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Carl Stuart talks to callers and texters about whether there are downsides to drawing a pension early, the relationship Federal Reserve interest rates have with U.S. “T-notes” or treasury bonds— and their effect on banking interest rates. He also talks about managing multiple houses as investments and other topics.
The full transcript of this episode of Money Talk with Carl Stuart is available on the KUT & KUTX Studio website. The transcript is also available as subtitles or captions on some podcast apps.
[KUT Announcer Laurie Gallardo] [00:00:01] This is Money Talk with Carl Carl . Carl Stuart is an investment advisor representative of Stuart Investment Advisors. Call or text him with your questions at 512-921-5888. Now, here’s Carl.
Carl [00:00:21] Good afternoon and welcome to Money Talk. I’m Carl Stuart and you’re listening to Money Talk on KUT News 90.5 and on the KUT app. If you’re a regular listener, you know what I’m about to say. Money Talk is a broadcast about the role of the financial and investment planning where you always determine our agenda by calling or texting 512-921-5888.
It’s always a terrific idea to call or text at the beginning of the hour. My rule is I take today’s calls first and then today’s texts and then texts that I haven’t had the opportunity to answer in the past. You will hear the text bing go off when I get texts and I have some that I hadn’t had a chance to cover so I’m gonna start that now. But remember that if you’d like to get on the air or text and get your question answered to the best of my ability this afternoon. Then call or text 512-921-5888. Okay, here’s the text.
[Text] Carl, what’s the best vehicle for high income, self-employed individuals to defer taxes during high earnings years?
There’s actually a very good way to do that, and it’s called an SEP IRA, three letters, SEP IRA. Which I think stand for self-employed. And actually, I’ve had one for 28 years. And the idea is that if you don’t have a whole lot of employees and you are not interested necessarily in creating a defined contribution plan, a 401k for example, you can do this SEP IRA.
401K plans, regardless of the size of the plan, the number of participants, the value of the assets of the plans. Have a significant amount of paperwork that needs to be filed with the government, you need to have a plan administrator, and then you have some fiduciary responsibility to your planned employees. In the SEP IRA, you set up an account for yourself as a self-employed individual.
Let’s suppose you have, say, three staff people. Each of those people has their own separate account. They’re responsible for making their own individual investment decisions. That’s why it’s called IRA, it’s an individual retirement account. And the benefit of this is that you can put away more money than you can in an IRA.
So, I’m looking at this year’s SEP and it says the limit on annual additions to SEP plans is $70,000. Which is ten times what it is for an IRA So what you have to do is you say, okay, I’m going to put a percentage away of my taxable income. Let’s say 15%. And you have two, or let’s say three, as I said, employees. My recollection is you can exclude them, full-time employees, for up to three years. But then when you make a percentage of your compensation, they have to have the same percentage of their compensation.
So, if you make a lot of money and 15% gets you over that 70, that’s just what you have to put in. But the lower compensated people would get 15%. Then the money that goes in is a tax deductible, so you don’t pay income tax on that.
And like an IRA, as long as you leave it alone, and it grows in value, you pay no taxes on dividends, interest or capital gains. And you’re subject to the same rules which is that if you take the money out before you’re 59 and a half years old you will pay a ten percent penalty plus ordinary income tax but if you don’t do that it can continue to grow and then when you decide to take money out let’s say during retirement uh… You can take out the amount that you choose to take out uh… And uh… It’s very very flexible i like it a lot Also, for people who’ve accumulated a lot, there’s always the possibility that you could consider a Roth conversion at a later date and provided that you put that into the Roth and have it there for five years from the initial contribution, that money comes out without any income taxes because you paid it when you did the conversion. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text with 512-921-5888.
[Text] Hi Carl, can you please explain 3rd grade level, that’s above my pay grade, but okay, can you explain 3th-grade-level 10-year treasuries, how the rates work, how to buy and sell them and their impact on other rates in the economy. I hear them referenced on the news all the time, but I’m embarrassed I don’t understand them. -Mark in Austin.
