0:00

Hello and welcome to Choose a Fi. Today

0:02

on the show, we have our good friend,

0:04

Sean Malaney, back for an update episode. So

0:06

Sean was on in early February on episode

0:09

475, which we called how to access

0:11

your retirement accounts before 59 and a

0:13

half. And this

0:15

was a really important episode because it

0:17

went through seven different options to access

0:20

money before 59 and a

0:22

half, which is really something that bedevils most

0:24

of us in the Fi community. Is this

0:26

possible? Can we do this? Can we actually

0:28

retire early if we want to? Can we

0:30

access our money before that mythical 59 and a

0:33

half? So that was

0:35

a really important episode. And what's cool

0:37

about our community is we get feedback,

0:39

we get questions and we

0:41

have somewhere between five and seven questions

0:43

to go through from you, the community,

0:45

where we're actually going to add an

0:48

extra option, which is really cool. And

0:50

Sean prepared a ton for this episode

0:52

to really give actionable advice. So with

0:54

that, welcome to Choose a Fi. Sean,

1:04

thank you for coming back. I really appreciate it.

1:06

Brad, thanks so much for having me back.

1:08

Yeah, this should be fun, man. So this

1:10

is, I think the quickest turnaround we've ever

1:13

had for an update episode. This feels kind

1:15

of fun here, right? So episode 475, we

1:17

went through those seven options and basically just

1:19

to really quickly touch on them. We're not

1:22

going to spend time with them, but taxable

1:24

accounts, inherited retirement accounts, the rule of 55

1:26

457 B is Roth IRA conversion ladder. The

1:31

72 T, which you blew my mind in that

1:34

episode about 72 T and now that being

1:37

a viable option and also frankly, just

1:39

paying the penalty, which might

1:41

sound abhorrent to be a little, but when

1:43

you really dive into it, okay, that's not

1:46

an altogether unrealistic option. So we gave seven

1:48

different options and I think that episode just

1:50

really, really resonated with the community. So again,

1:52

thank you for your time and expertise and

1:54

this is a follow up to that. So

1:56

yeah, where, where do you think we should

1:58

kick off? We got. all his feedback, all

2:01

these questions. Yeah, some very good

2:03

correspondence, very insightful questions. There's a gentleman

2:05

who had a, I think this gentleman

2:07

had a question about 72T and perhaps

2:11

he's a little more bullish than I am on the

2:13

72T concept. Nice.

2:16

Yeah, let's start there. So it

2:18

looks like that came in from Jeff and

2:20

this is a pretty long question, but I'm

2:22

going to read the whole thing because I

2:24

think it's important. He said, I've done extensive

2:27

research on it, 72T, and we were planning

2:29

to implement one this year. A

2:31

couple points. First, instead of draining your taxable

2:33

account before starting a 72T, one might want

2:35

to keep enough in a brokerage account in

2:38

order to do some home renovations or place

2:40

a vehicle, etc. Also,

2:42

keeping one past 59.5 gives tax

2:44

flexibility by not having to hit

2:47

your IRA amounts and showing more

2:49

income than you want for ACA

2:51

and related purposes. Second, by implementing

2:53

a 72T now at 52 and

2:55

not waiting seven more years to

2:57

touch those accounts, we are attacking

2:59

our future RMD tax bomb in

3:02

much the same way as Roth

3:04

conversions, but we're able to live

3:06

off it now rather than in

3:08

five years. Third, my plan is

3:10

a slowdown plan and I'll still

3:12

have some self-employed income, including cattle

3:15

farming income, which can fluctuate. Sometimes

3:18

like this last year, with an easement

3:20

and resulting damages across our property, we

3:22

ended up with more income than we

3:24

should have for the ACA and related

3:27

purposes by keeping a quote non-72T IRA

3:29

for me, as was discussed, Sean, by

3:31

you in the show. My wife and

3:33

I can go ahead and reduce our

3:36

income by approximately $15,000 between the two

3:39

of us by still contributing to

3:41

IRAs, allowing us to reach those

3:43

goals. We can do this while

3:45

not changing the 72T annual distribution.

3:48

So, Sean, there is a whole lot

3:50

there and I know you had some thoughts

3:52

on this. Yes, so what Jeff is saying

3:55

is, hey, you know what, why don't we

3:57

have taxable accounts and a 72T? So

4:00

first, what often happens with financial

4:02

planners is folks come to us

4:05

and it's 2,000,000, 2.5

4:08

million in 401Ks and 10,000 in the savings account. And

4:11

that's it. So in terms of where

4:13

72T often comes up, there are some people

4:15

out there who are not going to be

4:18

like Jeff. They're just not going to have

4:20

that ability to use both the taxable account

4:22

and the 72T. But

4:24

that said, Jeff raises a very intriguing possibility.

4:27

And look, I'm not giving advice to him

4:29

or any specific person. But from an academic

4:31

perspective, we ought to talk about this. So

4:34

historically, many advisors have been

4:36

very bearish on 72Ts. There's

4:40

risk involved. And you're

4:42

sort of locking that money up. And

4:44

I've come along and I'm more bullish

4:46

on 72T. I'm saying,

4:48

hey, this actually has some validity and maybe

4:50

is a bit of a planning tool for

4:53

some out there. And now Jeff's

4:55

coming along and saying, no, I'm even more bullish

4:57

than Sean. Right? Let

4:59

me say this. I think what Jeff is saying

5:01

has a lot of validity. That said,

5:03

there are some drawbacks. One, the

5:06

earlier we start a 72T,

5:08

generally speaking, the worst, right? So

5:10

that's part of the reason why

5:12

advisors, myself included, like to drain

5:14

the taxable accounts first. What

5:17

we're saying is, look, when you start a 72T, say at 50

5:19

instead of 53, it's less flexible

5:22

and you have to have a larger

5:24

72T IRA to get the same amount

5:27

of money out. So if

5:29

we could, we'd rather start at 53 instead

5:31

of 50, just because

5:33

the math works out better and the risk

5:35

profile works out better, right? Because one of

5:37

the downsides of 72T is there's

5:39

a risk. The risk is at some point

5:42

in the 72T term, we're going to screw

5:44

something up. What that does is it makes

5:46

those previous distributions subject to the 10% early

5:48

withdrawal penalty plus interest charges. So we want

5:51

to avoid that or we want to at

5:53

least limit that. And one of the ways

5:55

we limit that is by starting our 72T

5:57

later. But

6:00

that said, what Jeff is saying has

6:02

validity and maybe it's look, if you can build

6:04

up those taxable accounts so that you at least

6:07

have an emergency fund and then you start your

6:09

72T, maybe that's the way to go. You

6:11

have to do your own analysis. But

6:14

I think there's a, I think 72T

6:16

just needs a lot of rethinking among

6:18

advisors, among end users like Jeff. I'm

6:20

glad he's clearly doing a lot of

6:22

good thinking here. I would just say

6:24

I tend to like

6:26

to start 72Ts later rather than

6:29

sooner if possible. Gotcha. Okay,

6:31

that makes sense. And yeah, just because

6:34

obviously everybody who's listening to this episode

6:36

now didn't just listen to 475, though

6:38

I would advise you to go back

6:40

and listen to that. But

6:42

with this 72T, I think the

6:44

part that blew my mind the

6:46

first go around was that you

6:48

can split your IRAs into separate

6:50

accounts and really target precisely

6:52

how much you want, I guess, to

6:55

make subject to this 72T, which is

6:57

one of the coolest things I've heard

6:59

in years in personal finance. Yeah,

7:01

so Brad on that, right? So generally

7:03

speaking, the method that we use,

7:05

it's called a fixed amortization method,

7:08

produces an even level payment, right? I use

7:10

an example on a YouTube video, 80,000 a

7:12

year. All right,

7:14

but that's just a level payment for

7:16

each of seven years, six years, five

7:18

years, whatever the term is. And

7:21

not everybody has 80,000 of

7:23

need every year in that one example, right?

7:25

Maybe inflation increases our expenses or we're going

7:27

to go on a vacation one time. So

7:30

it is possible to increase the 72T

7:32

and to decrease the 72T. So

7:35

we can increase it by doing a second 72T.

7:38

We can't really increase it in most

7:41

cases. But what we could do is

7:43

have that, like what I call the

7:45

non-72T IRA and then do the slice

7:47

and dice again. So we have a

7:49

second 72T IRA and generate an additional

7:51

payment if we need it. And

7:53

then the question also becomes, well, wait a minute, I've agreed

7:55

to get $80,000 of taxable income

7:57

every year for say the next seven years, whatever.

8:00

whatever the term is, and then maybe in the

8:02

middle of that term, aunt or uncle dies, leaves

8:04

you with $200,000 in cash, well, why do I

8:06

need to have a 72T anymore? Well

8:09

there is a possibility of reducing the existing

8:12

72T. It's a one-time

8:14

switch that's allowed. They call this a

8:16

change to the required minimum distribution method.

8:18

I did a YouTube video on that.

8:20

It gets a little complicated. But essentially,

8:22

as inflexible as we say 72T

8:25

is, and it is somewhat inflexible, there are

8:27

ways to increase those payouts and there's a

8:29

way to decrease those payouts if for whatever

8:31

reason, you don't need them as much as

8:33

you once did. Yeah, that makes sense. And

8:36

I think in episode one, you

8:38

basically said as a rough guideline,

8:40

and again, like you stated earlier,

8:42

this is not financial advice to

8:44

any one specific person by any

8:46

means or really anyone in particular.

8:49

We're just talking generalities here, right? So

8:51

I think you said very roughly age

8:53

50 is when you could

8:55

conceivably think about this 72T. Of

8:58

course, there's no hard and fast, but I think

9:00

that was your general back of the envelope guideline.

