled by investing in Apple Stock. I now have sold 90% of that stock because I felt it was too risky to have all my eggs in one basket. I would like to primarily live off of the interest and not touch the principal ($900K) of my IRA. How would you suggest I invest to accomplish that? How should I invest for the long term inside my IRA?" 26:07 "I would look at this as more of a total return; I would look at a globally diversified portfolio total return, not just income." 29:11 "Should I diversify between different financial institutions? As a high net worth individual, should I diversify between financial institutions or should I just diversify within one organization such as Wells Fargo or Chase?" 30:55 "Well what if Chase or Wells Fargo goes out of business? You're investing in a security versus a bank." 33:56 "What tax rate will my mother have to pay on a cashed out IRA? I have a terminally ill mother who is 69 years old. She has a traditional IRA worth around $500K that she converted to an annuity at 4%. Her medical care requires increased cash flow to pay day-to-day bills. The company has agreed to cash out the full value of the IRA with 0 surrender fees. The company will not transfer the IRA to any other investment vehicle. If she takes the cash value, what are the tax implications? Her income last year was ~$30K and her effective combined federal and state tax rate was ~3%. Will she pay 3% on the $500K or the full federal and state rate of 41% (FED ~35 NC ~6)?" 34:55 "If you cash out an annuity, and the company is allowing you to do that without surrender, it can still stay out of an IRA." 35:37 "When you have effective rates like 3%...when you add additional income, now you're on the marginal rate concept which means whatever tax bracket you're currently in…that's actually the tax you're going to pay on the additional income." *Email questions from Investopedia Advisor Insights

Joe Anderson, CFP® and Alan Clopine, CPA discuss why the father of the 401(k) regrets creating it. Plus, the worst mistakes you can make with your IRA and 401(k). Original publish date January 14, 2017 (hour 1). Note that content may be outdated as rules and regulations have changed. 00:00 - Intro 01:46 "[For today's topics,] I've got ten important considerations for 401(k) rollovers, and Ed Slott's three fatal IRA (individual retirement account) errors." 02:59 "Ted Benna, in case you don't know, is known as the father of the 401(k) and we was a benefits consultant with Johnson companies, and he was among one of the first to come up with the notion that American workers should set aside their own pay pre-tax for retirement." 04:02 "He and other early proponents dislike what the 401(k) has spawned. The tool was never meant to serve as the main means by which workers save for retirement, but that's precisely what it's become – it's increasing the financial risk for workers along the way." 08:25 "The other thing he doesn't like about the 401(k) is he says 'I helped open the door for Wall Street to make even more money than they were already making. That is the one thing I do regret.'" 11:36 "A majority of retirees rolled over their 401(k) to an IRA at retirement." 14:29 "Let's say you go back to an old company, you could roll all of your 401(k) into that new 401(k), that avoids the required distribution until you're retired." 20:03 "When you think of an appropriate globally-diversified portfolio with a rebalancing strategy, a rebalancing strategy simply means that whatever asset class you have that's done really well – you shave some of those profits off…and buy an asset class that hasn't done as well – you're constantly selling higher and buying lower by discipline...you take the emotion out of it." 22:57 "The true value-add of an advisor is to take a look at what the strategy is, what their plan is and coming up with the tax alpha if you will, because if you can reduce the overall tax liability of the income that you're trying to produce, that's more money – it's a rate of return. If you look at rebalancing when markets go up and down or sideways to keep that risk parameter based on your goals – that's huge." 29:24 "Here's another one (mistake) that's irreversible. This is when you have a non-spouse rollover…let's say you inherit an IRA from your father or mother and you roll it over into your own IRA…you may not realize this but it's a prohibited transaction. That's treated as a full distribution."