Mark, I’m happy to do that. Every, I’m pretty sure it’s every Monday, the treasury sells bills, notes, and bonds. May not sell them all the same day.
So, bills are treasury securities that mature in one year or less. Treasury notes mature from one year out to 10 years. So, the 10-year treasury is what we call the benchmark. And the 10-year treasury auction comes out. And whatever the government has to provide in interest to get all of the Treasury notes sold, that’s the interest on that particular note. And every six months, you get income from that. And then in 10 years, it turns into cash.
So, if you bought it at the auction for $10,000, that’s what you would get, plus the interest during that period of time that you held it. They’re probably considered the world’s most liquid security. Meaning you can buy it, but you don’t have to keep it. If you buy it and interest rates decline significantly, particularly in the early years of your ownership, you actually have the ability to have price appreciation. You can consider selling them and making a profit. Of course, the other side is if rates rise during the time that you own it, that particular security, the market value will decline. If you hold it to maturity, you still get your $10,000.
Now, while I’ve never done this personally… I understand that you can set up an account with the treasury and you can send the treasury the money and then whatever the auction price is, then that’s what you will get that day. You will have deposited the money, and you will have the treasury.
Now, I call it a benchmark because that’s it is. A lot of interest rates are priced off of that. So, mortgage race would be the one of the most significant ones. Consumer credit, that would be one of the factors. Let’s just take your MasterCard, Visa, American Express. That they would have an interest rate above, significantly above the 10-year treasury. But they also have to figure in their profit because they know a certain percentage of that debt’s not going to be paid. Your automobile note would be a function of that as well.
So, a lot of interest rates are priced what we call priced off of the 10-year treasury. Thanks for the question.
You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call me with your questions or text me at 512-921-5888.
[Text] Carl, I requested a meeting with my mother’s financial advisor to confirm what the position it is with her portfolio. She is 84 years old. What things should I be listening for?
I think the first thing that I would ask is, what does the advisor understand to be the goal, the goal objective of the investment? And the reason for that, and I’ve talked about this before on Money Talk, I learned an important lesson many years ago, which is that you cannot immediately assume that someone who’s 84 years old has the same investment strategy goals and objectives as someone else.
I certainly encounter people who have been lifetime savers and investors who reach a point in their lives where they realize they’re never going to spend all of that money but they consider that a legacy for their children or grandchildren or for their religious institution or their educational institution and so they invest for that not for themselves that leads them to a much higher allocation. For growth, and that would be primarily in the stock market. Then there are other people who just want to, for lack of a better term, freeze-dry it, and they don’t want everyone to think about it fluctuating in price. And they might have, depending on the size of their portfolio, two or three different bond mutual funds or exchange traded funds. And I guess some people could even have laddered CDs where they have them maturing in success of, say, one, two, three, and four years.
So, when you go to see the financial advisor, you want to understand what she understands is the purpose of the investment. And that’s going to do a lot. Do not go in with preconceived notions that because your mother is 84 years old that she’s conservative. She may well be, but she may not be as well.
So, when you ask your her advisor that question. You’re going to learn a lot, because the advisor should be an educator. She or he should be articulate. They should be able to explain the nature of the investments. And I think it’s reasonable for you to ask, what could possibly go wrong? I think we all know what can possibly go right. But what can possibly go wrong?
How would her portfolio perform in a sustained declining market? A good example of that. Would have been 2022, which is not that long ago, when the Standard& Poor 500 was down over 19%, and the NASDAQ down over 33%, and what we call the Bloomberg Ag, which is the benchmark for bonds, was down 13%, it was a tough year. And you’d be good to know how she performed that year. And then that was followed, as frequently happens, by two excellent years in 2023 and 2024. And it would be good to know how she performed, her investment performed during that period.
You can’t have it both ways. You can have it go down less than the benchmark when things go down and they go up more than the benchmark or frankly equal to the benchmark of the equity market when things go well. So that’s what I would do. And then I think if you wanted to dig even further down, you might talk to the person about what’s… My phrase is, what’s a happy, healthy client relationship look like in terms of contact? Are there letters? Are there phone calls? Are their meetings? That kind of thing. So if you understand what they believe is your mother’s investment objective and goal, and they’re able to explain how it does in good times and bad times, then I think you’re going to go a long way towards meeting your objectives. Thanks for the question.