9:03

I think I'll ask for some clarification

9:05

on that. But final word for me

9:07

on 72T is there's a new podcast

9:09

actually called Forget About Money. And

9:12

it's by my friend David Boyer, who

9:14

is actually Steven Boyer from Camp Fi

9:16

fame, the creator of Camp Fi. It's

9:19

his twin brother. So his twin brother

9:21

David and actually both Steven and David

9:23

interviewed Eric Cooper, who's a friend of

9:25

mine from the five community actually just saw

9:28

him at economy and he was on 72T

9:31

and how Eric has gone through this

9:33

specifically. So this was a 45 minute

9:35

episode very specifically on 72T. So

9:38

that was for anybody who wants a little more

9:40

flavor in that. I think check that out. Yeah,

9:43

Brad, I think the math, it'll depend on

9:45

your case, but 50 is a very rough

9:47

general guideline where, hey, this is going to

9:49

make more sense. You got to do your

9:51

own math on it or work with an

9:53

advisor and do your math on that. And

9:55

thanks so much for mentioning that. I was

9:58

not aware of that podcast episode. It's

10:00

great to hear an end user perspective on something

10:02

like 72T. So I

10:04

will go download that episode. Nice. And

10:07

yeah, Eric is definitely somebody we could get on the podcast

10:09

for sure and to really dive into this. So

10:11

if that's of interest to anyone, definitely

10:13

let me know because I think this

10:15

72T is something that things just

10:18

changed in the last couple of years and it's

10:20

become much more viable. So that's why we're really

10:22

spending some time talking about it. So all right,

10:25

Sean, let's go to question number two. So

10:27

this came in from Jessica and

10:29

Jessica said, what if you

10:31

have a decent amount of Roth 401k

10:33

money in addition to a Roth

10:35

IRA? How would you leverage this?

10:38

And in what order would you

10:40

pull out assets? Example, traditional IRA,

10:42

pre-tax 401k, Roth IRA, Roth 401k.

10:44

I mean, Sean, there's so many of

10:46

these different accounts and I think people just need

10:48

just some kind of

10:51

mental clarity on how do you

10:53

even think about it when you

10:55

have all these different traditional and

10:57

Roth accounts? Yeah, great question. So

10:59

first I would in most cases

11:01

recommend a tactical move, which would

11:03

be to move the Roth 401k

11:06

through a direct trustee to trustee

11:08

transfer into a Roth IRA. I

11:11

am not saying that for investment reasons.

11:13

I'm saying that purely for tax reasons.

11:16

It has to do with how distributions

11:18

from Roth 401ks or tax versus Roth

11:20

IRAs. If your plan is, look,

11:22

I've got this now tax-free Roth, what I

11:25

refer to as Roth basis, right? Old

11:27

contributions to a Roth IRA, old contributions to a

11:29

Roth 401k and I want to live on that.

11:31

Now look, if the Roth IRA is 50 years

11:33

old and you have tons of that, then maybe

11:36

you don't need to do what I'm about to

11:38

say. But what I like to

11:40

do is before 59 and a half, move

11:42

that Roth 401k into a Roth IRA. That

11:45

takes our old Roth 401k

11:48

contributions, just the employee contributions we

11:50

made over the years and it

11:53

makes those Roth IRA contributions. That's

11:55

really good because those come out first

11:57

of a Roth IRA tax and penalty.

12:00

only free at any time for any reason.

12:02

If it stays in the Roth 401K and we're going to

12:04

use the Roth 401K to fund pre-59.5 retirement, the

12:09

piece that comes out that's attributable to

12:11

the growth is going to be subject

12:13

to both ordinary income tax and the

12:16

10% early withdrawal penalty. That's a really

12:18

inefficient way to use a Roth account,

12:20

right? We want tax-free when we do

12:22

Roth withdrawals, right? So tactically, I think

12:24

a direct trustee to trustee transfer from

12:27

the Roth 401K to a Roth IRA

12:29

is probably going to be advisable. Then

12:32

the question becomes, well, okay, it

12:34

sounds like let's just assume your

12:36

correspondent here has plenty of Roth

12:38

basis, old contributions to live between

12:40

now and 59.5. Fine.

12:44

Then the two considerations become, one,

12:46

somewhat optional, which is Roth conversions

12:48

because there might be a window

12:50

to do very efficient Roth conversions

12:52

from those old traditional retirement accounts.

12:54

But then two is premium tax credit, right? So

12:57

many people before 59.5, really before 65, maybe retired

12:59

and beyond one of these Affordable

13:03

Care Act health insurance plans.

13:05

Not everybody, but many, right?

13:09

What they're going to need to do is show

13:11

a sufficient amount of income to make

13:13

sure they qualify for a relatively

13:15

high premium tax credit. If all

13:18

we're doing is withdrawing Roth basis

13:20

during the year, old contributions, our

13:22

tax return starts off at zero.

13:25

It says, well, you didn't have any income

13:27

this year. Well, that's perfectly fine unless you

13:29

need some income to qualify for the premium

13:32

tax credit. So then the

13:34

tactic becomes, oh, look at that old traditional IRA

13:36

or traditional 401K. You

13:38

know what I'm going to do before

13:40

year end? I'm going to do some

13:42

Roth conversions to toggle on enough taxable

13:44

income so that I get a decent

13:46

premium tax credit. So that would be

13:49

sort of the way I would think

13:51

about it there. Sure, you can live

13:53

off mostly, if not exclusively, old Roth

13:55

basis in that example, but you just

13:57

want to monitor your taxable income. see

14:00

maybe, hey, we're at zero income, so maybe

14:02

we just do some Roth conversions just to

14:04

take advantage of the standard deduction if nothing

14:06

else. And then two, hey, maybe

14:08

we need to do those Roth conversions, have nothing

14:11

to do with standard deduction. We just may need

14:13

to toggle on some income just to make sure

14:15

we get our premium tax credit this year. Wow.

14:18

Okay. There's a lot there. So

14:21

I definitely want to dive into some of the specifics of this. So let's

14:23

start right there. So yeah, for

14:25

most people, so when you do

14:27

a Roth conversion, it is a

14:29

taxable event. So you're actually creating

14:31

taxable income to go on your

14:33

tax return. Now for most normal

14:35

thinking people, that sounds terrible, but

14:38

like you're saying in the FII community, we

14:40

think a little bit differently. We think a

14:43

little bit smarter. So A, if you have

14:45

no other income, you might have a piece

14:47

that you get the standard deduction

14:49

anyway. So it could wipe

14:51

whatever income you create down to zero.

14:53

So you're in essence saying, hey, tax

14:56

me on this, but I get this

14:58

standard deduction, wipes it down to zero.

15:00

My tax liability is zero. So that's

15:02

one possibility. The other is

15:04

there's this interesting balancing act, right?

15:07

Between taxable income tax liability, but

15:09

also the ACA subsidies. So

15:12

this is something I know my brother

15:14

is grappling with right now, actually, because

15:16

they currently have no earned income,

15:19

but they ultimately, I guess really the reason,

15:21

as far as I understand it, I love

15:23

your clarification, Sean, is if your income is

15:25

zero or too low, you

15:27

are not getting those amazing ACA subsidies.

15:30

You're actually in most cases being put

15:32

on Medicaid or some type of similar

15:34

program. And that's something that many people

15:36

for whatever reasons want to avoid. So

15:38

it's this, okay, I want my income

15:41

low enough to get the significant ACA

15:43

subsidies where I'm paying close to zero

15:45

or minimal, but I don't want my

15:47

income to be zero because it will

15:49

kick me into another program that I might

15:52

not want to be on. Are we understanding

15:54

that correctly? Well, yeah, so I will say

15:56

I'm not a Medicaid expert far from it,

15:58

but my understanding is The premium

16:00

tax credit eligibility is based on Medicaid

16:02

income eligibility. So they say, okay, are

16:04

you eligible for Medicaid based on income,

16:07

not eligible in a general sense, just

16:09

if we're only looking at the income

16:11

test. And so if your income is

16:13

below and you have to actually poll

16:15

your state, it varies state to state,

16:17

my understanding, I think it's something like

16:19

100% of household federal poverty

16:21

level in some states, 138% in other states, I

16:23

think 150 in some states. So

16:26

you got to look at your state, state

16:28

by state. So yeah, we want

16:30

to make sure our modified adjusted gross

16:33

income, which is for most Americans, it's

16:35

going to be your income before the

16:37

standard deduction, right? Not everybody, right? So

16:39

don't add us on that point. But

16:41

for many Americans, it's simply just, okay,

16:44

add up my income before my standard

16:46

or itemized deductions. And you just got

16:48

to make sure it's above that minimal

16:50

threshold, just to make sure, okay, based

16:52

on income alone, I don't qualify for

16:55

Medicaid. So great, now I qualify for

16:57

a premium tax credit. So I've turned

16:59

on the premium tax credit by this relatively

17:01

modest amount of income. But yeah, everything's in

17:04

a retirement account, you're under 59 and a

17:06

half, you have no earned income, you're basically

17:08

going to start the tax return at zero,

17:10

which from an ACA perspective is not a

17:12

good place to start, but fine, then just

17:15

do some Roth conversions and you can get

17:17

there. Yeah, and this speaks to

17:19

just having flexibility. So on the face

17:22

of it, it sounds wonderful. Like, let's

17:24

Roth conversion as much as we can

17:26

to pay zero tax, you know, understanding that

17:28

we could pay zero tax in that situation.