Douglas P. McCormick joins Joe Anderson, CFP® and Alan Clopine, CPA to discuss the framework and premise of his book Family, Inc.: Using Business Principles to Maximize Your Family's Wealth. Also in this hour: Social Security changes for 2017 + answers to financial questions. Original publish date January 7, 2017 (hour 2). Note that content may be outdated as rules and regulations have changed. 6:27 Start of Interview with Douglas P. McCormick Joe: (6:57) "Tell us a little bit about yourself and what made you write the book Family Inc." Douglas: (7:12) "I'm an undergrad from West Point; I was an active duty army officer for five years and after that time decided a military career was not for me, so then I went back to business school at Harvard and graduated with a master's degree in finance and worked on Wall Street for a couple of years. In spite of all that great experience, I never had what I considered to be a good foundation in personal finance. Today, I think financial literacy is one of the biggest problems in America and our traditional education system is not doing a good job of teaching these principles. 7:49 For me, the Family Inc. framework is an elegant way to help people think about all the competing choices that they have out there with their assets and finances." Joe: (8:15) "There are billions of books out there on personal finance and we still have a financial literacy problem. Why is your book different?" Douglas: (8:23) "My objective is not to give you answers, but to teach people how to think so they can get their own answers. What is unique about Family, Inc. is that it provides people with a framework. The premise of the book is that all families could look at themselves as a business. Each family predominately has two big assets – they have their labor assets and they have their financial assets and the name of the game is to manage those assets, to do all the things you want to do in life and when it comes time to retire to have capital to support your consumption. 9:00 "I think the great thing about that framework is that businesses have been dealing with those kinds of decisions for many years…and when you look at the family that way it really allows you to borrow many of those tools and best practices that have been time-tested in business." Al: (9:16) "Doug, give us a sample of what families ought to be looking for or looking to do." Douglas: (9:22) "Let me give you some of the big mistakes. First of all, I think you can't really talk about financial independence or financial security if you're not thinking about how to maximize your labor potential…another thing the book does a good job on is helping people focus on the right time frame…to think about your performance not in terms of how you got paid this year but in terms of lifetime compensation – that's a very important change in time horizon." 10:26 "One of the things I really preach in the book is a family CFO's job is much broader than simply how you manage your investments or how you budget – it's things like managing your risk or training the next generation in the family to be good stewards of your capital and it's things like investment and education and entrepreneurship." Joe: (13:34) "How would you do that calculation to see what the appropriate asset mix is in regards to equities?" Douglas: (13:41) "Both Social Security and labor you can roughly calculate similarly which is you kind of make assumptions about either how long your working career is or how long you're likely to live…then you project your future income with a growth rate and tax rate…and you essentially discount that back with some adjustment for inflation. First of all, on familyinc.com there are calculators for both your labor and Social Security. Second, I promise you the estimate you come up with will be wrong – it's less about projecting a single number and more about thinking about that asset in the context of your overall plan because it's going to be directionally right." Joe: (15:51) "What advice would you give our service men and women?" Douglas: (15:56) "One of my primary objectives for doing the book is to support the military community and veteran community with a good framework to think about navigating transition. First of all, the big thing I'd say for the military community is you have to acknowledge that your circumstances are different from mainstream America, and so your plan must be different…it really starts with understanding those differences – the Family Inc. framework can also be applied to those circumstances." 17:35 End of Interview with Douglas P. McCormick 18:40 "I am currently contributing to a company sponsored 401(k). I contribute 8% (annual salary $60K), which comes out to $4,800 for the year. Can I also set up and contribute to a Roth IRA? If so, what amount can I contribute?" 18:59 "The answer is absolutely yes. With a Roth IRA, you can contribute $5500 per year. If you're 50 and older, you get a $1,000 catch-up so you can do $6,500. With the 401(k), it might have a Roth option in it. In that case, if you're under 50 you can contribute $18,000 total." 19:58 "If you fully fund a 401(k), you can fully fund a Roth IRA if you're under the income limits." 27:05 "Can I use life insurance like a Roth IRA? I make too much money to contribute to a Roth IRA. However, I would like to save more in a tax saving manner. I've heard I can use Life Insurance like a Roth. How do I do this? Is it a good idea?" 27:42 "Certain life insurance policies allow you to put more money into them than the actual life insurance premium so you start building up a cash surrender value. You can in many cases invest that how you see fit; it grows inside that insurance policy, there is no current taxation and then you get to a point where you retire and if it's a big enough balance you can borrow against that and it's tax-free."