You’re listening to Money Talk on KUT News, 90.5 and the KUT app. It’s time for me to take a break. It’s a great time for you to call or text 512-921-5888. Stick around, I’ll be back.
[KUT Announcer Jimmy Maas][00:12:32] Money Talk airs every Saturday at five o’clock on KUT News 90.5 FM on the KUT app and at KUT.org. This podcast is produced by KUT and KUTx Studios as part of KUT Public Media, home of Austin’s NPR station and the Austin Music Experience. We are a non-profit media organization. If you feel like this is something worth supporting, set an amount that’s right for you and make a donation at supportthispodcast.org
{KUT Announcer Laurie Gallardo][00:13:01] This is Money Talk with Carl Stuart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.
Carl [00:13:15] Welcome back to Money Talk. I’m Carl Stuart and you’re listening to KUT News 90.5 and on the KUT app. Call or text 512-921-5888. You can hear the text coming in.
Hi Carl, always appreciate your help.
Thank you.
[Text] My eldest sister is 76 years old and just completed making her required minimum distribution for this year. She doesn’t need the income from her RMD. Her investment advisor told her that she might consider creating a qualified longevity annuity contract in order to buy a deferred income annuity. I think she’s interested in this annuity in order have some income later in life that isn’t subject to the RMD requirements. And she wants to give our youngest sister some cash to use at the time she needs my younger sister to help manage her care. What do you think about my sister getting an annuity?
That’s an interesting question. The thing about annuities is you have to do a lot of homework because they’re very complicated. And the more the benefits, here’s my experience over the last 46 plus years, there’s never been an annuity product that someone said, this is really mediocre.
They always have terrific sounding benefits. The hard part is understanding what’s the true cost of the benefits. Because the insurance company is not evil, they’re in business to make a profit. And so when they make guarantees, like in this qualified longevity annuity contract, they know how many people are going to live, for what length of time. They don’t know them, they know them by gender, not by name. Some people are gonna die earlier some people are going to die later And so they’re gonna take the money that your eldest sister would invest or give to them, and they would figure out what they project would be her life expectancy and also the return on the money that she’s given them, and then they need to make a profit over and above what they’ve guaranteed her.
It’s really complicated, so I’d be highly cautious. Now, if you’re saying she’s interested in order to have some income later in life that isn’t subject to an RMD requirement, and she wants to give her younger sister some cash to use at the time, so she could do a couple of things. She could begin to take more than her required minimum distribution, as long as it doesn’t thrust her into a significantly higher tax bracket. She could then put aside the money for the taxes. And she could then invest it in her own name and invest it in a prudent but growing type situation. And it let it grow.
She, if she uses tax, what I would call tax-efficient exchange traded funds and mutual funds, she’d only pay taxes on any dividends distributions. And if she wants the money later, it comes out at the favorable long-term capital gains rate. And if she doesn’t want the money, upon her demise, whoever her beneficiaries are, are going to get that money and have what’s called a step-up in basis. And when they sell those securities shortly after her demise there are no taxes. If they decide to hold them and have them grow during their lives, they have a new cost basis that’s equal to the value at the time of her demise. So I don’t know a lot about this annuity, I’m just giving you my general experience over my career.
So if you choose to do that, really dig into it and understand what the internal expenses are and understand with the life insurance person is being paid. This is a big deal and good luck. Thanks for your text.
You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888.
Zach, you’re on the air. How may I help?
Zach [00:17:33] Good afternoon, Carl. Thank you for taking my call. You bet. This might be a little outside your normal scope of activity, but I thought I’d give it a shot. I’ve recently become a third-party, independent seller of merchandise on Amazon. Amazon collects sales tax for each item which I receive. My question is, how do I declare that sales tax and pay it to the state of Texas?