17:31

But it's not always the most advantageous

17:33

thing. Well, and Brad, so, you

17:35

know, this episode is for those generally

17:37

in their 50s, right? But really, this

17:39

is for accumulators, this conversation, it's not

17:41

real. I mean, yes, it is for

17:43

people in their 50s. Because I was

17:45

listening to a popular podcast, I won't

17:47

name names, but I was listening to

17:49

a popular podcast prior to recording today.

17:52

And there was a very well known

17:54

gentleman on there saying, Oh, young

17:57

people, especially it's all gotta be Roth.

17:59

And I'm listening to that. No. You

18:01

know, smoke is starting to come out of my

18:03

ears. I'm like, what are we talking about? Right?

18:05

You are for if everything's in a Roth going

18:07

into early retirement, you are setting yourself up for

18:09

failure. How are you going to generate that money?

18:12

If everything's in a Roth? I'm not saying never

18:14

do a Roth. In fact, I'm a big fan

18:16

of the Roth IRA at home. But at work,

18:18

I'm a big fan of the traditional 401k.

18:21

And this is part of the reason is

18:23

we want to have that ability to at

18:25

least toggle on some income prior to age

18:27

65. Yeah. And you've

18:29

actually convinced me to become more of a

18:31

fan of Roth, to be honest. And I think

18:33

part of that is because of

18:36

the contributions that you can pull those out

18:38

at any time, tax and penalty free. So

18:40

that was like an interesting note from a

18:42

couple episodes ago that you've been on that

18:44

that has stuck in my mind. But I

18:46

think, and I do want to touch back

18:48

on the Roth 401k, which was

18:50

the ultimate question from Jessica, but just

18:52

kind of last word on this is

18:55

that, yeah, I mean, for me, as

18:58

part of the financial independence community,

19:00

it's always been, okay, let's

19:02

really try to max out our

19:04

traditional accounts, the traditional IRAs, the

19:06

regular 401ks, because it's, as

19:08

we've always said, it's control what you

19:11

can control. And if you can

19:13

get the tax deduction now, lock that in

19:15

as a guarantee. Of course, every situation is

19:17

different. I can't know precisely what your marginal

19:19

tax rate is, yada, yada, but that said,

19:22

if you can lock in the tax deduction

19:24

now, then there was a

19:26

reasonable chance with a lot of these

19:28

advanced five strategies, like the

19:30

Roth IRA conversion ladder and understanding,

19:32

truly understanding this kind of free money

19:34

concept of, are you able to

19:36

earn income and still in essence, wipe

19:39

it out with the standard deduction?

19:41

There was a real chance you

19:43

might never pay tax on that or certainly

19:45

a significant portion of it. Right. I mean,

19:47

Sean, you're nodding like crazy, like that is

19:49

the key. And that's why I would say,

19:52

no, no, no, don't dump everything in a

19:54

Roth IRA. They're wonderful. They're great. We're not

19:56

saying otherwise, but goodness, there's a lot of

19:58

benefit of the traditional and controlling

20:00

what you can control today. Brad,

20:03

you've alluded to a phenomenon I

20:05

refer to as a hidden Roth

20:07

IRA, right? They're gonna be retirees

20:09

who, prior to signing up for

20:11

Social Security, are gonna take money

20:13

out of the traditional retirement account,

20:15

traditional 401K, traditional IRA, doesn't matter

20:17

what it is, traditional retirement account,

20:19

is gonna go on their tax

20:21

return, and it's gonna be taxed

20:23

against the standard deduction. It's gonna

20:25

have a 0% income tax. Oh,

20:29

wait a minute, a tax-free withdrawal from

20:31

a retirement account? I know what that

20:33

is, that's a Roth IRA. I

20:36

refer to that as the hidden Roth

20:38

IRA that lurks inside your traditional 401K

20:40

or traditional IRA. Nobody's talking about this,

20:42

right? So when there are commentators out

20:44

there, right, because you're gonna go in

20:46

your podcast player and listen to another

20:49

podcast, and they're gonna say, everything's gotta

20:51

be Roth, everything's gotta be Roth, well,

20:53

wait a minute. When you do your

20:55

traditional 401K at work, like Brad just

20:57

mentioned, you are setting up a potential

20:59

hidden Roth IRA, and oh, by the

21:01

way, you're getting an upfront tax deduction

21:04

for doing so, I think that's pretty good

21:06

planning. Yeah, yeah, it's better than a regular

21:08

Roth IRA or Roth 401K in that sense,

21:10

right, because you got the tax deduction upfront,

21:12

you didn't pay tax on it. So anyway,

21:14

I think we've covered that. It's so important

21:17

that people just think about this. But let's

21:19

just touch really quickly on Jessica's kind of

21:21

main question, which goes back to the Roth

21:23

401K. So some clarification,

21:26

basically you were talking about,

21:28

okay, let's roll, and hopefully

21:31

that's the precise terminology, but roll a

21:33

Roth 401K into a

21:35

Roth IRA. Now, what

21:37

you said specifically, and we've talked about

21:40

numerous times and just a couple of

21:42

minutes ago, was contributions to a Roth

21:44

IRA, contributions, can be pulled

21:46

out tax and penalty free at any

21:49

point. Now, what it sounded

21:51

like was if you pull money out,

21:53

if you get a distribution from a

21:55

Roth 401K, that

21:57

it doesn't work on those same.

22:00

ordering rules, if you will, that in order

22:02

to do that, it has to be the

22:04

character then has to be a Roth IRA.

22:06

So I guess A, confirm

22:08

that and B, let us know, how

22:10

would you document what was

22:13

originally contribution to that Roth 401k

22:15

that's now going to be sitting in

22:17

the Roth IRA? Is there a process

22:19

for that? Great question, Brad.

22:21

So this has to do with

22:24

you would think like, oh, it's a Roth

22:26

account. So the distribution rules before age 59

22:28

and a half are the same. And I'm

22:30

here to tell you they're totally different, right?

22:32

So when we have a Roth IRA, it's

22:34

great. It's what I refer to

22:36

as layers. And one

22:38

layer has to be fully removed before

22:40

we get to the next layer. So

22:42

the first layer that always comes out

22:44

of a Roth IRA is our old

22:46

contributions, our annual contributions. And that's the

22:49

best layer, by the way. So the

22:51

distribution rules are taxpayer favorable because the

22:53

old contributions come out at any time

22:55

for any reason, tax and penalty free.

22:58

We really like that, right? Especially if we're before 59

23:00

and a half when we just retire, that's a really

23:02

good rule. Well, what about a Roth

23:04

401k? What are you talking about? Well, that's

23:06

subject to what Ed Slott refers to as

23:08

the cream in the coffee rule. So

23:11

what that's saying is, anytime you take

23:13

a penny out of the Roth 401k

23:15

before age 59

23:17

and a half, you have to look at

23:19

it. And you have to say, well,

23:21

what's inside that Roth 401k and you

23:23

allocate that penny, that dollar, that hundred dollars

23:25

between the two things pro rata. So

23:28

it's the old contributions and then just

23:30

the earnings, the growth, right? So say

23:32

over the years you contributed $100,000 as employee

23:34

contributions to your Roth 401k. Great.

23:38

It's now grown to say $200,000. You take a dollar

23:41

out of that Roth 401k before you

23:45

turn 59 and a half and you've had it for five years.

23:47

50 cents of the dollar

23:49

will be a tax free, penalty free return

23:51

of contributions. Fine. And then 50 cents

23:53

of that will be a return of your

23:55

earnings, which are subject to both income

23:58

tax and the 10% early withdrawal. penalty

24:00

right so that's no fun. So

24:02

the work around there is all

24:04

right let's separate from service and

24:06

then do a direct trustee to

24:08

trustee transfer of the Roth 401k

24:10

to the Roth IRA and

24:12

when we do that the record

24:15

keeper should have a record

24:17

of your old contributions. I'm

24:20

not here to say that every record keeper will have

24:22

that in theory that's on all your W-2s I think

24:24

it's box 12 is it 12a

24:27

and it's code AA something like that

24:29

there is a listing on your old

24:31

W-2s I mean in theory your payroll

24:33

records would have this too but in

24:35

theory you know I know at least one

24:37

Roth 401k custodian I'm familiar

24:39

with just lists like your overtime historic

24:41

contributions so you have that that number

24:44

is important because that goes into your

24:46

Roth IRA as old contributions the rest

24:48

of it goes in as earnings but

24:50

in my example hundred thousand of contributions

24:52

just go in as now Roth IRA

24:55

annual contributions we can now take out

24:57

that hundred thousand and it comes out

24:59

first along with the other annual contributions

25:01

the Roth IRA may already have. Yeah

25:04

so it's an odd situation where Roth

25:06

401ks are taxed different than

25:09

Roth IRAs but what it means is

25:11

the Roth IRA can be the lifeboat

25:13

to get our Roth 401k more accessible

25:15

to us prior to age 59 and

25:17

a half. Yeah that makes a

25:20

ton of sense I guess let's

25:22

say you did not have a Roth

25:25

IRA can you just set up

25:27

a shell of a Roth IRA and do

25:29

that so? 100% you're allowed to do

25:31

so and remember you know people get hung

25:33

up on these five-year rules they have nothing

25:35

to do with Roth IRA annual contributions. Yep

25:37

that was my next question John. Yeah if

25:39

you have a Roth 401k you

25:42

never had a Roth IRA you know

25:44

you can set up just a hey you

25:46

know XYZ brokerage please set up a new

25:48

Roth IRA I'm gonna do a direct

25:50

trustee to trustee transfer into you guys you

25:53

know $200,000 Roth 401k

25:55

it goes into new Roth IRA that

25:58

thing could be you know two weeks old. you

26:00

take your first $10,000 distribution, well,

26:03

it's just a return of annual contributions

26:05

in that case. Now you're down to

26:07

90,000 of previous annual contributions after that,

26:09

but yeah, you've got some runway to

26:11

live some life before 59 and a

26:13

half just through that direct trustee to

26:15

trustee transfer I talked about. Yeah, that

26:17

is fantastic. And I think the only

26:19

other thing that you snuck in there

26:21

that was slightly technical was you said

26:23

something about separating from service in order

26:25

to do that. So you wouldn't be

26:27

able to do this if

26:29

you were still employed, I guess, depending

26:32

on the rules of the Roth 401k, right? Yeah,

26:35

that's a great question. Generally speaking, it's gonna be

26:37

the rules of the plan. Some

26:39

plans may allow

26:41

in-service distributions from

26:43

the Roth 401k to a Roth IRA.