Carl [00:18:01] So, you are a sole proprietor, so all of your income and expenses with Amazon are going to be at your personal income tax level on your own 1040, unless you enjoy detail and have a real comfort with numbers, because this is a little complicated, I recommend you talk to a tax professional. Because those taxes that you’re going to pay are probably operating expenses. And so you need to look at this business as a business. It just happens to be that it’s gonna be on your social security number. So it’s an operating, taxes may well be an operating expense. I’m not a CPA or a tax accountant, But there’s so many people doing this today, Zach. That’s the straightforward thing. Get a hold of a tax professional, explain your situation, and take the advice that they would give you. That’s what I would do if I were in your shoes.
Zach [00:19:14] Okay, great advice. Thank you for your help, Carl.
Carl [00:19:16] You’re welcome. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888.
Marianne you’re on the air, how may I help?
Marianne [00:19:35] Hi Carl, these are the tough questions of life. I have a friend who’s 80ish or so and looks like he’s going to pass before long. And so those last things to get in order, we wanna try to help do. Do you have any thoughts on that?
Carl [00:19:55] Yeah, I do. I just actually was watching a video that my colleague and daughter, Lindsey, did on the kinds of things to have. First of all, there ought to be a list of any passwords, account numbers, whether at the bank or a securities firm. You wanna evaluate the way in which they’re styled. For example, if this person Is is this person a single person or is he or she married?
Marianne [00:20:32] Single, single, yeah, it has a relationship where there could be a— some funds.
Carl [00:20:39] Okay, so there’s a, in Texas, they can have, I don’t know about at the bank, but if they have investments at a securities firm, they could style that called transfer on debt. So it would be Mary Ann or Carl transfer on death, and that would then allow them to bypass probate. And then, of course, anything that they have. That’s in a subscription basis. You know, let’s just say they have cable TV and they have Netflix or some other service that they pay on a monthly basis that’s deducted from their— it’s on their charge card, for example. Those need to be listed so that when this person passes away, those can be stopped.
And then the Social Security Administration is very good. They know really quickly when someone’s passed away. So that’s not a big deal.
Then of course the things that you and I have talked about in the past, in a will, if there’s particular things that this person wants to give to a particular person, those are called bequests, whether that’s an antique or a piece of art or ten thousand dollars. If this person is philanthropically inclined, those bequests should be listed as well. And of course, they should have a competent person be an executor of their estate. And unless they have lots and lots of money, there’s not a big— based on my experience, I’m not an attorney— they don’t have to go to something fancy like a living trust that might cost them five or $10,000. Unless they have a really complicated situation.
So those are, of course, if they have any kind of retirement accounts, you wanna double-check their beneficiary designation. Sometimes there’ll be a situation where they did an IRA many years ago, set it up with certain beneficiaries, and then over time, their lives changed, they got a divorce, the beneficiaries passed away, there was a falling out in the relationship, whatever the case is. But those old beneficiaries can still be there. I’ve actually heard of situations where the spouse of a second marriage wasn’t the beneficiary because the decedent forgot to change it from her or his first spouse to the second spouse.
So those are some of the things, Marianne, that I’d be looking for if you can help this person.
Marianne [00:23:20] Good i think it’s very good for all of us to hear that uh… Thank you
Carl [00:23:25] You bet. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call with your questions or text me at 512-921-5888.
Okay, let’s see here. And there’s the one about explaining treasuries. I don’t have to do that. And there is the one on the annuities. Here’s another one.
Okay. Ha— Never mind—
[Text] He says this is awesome and a great addition to KUT. I’ve really enjoyed listening to your archive sessions.
Well, thank you very much. Okay, let’s see. That one’s about the persons of breast cancer survivor. Thank you for doing that. I’ve been out of town and I just haven’t looked into that and I apologize. I’m gonna be out of the town a bit this week as well. So let me get to work on that. Thanks for coming back and reminding me.
[Text] Hi, Carl. My wife and I have several IRAs. Do required minimum distributions come from each IRA or from any vehicle based on the total value of all the IRAs?