26:46

But in most cases, especially if we were

26:48

looking to get all of it out and

26:50

live off it, generally speaking, under the plan

26:52

rules, look at your plan, but generally speaking,

26:55

we're gonna have to separate from service to

26:57

make that an easy process. But there are

26:59

some plans that allow in-service withdrawals that can

27:01

be more of a plan rule and a

27:03

tax rule issue. Yeah, awesome.

27:05

Very, very helpful. Thanks

27:09

for listening to Choose a Fie and for

27:11

all your support of our mission here. The

27:13

absolute best way to support Choose a Fie

27:15

is when you sign up for your next

27:17

rewards credit card to use our cards page

27:19

at chooseabuy.com/cards. I keep this page constantly updated

27:22

so it should always be the top resource

27:24

for you. Thanks for being part of our

27:26

community and for your support. All

27:29

right, let's move on to the next question.

27:32

So this came in from Chris and

27:34

he said, I don't hear much talk

27:36

about specifically the Roth IRA conversion ladder

27:38

and the mechanics involved because I think

27:40

a lot of the community may be

27:43

retiring early. They, like I, would like

27:45

to know more. I'm curious about the

27:47

pro-rata rule and want to know if

27:49

I only transferred the portion I want

27:51

to convert to my traditional then Roth

27:53

IRA or while this may be

27:55

determined by the employer plan, I

27:57

think there could be a lot to consider and want to make sure I'm...

28:00

planning correctly for our future. Yeah,

28:02

there's a lot there. I'll start with the

28:04

pro-RATA rule because a lot of folks in

28:06

the community get hung up on the pro-RATA

28:09

rule. And here's the

28:11

thing, from a tax law perspective,

28:13

tax rule perspective, it's something that

28:15

governs distributions from traditional IRAs, SEP

28:18

IRAs, simple IRAs. From a

28:20

practical perspective, it hangs us up, it hurts

28:22

us in the accumulation phase. It doesn't really

28:24

hurt us in the decumulation phase. That's counterintuitive,

28:27

but there's a lot of counterintuitive stuff in

28:29

tax. So what do I mean by that?

28:32

The problem with the pro-RATA rule

28:34

is the ability to efficiently do

28:36

a so-called backdoor Roth IRA. We're

28:39

trying to get money into a Roth

28:41

IRA during our accumulation years. This is

28:43

where the problem emerges. Well, what happens

28:45

is, oh, we're trying to do this

28:48

backdoor Roth, but the tax rules say,

28:50

if we have another IRA, like a

28:52

rollover from an old 401K, then we

28:54

can't really do the backdoor Roth without

28:56

incurring additional income tax. And in

28:58

that case, then it doesn't make a whole lot of sense. So

29:01

if we're thinking about retirement, we don't have

29:03

to be all that worried about the pro-RATA

29:05

rule with one exception. And it's this, when

29:07

we leave our job, we should look at our 401K,

29:10

401A, 403B, whatever it is.

29:14

And we have to ask one question, is there basis

29:17

inside our retirement

29:19

plan at work? For most Americans,

29:22

the answer will be absolutely not. But

29:24

there are going to be some people where the answer

29:27

is absolutely yes. This happens for a

29:29

variety of reasons. Now, the basis emerges if we're

29:31

doing the so-called mega backdoor Roth, but then it

29:33

goes right away. So we don't have to worry

29:35

about it if we've been always just doing the

29:37

mega backdoor Roth, and that's all we've done. But

29:40

there are going to be some people out there

29:42

who can't do a mega backdoor Roth and have

29:44

this old retirement account basis in their 401K or

29:47

other plant. If that's true, then

29:49

you want to be worried about the pro-RATA rule.

29:51

There's an easy way around it. You

29:53

take that basis only and you move it

29:55

to a Roth IRA at retirement. The rest

29:57

of it would go to a traditional IRA.

30:00

There's something if you Google notice

30:02

2014-54, there'll be all sorts of

30:04

commentary on the internet about this.

30:07

Because the alternative to what I

30:09

just described, moving basis into a

30:11

Roth IRA, and then the rest

30:14

of it into the traditional IRA is just moving

30:16

all of it into a traditional IRA. You

30:18

don't want to do that. And you don't

30:21

have to according to this IRS notice, right?

30:23

There's a notice from the IRS saying, yeah,

30:25

take the basis, put it into a Roth

30:27

IRA, take everything but the basis, put it

30:29

into a traditional IRA, and now we're

30:31

outside the pro-rata rule. That's really

30:33

cool, right? So that's the one

30:35

time at retirement we want to be worried about the

30:38

pro-rata rule. Okay.

30:40

What about Roth conversions in retirement?

30:42

People get hung up on this, but it's actually pretty

30:45

easy. And I would say for

30:47

most Americans, the easiest mechanism

30:49

is the traditional IRA. But there are going

30:52

to be some 401k plans that allow this

30:54

too. This mechanism is

30:56

go into your financial institution with

30:58

your traditional IRA, say, hey,

31:01

you know, I want to take $10,000, $5,000, $20,000, whatever the amount

31:03

is in your particular situation,

31:08

and I want to affirmatively move it to

31:10

a Roth IRA. Okay,

31:13

that's fine. There'll be a big

31:15

warning sign, this is taxable. You're like, yeah, that's

31:17

my plan, right? That's the goal. Doing

31:19

that on purpose. Yeah. Now, they'll

31:22

also ask about, they may ask about tax withholding. I generally

31:24

don't like to do tax withholding. There are other ways to

31:26

pay that tax. If there's going to be that much tax,

31:28

there may not even be that much tax. And

31:31

we just affirmatively move the money from the

31:33

traditional IRA to the Roth IRA. And

31:36

one of the things about that is that can set

31:38

up something called the Roth conversion ladder, right? So

31:41

five years later under the tax rules, we

31:43

can access that money again, penalty free and

31:45

tax free. That's something we might

31:47

want to do. We may not even want

31:49

to do that. We might be living off

31:51

taxable accounts at that point. We may have

31:53

other Roth basis, right? We may have older

31:56

conversions, older contributions. So we may not have

31:58

to worry about that five year rule. that

32:00

conversion anyway, but maybe that's part of

32:02

our strategy. And the mechanics of the

32:05

Roth IRA conversion tend not to be that

32:07

complicated. I like to do them later in

32:09

the year. There's an academic argument to do

32:11

them in January and February to get the

32:14

additional months of tax-free growth. I just

32:16

like to say life is at least

32:18

somewhat uncertain and Roth conversions are not

32:20

reversible under today's rules. So I'd rather

32:22

wait till October, November, do my

32:25

little spreadsheet, right? Five people tend to be

32:27

good with spreadsheets, right? But do my little

32:29

spreadsheet. Basically mock up a mini tax

32:31

return. What's my interest income this

32:34

year? Dividends, capital gains, part-time income,

32:36

Social Security, rental income, whatever

32:38

it might be. Just mock that up and

32:40

do estimates for November and December and say,

32:42

okay, where am I? Where am I against

32:45

maybe the 12% tax bracket?

32:47

That's a good guard rail, maybe not the

32:49

right guard rail for everybody. What does this

32:51

do to my premium tax credit? And October,

32:54

November do a Roth conversion based

32:56

on that knowledge and

32:58

manage for tax rate and manage

33:01

for premium tax credit. Yeah, that is

33:03

brilliant advice because you would have just

33:05

simply more insight into your taxable

33:07

income position in that later, the latter

33:09

stages of the year, right? So that's

33:12

just a cool little tip that I

33:14

think honestly, most people would not have

33:16

considered. So yeah, Sean, I like that.

33:18

And yeah, I think Chris's ultimate question

33:20

speaks to this sounds daunting.

33:23

I think that's why like it's this

33:25

term, right? The Roth IRA conversion ladder.

33:28

Like it sounds terribly daunting, but

33:30

in essence, it's exactly what you just said,

33:32

like, A, these brokerage firms, they are used

33:34

to this. This is a fairly standard thing.

33:37

There's nothing crazy that has to go on.

33:39

Like you said, very specifically, they are going

33:41

to give you alert after alert. This is

33:43

a taxable event. They're going to be taxed

33:45

on this. You want to withhold tax? Okay,

33:48

we understand it's a taxable event. We're doing that

33:50

with eyes wide open. We're doing that very overtly

33:52

and specifically, but you said, obviously, we can't give

33:54

financial advice. In most cases, you're probably not going

33:56

to want to withhold on this if you're doing

33:58

it anyway. very specifically, there's

34:01

probably reason for it. You're probably

34:03

paying a very low marginal or

34:05

effective tax rate on that conversion.

34:07

So you obviously have to do

34:09

whatever works for you, but I

34:11

think it should be pretty simple.

34:13

But I guess, Sean, actually just

34:15

kind of like a very precise

34:17

question about how this mechanically is

34:19

done. So you're taking, let's say,

34:21

funds from your traditional IRA and

34:23

you are converting it into a

34:25

Roth IRA. Now, I guess if

34:27

it was just cash sitting in your traditional

34:29

IRA, super easy, it just gets moved over.

34:32

What if it's invested in a mutual fund

34:34

or ETF or something? Does those shares get

34:36

moved over? Do you sell a certain portion?

34:38

Am I just not thinking about this? How

34:41

would that work mechanically? Yeah. So my

34:43

understanding is you wouldn't have to

34:45

do like this independent sale and

34:48

turn it into cash. You would

34:50

log into your traditional IRA and

34:52

see, I have ABC bond fund,

34:55

DEF stock fund, you would

34:57

say, I want to do a conversion of

35:00

however many shares or dollar

35:02

amount of each or one

35:05

or both. 20,000 of ABC

35:07

goes into my Roth IRA.

35:10

And then you invest

35:12

in something in the Roth IRA.

35:14

Maybe the Roth IRA has G-I-H,

35:17

G-H-I or whatever fund. You pick the

35:19

fund or maybe it's the exact same

35:21

fund. ABC bond fund into ABC bond

35:23

fund, ABC bond fund into DEF equity

35:26

fund. I'm not aware that you would

35:28

have to do a separate,

35:30

that you can only move cash from one

35:32

to the other. And by the way, my

35:34

guess is, look, I've never worked for a

35:37

brokerage, but my guess is what

35:39

they may do is they may just sell

35:41

inside the traditional IRA, generate the cash,

35:43

move the cash to the Roth IRA,

35:45

and then immediately reinvest it. I can't

35:47

say what the brokerages do on their

35:50

end, but I'm not aware that there's

35:52

any sort of requirement that you separately

35:54

say, oh, I want to do a

35:56

$20,000 Roth conversion. So now I need to sell 20,000 of cash inside. my

36:00

IRA to then do that. I'm not aware

36:02

that that's a requirement. Let me check with

36:05

your brokerage, but it should be a relatively

36:07

easy portal. And there, like you said, Brad,

36:09

this happens all the time. This is the

36:11

flavor of the day. People talk about Roth

36:13

conversions all the time. So the brokerages are

36:16

very used to a traditional

36:18

IRA conversion to a Roth IRA. So

36:20

I don't think this should be at

36:22

all daunting. It's just playing on a

36:24

website. Yep. Wholeheartedly agree. And

36:26

then if you can't figure it out

36:28

on the website, just call the 800

36:30

number for support. In my experience, they're

36:32

all pretty helpful. I've called Fidelity, Shwahava,

36:34

and Vanguard at separate times, and I've

36:36

never had any problems. So all right,

36:39

that was wonderful. Let's move on to

36:41

the next question. Okay. So Sean,

36:43

this one came in from Kristin, and

36:45

Kristin actually came up with maybe an

36:47

option that we didn't consider in the

36:50

first episode. So she said, I just

36:52

listened to the latest episode with Sean.

36:54

Great show. But I'm thinking there's one

36:56

more option that he didn't mention. Withdrawal

36:58

from HSA for medical expenses, for

37:01

current expenses, or for reimbursement of

37:03

past medical expenses. And she was hoping

37:05

that we could address it in the next mailbag

37:08

or update episode. So what do you think about

37:10

HSA as maybe the eighth option on the list?

37:12

Yeah, Kristin raises a very intriguing possibility.

37:15

So I have a technical term that

37:17

I made up for this concept. It's

37:19

called, it sounds like an expletive, but

37:22

it's not. It's called Puck Me.

37:24

Previously, no,

37:27

but Brad, previously unreimbursed,

37:29

qualified medical expenses, Puck

37:32

Me, right? And so what this is, is

37:35

this is sort of your register of our I

37:37

opened an HSA on day one, whatever that was,

37:39

you know, January 1st, 2015. Since then, I've

37:43

had all these medical expenses, weekend

37:45

warrior injuries, doctor's appointments, whatever it

37:47

is. And I've kept my

37:49

little spreadsheet on them. I never I just paid

37:51

them out of my, you know, checking account,

37:54

my credit card, never took money out of

37:56

my HSA. So now hey, I'm retired in

37:58

my 50s, I could take take a

38:01

reimbursement of PUCME and that's tax and

38:03

penalty free. I think Kristin's raising a

38:05

very intriguing possibility, one that I think

38:07

might be more of a complementary player

38:09

in this rather than a primary player.

38:12

So what I mean by that is

38:14

you're limited in your 50s

38:17

to the lesser of your

38:19

HSA account balance or your

38:21

PUCME balance, right? So if

38:24

you haven't had that many previously unreimbursed

38:26

qualified medical expenses, there wouldn't be much

38:28

runway to take this in your 50s

38:30

or if your HSA just isn't that big, which

38:32

it may not be, the contribution limits are still

38:34

somewhat modest. So it's going

38:37

to be like a modest supporting

38:39

player in an early to mid

38:41

50s drawdown strategy. The other sort

38:43

of drawback to that tactic is

38:45

we generally like to let HSA's bake

38:47

tax free for years if not decades

38:50

rather than taking the money out in

38:52

our 50s. With that

38:54

said, I think Kristin has identified

38:56

a very valid supporting player in

38:58

our pre-59.5 drawdown

39:01

tactic toolbox. Yeah, I

39:03

love it. That's why

39:05

this is the ultimate crowdsource personal fan-hand

39:07

show, right? Like you

39:09

said, it's a supporting option, but it's a

39:12

really viable one. So very, very cool. Just

39:14

while I have you on this, Sean, talking about HSA's. So

39:17

a lot of people, we don't overtly

39:19

talk about HSA's all that often and

39:21

I know multiple past

39:23

episodes I've talked about maybe

39:25

how I keep my medical

39:28

invoices. So basically I have,

39:30

like you said, I have spreadsheets of

39:33

every, so by year is how I

39:35

keep it. So I have one

39:37

spreadsheet by year for medical expenses paid

39:39

out of pocket. And then

39:42

the invoices that I get, I use a

39:44

scanning app on my phone, I think it's

39:46

called Genius Scan and I just very simply

39:48

save a PDF of every invoice and

39:51

just save it to a folder on either

39:53

Google drive or Dropbox. And I

39:55

feel like the combination of those two is

39:58

good enough in this instance, but I guess There's

40:00

one question for you, and I don't know if you have the

40:02

answer because this is like really in the weeds, but what

40:05

I'm saving is the actual invoice

40:08

from the doctor or

40:10

hospital. It's not

40:12

a proof or record of the actual

40:14

payment made because in many cases, you

40:17

don't get that. I

40:19

have this lingering fear in the back of

40:21

my mind that I'm going through all this

40:23

effort to make the

40:25

payment, obviously, keep the record of it

40:27

in the spreadsheet, keep a PDF invoice,

40:29

but I'm saving the wrong thing. Has

40:31

this ever crossed your plate? Is there

40:33

truly a way to document and to

40:35

do it right? Yeah. That's

40:38

a great question, Brad. What

40:40

you need to be able to prove is if

40:43

the IRS audited you and you

40:45

took like, you're 66 years

40:47

old, Brad Barrett, you took $7,000 out

40:49

of your HSA for the year

40:52

and you claimed it was a

40:54

reimbursement of previously unreimbursed qualified medical

40:56

expenses. Puck me. Yeah. So

40:59

what the IRS would have to do to

41:01

overturn that and make that a taxable distribution

41:04

is they would need to prove you didn't have $7,000

41:06

of previously

41:08

unreimbursed qualified medical expenses, but you got

41:11

to remember, let's say you did

41:13

that for, let's say you had a surgery and

41:15

you said that was exactly $7,000 and for whatever

41:17

reason, the IRS is like,

41:21

no, you don't have sufficient documentation for that $7,000.

41:24

Yeah. But you might

41:26

have sufficient documentation for 27,000 of other

41:28

medical expenses. So from

41:30

a strategic perspective of I'm the IRS,

41:33

this is going to be a difficult

41:35

tree to bark up because I

41:37

could win on Brad's specific assertion and

41:39

still lose the matter, right? Because

41:41

it doesn't matter. Brad can't prove

41:43

that $7,000 surgery, but Brad could prove 27,000 of other expenses. What

41:49

are we doing here from an IRS perspective? That

41:52

said, We don't have to

41:54

have videotape evidence of you going

41:57

on your credit card and paying

41:59

for it. In the bill and

42:01

all this sir stuff you have to

42:03

have reasonable evidence to prove it to.

42:05

Your first love would be to a

42:07

a revenue agent and then the second

42:10

level would be you know to a

42:12

court if you ever our i did

42:14

it or your yet lives ever became

42:16

a disputes and the level of evidence

42:19

is not need to be. I've got

42:21

bag wire transfer, I've got the receipt,

42:23

I've got my own spreadsheet right. You

42:25

would think that some reasonable combination of

42:27

evidences would be a nice. Look

42:30

Tesco, be up to the judge ear depends

42:32

on the courtroom, depends on your testimony right

42:34

self. I want to give litigation advice on

42:37

in this I think it's wise to get

42:39

better from a strategic perspective. And

42:41

I would not be losing sleep if I

42:43

didn't have every last low. I have the

42:45

invoice and I have my own spreadsheet, right?

42:48

Those are too compelling pieces of evidence. I

42:50

feel pretty good about that, right? Yeah, so

42:52

sorry. Depends on the facts the case, but

42:54

why they acted? Somebody give you an invoice

42:57

if you never paid it, right? Will there

42:59

be some sort trail of them barking up?

43:01

Or there's no trail them doing debt collection

43:03

on you. So you probably did pay right

43:06

or the insurance paid it. but then immediately

43:08

insurance pay. It doesn't qualify as puck me,

43:10

but that's. A whole other conversation. Yeah,

43:12

they were billing. You'd probably says this

43:14

is the map your insurance already paid.

43:17

Now here's the seven thousand we want

43:19

from Brats anyway. so costs are isn't

43:21

that? Know that long? Answers: It's not

43:23

entirely clear, but I also don't lose

43:25

a lot sleep on this issue as

43:28

long as we got some very valid

43:30

evidence. Yes, sir. It's ultimately a thinking

43:32

in bed type of scenario, which is.

43:34

In. This case, the likelihood of you

43:37

getting audited period is very, very

43:39

low and then you have in

43:41

my teeth a very legitimate evidence

43:43

in two separate cases and I

43:46

will have a trail of probably

43:48

forty years worth of very precise

43:50

invoices. And like you said, Okay,

43:52

are they really gonna go to

43:54

bat over x amount of withdrawal?

43:56

because again, in this case I'll

43:58

have forty years. Worth of back up

44:01

for it. Almost invariably I'm going to

44:03

have enough legitimate invoices, etc. in maybe in

44:05

their eyes. Even though these are all legitimate

44:07

to cover the south, the likelihood of is

44:10

being a problem is almost yourself a with

44:12

it. I was kind of selfish on my

44:14

part, but I think it's a larger question

44:16

of okay are you as a document the

44:19

and they think your answer if I can

44:21

summarizes it, use of as you can buy

44:23

it and in his case, okay, very clearly

44:25

you pay the bill out of pocket just

44:28

documented. It would be really easy just to

44:30

have a running spreadsheets and to save. Something

44:32

to you know Prince If you have

44:35

a print you get something an email

44:37

printed and save to Pdf right. Super.

44:39

Easy. yeah Ill one were not telling

44:42

people. well don't worry that because the

44:44

Iris want our is that no no

44:46

no obvious obviously obviously not these er

44:48

visit him at let's see quip get

44:50

like this is as clear as day

44:52

the on I'd started out of your

44:54

in my case deserves very very was

44:56

your I mean I have been out

44:58

I am worse any obviously yeah I

45:00

would say yes young. One thing you

45:03

can do. Is in as spreadsheet.

45:05

Make a note of how you pay

45:07

it right When it was the credit card

45:09

were that was attacked your which credit

45:11

card right? It was all my. You.

45:13

Know find Boy Hills and Mariano Hi

45:16

a Delta Airlines, you know, cashback, whatever

45:18

credit card or wherever. Just yeah. you're

45:20

increasing the evidence in your favor if

45:22

you just beat that little know right

45:25

and then series. Now twenty years later,

45:27

you probably not. Camille, a polite credit

45:29

card receipts and maybe still want to

45:32

say the credit cards, but if he

45:34

added invoice and you had a spreadsheet

45:36

like dad boy at seems pretty good

45:39

to me. And I'm not the judge

45:41

raid. So yeah, gimme a judicial appointment.

45:44

Yeah, but anyway so yep, this their day.

45:46

oh that's awesome. I think we've covered it.

45:48

and I do precisely that. I'd write on

45:50

the thing credit card payment made, the exact

45:52

date and the exact amounts and if they

45:54

give me some type of confirmation code or

45:56

some such of just to add to the

45:58

flavor of itself. I think we're

46:01

good their let's move on this. A

46:03

Christian from Shelley, Can I take withdraws

46:05

out of my traditional Ira or Four

46:07

One K to pay for college education?

46:09

While I'm still working, I tried internet

46:11

searches. I can't tell if the temper

46:14

same withdrawal penalty applies. What about the

46:16

Roth Ira or Ruff Four O One

46:18

K. Can I take out the games

46:20

along with the contributions for education And

46:22

how do I deal with this on

46:24

my on my tax forms? Ultimately, Or

46:27

it's as several days gone on this question

46:29

chalet. So first of all if it's a.

46:32

Workplace. Account. Whether.

46:34

Or not, you to take that money is

46:36

going to be up to the plan documents,

46:38

right? So that that's a plan rule, not

46:40

attack rule yet to with Tier Four One

46:42

K. Could you take a distribution from your

46:44

four One K traditional or Ross to fund

46:46

college Jewish right? Or that's up to your

46:48

employers plan. That's not up to Brad and

46:50

Sean. Unfortunately, Our. It, But

46:52

let's think about using retirement

46:54

accounts for distributions for funding

46:57

a higher education. Now.

46:59

There's actually at brand is send you

47:01

this Iris you are. Well there's a

47:03

website where they have all these powell

47:05

the exceptions. In one of

47:07

the tell the exceptions applies to

47:10

Ira withdrawals but it does not

47:12

apply to workplace plan for when

47:14

t type withdraws it's for higher

47:16

education. So. What Is

47:18

Zero Shelley could do is she

47:20

had a traditional Ira. She could

47:22

take a distribution from it and

47:24

use that to pay a child's

47:26

say, college tuition. Eight year old

47:28

college tuition right? You. Have to

47:30

just double check the rules on that, but

47:33

she should be able to take that pair.

47:35

Child's college tuitions it from a traditional Ira.

47:37

it's taxable. But. It won't be subject

47:39

to the penalty. And then she's referring

47:41

to the tax return reporting which gets

47:43

really confusing. So it's gonna happen is

47:45

this. Vanguard. Fidelity Schwab Eat

47:48

Trade. Whatever it is is going

47:50

to issue Shelley a Ten, Ninety

47:52

Nine or. For. the year

47:54

and say hey you're shelley you took out

47:56

sixteen thousand dollars and this traditional ira and

47:58

oh by the way it's all taxable or

48:00

the taxable amount is not determined or whatever it's

48:03

going to say, that financial institution

48:05

has no idea what you did with the money.

48:07

They don't know if you went to Vegas, if

48:09

you paid for a heart transplant, paid a college

48:11

tuition bill, they have no idea. So they just

48:13

say, you took this money out. All right, now

48:15

put this on your tax return. Well, guess what?

48:17

You have to put on your tax return if

48:19

there's traditional IRA, it's fully

48:21

taxable. But then you also attach

48:23

to your tax return a form 5329.

48:25

And there's

48:28

a code on this. What you have to

48:31

do is you have to say, well, you

48:33

know, I took this money, I'm not 59

48:35

and a half, but don't charge me that

48:37

10% early withdrawal penalty. I took the $15,000

48:39

out. The code is 08. You put the

48:42

08 code, you know, go to the instructions

48:44

to the 5329. There's a code that tells

48:46

the tax return software, okay, no

48:49

problem, no early withdrawal penalty, still

48:51

income taxable, but fine. But

48:53

Shelby also raises the possibility, I use

48:55

a Roth IRA for college

48:57

tuition before 59 and a half. That's

49:00

a valid move too. All right. And

49:02

assuming it's a return of old annual

49:04

contributions tax free as well. The

49:06

problem with that is

49:09

that creates income from a

49:11

FAFSA perspective. So this is,

49:13

you know, people don't talk about this too much.

49:15

But you know, we love Roth IRAs,

49:17

who doesn't love tax free growth, right? But

49:20

there's this sort of hiccup. If

49:22

we take a withdrawal from a

49:24

Roth IRA, during the

49:27

years that are FAFSA relevant, and

49:30

you know, what we're doing is

49:32

we're saying, okay, FAFSA people, whoever

49:34

determines expected family contribution, We

49:36

have additional income, you say? wait a

49:38

minute, that was a return of my

49:41

old annual contributions. That's not income, not

49:43

according to the FAFSA people, right? Their

49:45

rules say a retirement account distribution, whether

49:47

it's traditional or Roth is income. So

49:49

We may now have a higher expected

49:51

family contribution to tuition, i.e. we're gonna

49:53

pay more to the college, because we

49:56

had this additional income that FAFSA says

49:58

is income, but we don't think. Gov

50:00

as income sweats or even sing issue.

50:02

My research on this on the ages

50:04

say indicates the a to say puck

50:06

redistribution would not be subject to the

50:08

set forth. So. The I'd

50:10

seen enough. There's a little advantage to

50:12

each as a puck Me over Roth

50:15

basis in this particular case of Bri.

50:17

Hope that answers the question. Haven't talked

50:19

further about that night. I think it

50:21

dies and yeah it's amazing how like

50:24

you said those sat there always these

50:26

interplay. It's between the different things we

50:28

talked before at length about their a

50:30

Cia and having and of income having

50:33

alone of income to get subsidies by

50:35

to to qualify. And. Now that

50:37

you're saying we're she's asking very specifically

50:39

about education. so you have to think

50:41

faster And it's fascinating that that really

50:43

does come into play itself. to think

50:46

always with the South. it's if the

50:48

more you know and that says another

50:50

piece of information that we all have

50:52

to file away. which is like his

50:54

own retirement account withdraws, creates us and

50:56

come art stuff. It's just something we

50:58

need to note. So yeah, very very

51:00

helpful son. Or I the

51:02

nets one came in from Matt and mad

51:05

said how does the rule of fifty five

51:07

work with solo for on case. Can.

51:09

You retire priest, fifty five workers

51:11

side gig and open a solo

51:13

four one k at age fifty

51:15

five role funds into that account

51:17

separate from service and then withdraw

51:20

penalty free. So I like Mets

51:22

thinking here. it's certainly outside the

51:24

box. By Son is this bible.

51:26

Or itself. Really interesting question. I

51:28

think Matt is touchy up behind

51:31

a somewhat uncertain area of the

51:33

tax rules. So to my knowledge,

51:35

The Iris has never issued a

51:37

definitive guidance on this particular issue.

51:39

So there's two things that are

51:42

in play. What is this? It

51:44

already is. This rule fifty Five,

51:46

which we talked about last time.

51:48

You have to quote unquote separate

51:50

from service, right? Damage? You have

51:52

to leave the jaw. And.

51:54

In Mats case, that job would be

51:57

self employment right, You can separate himself

51:59

and. You just don't do any more. Self.

52:01

Employment. But. Then there's a

52:03

second rule were running up against.

52:06

and it's this. A Soul Four

52:08

One K needs an employer to

52:10

sponsor. It's. In. Order for

52:12

it to exist. If I'm

52:14

self employed. I. Have Schedule C

52:16

income and then I retire from

52:18

that. Aren't. I no longer

52:21

self employed meeting. I'm no

52:23

longer an employer. Meaning. I

52:25

can no longer sponsor a solo

52:27

four one K, so I can't

52:30

say I've thought about all the

52:32

permutations of combinations here, and I'm

52:34

not here to give any wanted

52:36

definitive answer. But. My initial

52:39

your analysis year would

52:41

be. I would be very

52:43

hesitant to rely on the rule of fifty

52:45

five in the Solo Four One K contacts

52:47

because that means I've separated from service which

52:50

means I'm no longer an employer. Which probably

52:52

means I can no longer sponsor the

52:54

Solo Four One K at which point the

52:56

Solo Four One K would need to be

52:58

direct trust you trustee transfer preferably into a

53:01

traditional Ira or be added. We go to

53:03

W To and they got a Four

53:05

One K to move over there. So mad.

53:07

touching upon a really good see issue. I

53:10

can't say there's one hundred percent definitive answer.

53:12

Here. But. My analysis is

53:14

probably not available in the soul or

53:16

four One K contacts and I get

53:19

that certainly makes sense the logic of

53:21

it I guess a more general question

53:23

and and it's I feel like is

53:25

something as you probably know if it

53:27

is. As to so specific is I

53:30

guess too much larger question. Forget the

53:32

solo phone came by he's talking about

53:34

ruling funds into account. So in order

53:36

to kickstart this rule of fifty five

53:39

now can you roll and old Four

53:41

O One K. Ensue.

53:43

York Times for on K would say

53:45

forget his solo again forget the does

53:47

the sagging just you're working a job.

53:50

and then have it all subject to the

53:52

rule of fifty five is that something does

53:54

it depend on their rules of the plan

53:56

is that something that's viable or my just

53:58

for the obvious or I think

54:01

it's totally viable. I would double check

54:03

the plan. I've never actually come up

54:05

against that scenario. So theoretically,

54:08

it should be fine. I would just double

54:10

check the rules of the plan though to

54:12

make sure that that money can easily come

54:14

out, you know, after the year you turn

54:16

55 or later you separate from service. Before

54:22

you rely on the rule of 55,

54:24

regardless, you just want to make sure,

54:26

okay, I separate from service. I'm 56

54:28

years old. How easy is it for

54:30

me to get partial periodic payments regardless

54:32

of what you were talking about? Maybe

54:34

I've been there 30 years. I

54:37

just want to make sure that this is an easy –

54:39

under the plan contours, it's easy for me to go

54:42

in in March and grab $7,000 and then in May,

54:44

it's easy to get $8,000 and then in June, 3,000,

54:46

July, 8,000, whatever it is. I

54:54

just want to make sure that that is going

54:56

to be easily done and plan to have a

54:58

wide latitude in terms of how their distributions, particularly

55:00

before 59 and a half work. So I would

55:03

just – that's one of those diligence points. If

55:05

we're relying on the rule of 55, we just

55:07

want to go in and do our

55:09

diligence in terms of our specific plan.

55:11

But conceptually, what you're saying, it absolutely

55:13

seems possible. Okay, cool. Very

55:16

cool. And yeah, I think the upshot of

55:18

all of this is check with your plan.

55:20

Go to the HR department. If they don't

55:23

know, the brokerage that helps facilitate the plan

55:25

can help. So just ask these questions. Every

55:27

plan is different and I think that's something

55:29

we've seen as a through line on both

55:32

of these episodes. So all right, next question,

55:34

Sean came in from Kiva and the question

55:36

was, Sean said the tax code wants us

55:39

to be early retired and married. I

55:41

see what he means with the early retired part,

55:43

but I don't see what the additional benefit of

55:45

being married is though. The numbers, for

55:48

example, deductions brackets for single filers are

55:50

generally just doubled for married filers, right?

55:52

I did notice that you circled back

55:54

and confirmed the early retired part, but

55:57

not the married part. So I still

55:59

wanted to. check in for clarification.

56:01

So yeah, great question. Would love to

56:03

hear your thoughts on this.

56:05

Yeah, that's a great question. And so I've

56:07

got three different areas I look to. The

56:10

first area is this year's tax return. You

56:13

know, husband or wife, they're both accumulators.

56:16

There's a tax code wants to be married

56:18

or single. In most cases, the tax code probably

56:20

wants us to be married, but that to

56:22

my mind is sort of nickel dime. I don't

56:24

really worry about this year's tax return too much

56:27

from a planning perspective. I'm a lot more

56:29

interested in the future, especially the long term future.

56:31

And that brings us to two points. One

56:33

is early retired and married tends to be

56:36

the sweet spot, right? So I think this

56:38

is where the married folks have a real

56:40

advantage. And it's a confluence of sort of

56:42

two things. The correspondence absolutely right that all

56:44

they do for the standard deduction and for

56:46

those low tax brackets is they just sort

56:48

of double them. So we think,

56:50

oh, okay, so singles are about the same

56:52

as married, but we have the confluence of

56:55

two different things that sort of say no,

56:57

marriage are actually much advantage in early retirement.

56:59

One is this a married five couple

57:01

tends not to spend two times what

57:04

a single five person spends, right? Now

57:06

this varies for food, it's probably about

57:08

two acts, right? But for hotel stays,

57:10

it's not two acts for airfare. Yeah,

57:12

it is two acts for housing, it's

57:15

probably not two acts. So it just

57:17

it varies, but it generally doesn't get

57:19

to double what our single person spends.

57:21

And that then affects their tax return

57:24

because they don't have to take out

57:26

as much money, they're not creating as

57:28

much taxable income as double a single

57:30

person. The second thing is, when we

57:33

have two people married, one of them

57:35

earned less and generated less in terms

57:37

of retirement accounts, taxable accounts. And so

57:40

when we put all that together, the

57:42

less spending, and the fact

57:44

that one of them didn't build up

57:46

as much in terms of retirement accounts,

57:49

taxable accounts, when we do our initial

57:51

analysis, maybe we get before tax planning,

57:53

we get a single person with say

57:56

15,000 of adjusted gross income, what's the

57:58

married couple going to look like? In

58:00

most cases, they're not going to look like 30,000. They're going to

58:02

look like 20,000 or 25,000. Well,

58:05

once you start with that premise, our

58:07

Roth conversion runway is going to be

58:10

so much more every year, and this

58:12

will compound, our Roth conversion runway is

58:14

going to be more for our married

58:17

couple. So that's the first big reason

58:19

is it just turns out that Roth

58:21

conversion runway tends to be more than

58:24

2x for a married couple than a single

58:26

person just because of these phenomena of we

58:29

don't have 2x to spend, we

58:31

don't have 2x the wealth, generally speaking, when

58:33

we're married. Okay, so that's

58:35

one thing. And then the second thing is

58:37

treatment at death. This is so important. The

58:40

tax code wants you to leave your assets

58:42

to your spouse. And

58:45

I'll give you one example, the HSA. Oh

58:47

my goodness, right? I

58:49

die, I leave my HSA to my

58:51

spouse. It becomes her HSA. It's

58:54

totally taxed and penalty free to her and now

58:56

she can use it as an HSA for the

58:58

rest of her life. Fantastic. What

59:00

if I die and I'm single, and

59:02

I leave my HSA to my mom,

59:05

my dad, one of my brothers, it

59:08

is fully taxable to them in the

59:10

year of my death and it loses

59:12

its HSA status. Terrible. Well,

59:14

okay, HSA, that's a small piece of the pie.

59:16

Yes. What about traditional

59:19

IRAs, Roth IRAs, the tax rules

59:21

very much favor married people. Generally

59:24

speaking, the married person can make

59:26

that traditional IRA, their Roth IRA,

59:28

their own delay distributions, or if

59:30

it's Roth, they don't ever have

59:32

to take distributions versus if I'm

59:34

single and I leave that Roth

59:36

IRA, traditional IRA to my sibling,

59:38

my parent, they will have

59:41

some tax planning, some ability to

59:43

mitigate the hit, but it's nowhere

59:45

near as good as my spouse

59:47

does. So for the early retirement

59:49

planning and for the death, the

59:51

transfer of assets, particularly disadvantaged assets,

59:54

death, I very much think the

59:56

tax code, once us married, whether we like

59:58

it or not, it's just the law. way the

1:00:00

rules are written. Yeah, Sean, thank you for

1:00:02

the flavor on that. And Kiva's question

1:00:04

on the face of it, it's, hey,

1:00:07

I don't really understand why because it is

1:00:09

just doubled, right? The brackets are doubled. The

1:00:11

standard deduction is doubled. It seems like it

1:00:13

shouldn't favor, but yeah, you just gave a

1:00:16

lot of flavor there that I think is

1:00:18

really helpful. And again, this is a sense.

1:00:20

It's an argument, right? In terms of, okay,

1:00:22

look, here are the reasons why. And obviously,

1:00:25

we're not telling anybody to go out and

1:00:27

get married specifically. None of

1:00:29

this kind of joking stuff, but it's

1:00:31

interesting that, okay, there are further considerations.

1:00:33

And I think just like all of

1:00:35

this stuff, it's just understanding. Like I

1:00:38

had no idea until you just said

1:00:40

that about the HSA, if it doesn't

1:00:42

go to a spouse, that this thing

1:00:44

is taxable in the year of death,

1:00:46

which seems ludicrous to me because as

1:00:49

we know it, the HSA is this

1:00:51

incredible, essentially triple tax-free account. And then

1:00:53

it takes in a completely different character

1:00:56

if it's not being passed to its spouse as

1:00:58

you're describing it, Sean. Yeah, Brad,

1:01:00

let me just add one additional piece of

1:01:02

it. So you say, oh, I didn't know

1:01:04

about this thing where if I leave it

1:01:06

to my son, daughter, sibling, parent, it's fully

1:01:08

taxable to them. Well, there is one work

1:01:10

around that if we're not married, and it's

1:01:12

leave it to a charity, right? So the

1:01:14

charity, I mean, technically, I guess it would

1:01:16

be taxable to them, but they don't pay

1:01:19

income tax. So, you know, if you have

1:01:21

an HSA, a Roth IRA, a traditional IRA,

1:01:23

a taxable brokerage account, and you want to

1:01:25

do something for charity at your death, maybe

1:01:27

you don't want to do all that much,

1:01:29

but you want to do something. Well, the

1:01:31

first asset to leave to a charity is

1:01:33

the HSA. Traditional IRA would probably be the

1:01:36

second one, but certainly the first one, the

1:01:38

lowest hanging fruit is, hey, I have a

1:01:40

$20,000 HSA, I'll

1:01:42

leave that to charity, and then leave

1:01:44

the rest of it to my children,

1:01:47

my siblings, my parents, whoever it is.

1:01:49

Okay, great. You know, I've mitigated the

1:01:51

tax it that way. Awesome. Alright,

1:01:53

Sean, we're coming into a close here. We've got

1:01:56

a question from Ted, and

1:01:58

Ted said, I actually wanted to add in this. The thought of

1:02:00

discussion. You can use money in your Ira

1:02:03

to pay for health insurance premiums even before

1:02:05

fifty man and a half. There are some

1:02:07

rules of course, but everything I've heard anyone

1:02:09

you spoken with talk about that so far

1:02:11

and had a attached and arctic ice and

1:02:13

thanks. Keep up the great work and son

1:02:16

I'm curious what are your thoughts about that?

1:02:18

So, using money and an Ira to pay

1:02:20

for health insurance premiums. Yeah.

1:02:22

So there are two potential

1:02:24

paths that could be available

1:02:26

to avoid that pesky ten

1:02:28

percent early with drop how

1:02:30

they will. We have medical

1:02:32

insurance premiums before Sixty Nine.

1:02:34

A half one of them

1:02:36

is the medical expenses, race,

1:02:38

or medical expenses that are

1:02:40

above seven point five percent

1:02:42

of our modified adjusted gross

1:02:45

income. We could take

1:02:47

Ira distributions and pay for those medical

1:02:49

expenses. Without the Powell the and it

1:02:51

could be health insurance premiums are could

1:02:53

be doctors visits can be any qualified

1:02:55

medical expense so quick Examples and most

1:02:58

early retirees not gonna have a hundred

1:03:00

thousand dollars have modified Jesse gross income

1:03:02

but it makes the number simple. Let's

1:03:04

use that right to say or modified

1:03:06

adjusted gross income is one hundred thousand

1:03:08

dollars. And then we had ten thousand

1:03:11

of medical expenses including health insurance premiums

1:03:13

this year. Up. To Twenty Five

1:03:15

Hundred there's this floor. Seventy Five hundred.

1:03:17

Know we don't get credit for that,

1:03:19

but above that floor we could take

1:03:22

twenty Five hundred and my example out

1:03:24

penalty for it would still pay tax

1:03:26

of the sufficient retirement accounts. So that's

1:03:28

one potential. I have a new available

1:03:31

on that at some point. Five floor

1:03:33

is sort pesky in this regard, but

1:03:35

it's at least out there. the Second

1:03:37

Avenue that's available is not available to

1:03:39

all that many the Fi community birds.

1:03:42

at least worth barking up the tree.

1:03:44

rights of this rule says that

1:03:46

health insurance premium specifically i can

1:03:49

qualify for the exclusion from the

1:03:51

ten percent early withdrawal penalty regardless

1:03:53

of amounts will have to do

1:03:55

a new calculation like i just

1:03:58

did yes during the car year

1:04:01

or the previous year, we have

1:04:03

received 12 or more months of unemployment

1:04:05

insurance compensation. So we were essentially fired

1:04:07

or laid off or something like that.

1:04:10

For the early retiree, I tend to

1:04:12

think that won't be applicable but I

1:04:14

guess you never know and I certainly

1:04:17

haven't run through all the permutations and

1:04:19

combinations. But yeah, if we've received unemployment

1:04:22

insurance this year or last year

1:04:24

and we have medical insurance premiums that we're

1:04:26

now paying out of pocket, we might want

1:04:28

to think about, okay, maybe that's a

1:04:31

valve to qualify for a penalty

1:04:33

exception. Awesome. All right.

1:04:35

So Sean, that I think brings us to a close

1:04:37

here in terms of the questions that we're going to

1:04:39

talk about on the podcast. We did have two

1:04:42

other ones come in that actually you

1:04:44

wrote up a really significant article that

1:04:46

we will link to in the show

1:04:48

notes for sure. And I think it

1:04:51

gives a flavor on both of these

1:04:53

questions. So just to kind of wet

1:04:55

people's appetites and if you want to

1:04:57

talk about this even for a couple

1:04:59

seconds here but basically Jessica asked a

1:05:01

very broad question about if

1:05:03

you have different types of accounts. So she

1:05:06

asked, what if you have a decent amount

1:05:08

of Roth 401K in addition to Roth IRA,

1:05:10

how would you leverage this? And in what

1:05:12

order would you pull out the assets? I

1:05:15

think that was the key from Jessica's question.

1:05:17

And then Kelsey asked a really cool one

1:05:19

which was I can't help but wonder if

1:05:21

there is a spreadsheet or a simple checklist

1:05:23

for the best way to access funds when

1:05:26

you retire early. Now, Sean, I

1:05:28

know we don't ever like to be

1:05:30

specific and there's no world where we

1:05:32

could ever give advice to everyone. It's

1:05:34

just it is inconceivable. But I'm getting

1:05:36

the sense from the first look that

1:05:38

I had at this article that you

1:05:40

did try to touch on both of

1:05:42

these questions in that article. Yeah,

1:05:45

so what I'll say about that is a

1:05:47

couple things. One, I do tend to think

1:05:49

the taxable assets first, I think has just

1:05:51

a lot of advantages, right? It's not going

1:05:53

to be available to everybody out in the

1:05:55

audience. But boy, the taxable

1:05:57

assets first has so many advantages.

1:06:00

from tax planning perspective, keeping

1:06:02

our taxable income low, creditor protections

1:06:04

better when we take out our

1:06:06

taxable assets first. You know, the

1:06:08

other thing I want to touch on and I touch on it

1:06:10

in the blog post is for

1:06:12

many folks, it may be a combination of

1:06:14

one or more of these methods. So what

1:06:16

I mean by that is I'll give you

1:06:19

two examples, or I'll just I'll give you

1:06:21

one example of two flavors, right? Maybe someone

1:06:23

retires and they're using the rule of 55.

1:06:26

Great, you know, but that does

1:06:28

create taxable income. And maybe

1:06:31

it's December and they just need a few thousand

1:06:33

more bucks to live for the rest of the

1:06:35

year. So they're going to take out their last

1:06:37

distribution. They say, oh, that last

1:06:39

distribution is going to kick us into the 22%

1:06:41

bracket. Well, you

1:06:43

know, that guy Sean was talking about Roth

1:06:45

basis. Someone wrote in to

1:06:48

choose a fine and talked about HSA, puck

1:06:50

me, right? Maybe what I do for that

1:06:52

last distribution is I've been living on rule

1:06:54

of 55. That's fine. But

1:06:56

just to make sure for this year, we don't,

1:06:58

you know, go into that 22% bracket, just

1:07:01

that last distribution, I'm going to take

1:07:04

old contributions from my old Roth IRA,

1:07:06

or oh, there's that funny term, puck

1:07:08

me out there. I'm going to take

1:07:10

a withdrawal of some old puck me.

1:07:12

And so either one of those two

1:07:14

will make that last distribution tax free,

1:07:17

meaning I will be in the 12% bracket for this year.

1:07:20

So that could be one way where we sort of

1:07:23

have a primary method. In that case, it was rule

1:07:25

55. And then

1:07:27

we have a secondary complementary method,

1:07:29

Roth basis recovery, or HSA puck

1:07:32

me recovery, where we're just managing for

1:07:34

tax rate, we're just playing the game

1:07:37

a little more sophisticated than maybe

1:07:39

some other people do. Very, very helpful. And

1:07:42

like I said, we will have that article linked

1:07:44

up in the show notes. And

1:07:46

Sean, as always, thank you for being here.

1:07:48

Thanks for all your expertise. So, fitaxguy.com.

1:07:51

Is there another way for people

1:07:53

to reach out to you? Absolutely,

1:07:55

Brad, you can reach me at

1:07:58

my financial planning firm, Moly. I

1:08:00

am on YouTube at

1:08:03

Sean Mulaney Videos and X

1:08:05

at Sean Money and Tax.

1:08:08

Beautiful. Sean, as always, thank you. Until

1:08:11

next time, I'm sure we're going to have another mailbag episode

1:08:13

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1:08:15

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1:08:17

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1:08:19

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