Great question. A lot of people over their lifetime have accumulated IRAs at various banks for savings and loans, credit unions, securities firms. What the IRS wants you to do, they look at it as if it were one account. Each of those custodians will know virtually the first business day of January, what your required minimum distribution is from that particular portfolio. You can take it from one portfolio, one IRA, as long as you take out the amount that says, let’s say you have three IRAs, you know what your requirement of distribution is. You can you can take an amount from each IRA, two of the three, all from one IRA. The real trick here. It’s not a trick. The real key is that you make sure Be sure that you make sure that what you do is that you take out the amount that’s necessary to to accomplish that Great question. Thank you.
You’re listening to money talk on KUT news 90.5 and on the KUT app and call or text I’m watching about three things here at once five one two nine two one five eight eight eight Okay Another text.
[Text] I’m 59 years old I have no savings other than a 401k. My husband is no help. What can I do at this point to plan for our future? More importantly, where can I go to get a good understanding of financial literacy that’s basic and easy to understand?
Here’s— I’ve had this question asked me many, many times. And I don’t have a good answer for a book. I just, I want you to look at these books with a high level of skepticism. If it’s any book that has a point of view, to teach you how to make a zillion dollars, to recommend that you buy bitcoin or I don’t know platinum, I’m just making this up. That’s not the kind of book you want. You want something that’s very straightforward, that’s a very simple, probably has some good charts and graphs for you to get started. But I will tell you this, you’re already an investor in your 401k.
So, you already have some financial literacy because your 401K has a variety of investment options. What you wanna do is create the same thing on your own. In other words, the beauty of that 401k is it’s automatic. You don’t have to think about it. It comes out of your paycheck. And perhaps you also have an employer matching what we call a matching contribution. That’s terrific.
What you want to set yourself up with is an investment account and you can have what’s called an ACH where they automatically take money out of you checking or savings account and put it in your investment account. And if you change your mind, you want to increase the monthly amount, you want a decrease it, you wanna stop it, that’s entirely up to you. But you wanna get on a regular investment program, you wanna invest in mutual funds or exchange traded funds.
In my view, start with an exchange traded fund that follows the total US stock market and the total international market. Maybe 75% in the total U.S. Market. 25% in the total ex-US. And you may start with a modest amount of money, but it’s gonna be very tax efficient for you. You’re gonna be building wealth that when you need it, it’s going to be subject to long-term capital gains tax, which is a lot lower than the income tax rate, which is what you will pay when you retire and start to take the money out of a 401k. So you just do what you’re doing now. But do it in your own name or in your joint account name. In the fullness of time, if your husband predeceases you and this account has grown, if you have a joint account, then what will happen is your cost basis will disappear and will be the value of the time it is passing. A very, very tax-efficient way to grow your wealth. So I think that’s what I would do if I were in your shoes. Thanks for the text.
You’re listening to Money Talk On KUT News 90.5 and on the KUT app. Call with your questions or text me at 512-921-5888.
Alex, you’re on the air. How may I help?
Alex [00:29:17] Yes sir, how are you doing today?
Carl [00:29:19] I’m good, thank you, how may I help?
Alex [00:29:21] Yes, I have a question for you. I love your program. Thank you. I’m fixing to retire. I’m going to be 67 in a few months. And I have it properly here in a very good location. Everybody wants to buy it, but I’m not selling it.
Carl [00:29:39] Okay.
Alex [00:29:39] So, and my bank said, yes, we can help you if you want an equity loan. As long as you want to live on your new property, we give you a good equity loan if you want. So, I have a property in two different countries. So, I’m planning, I don’t know what to do, so I’m asking your opinion for me. So, do I, I know when I tell you, I want to keep my property. It’s about to be paid off in a few months. So, I want to leave it and leave it out and then go and build me a little small house where I can retire.
Carl [00:30:17] So what do you, if you buy a small house when you retire, what are you gonna do with this property? Are you gonna rent it out or what’s your plan with that, Alex?
Alex [00:30:27] I’m thinking, if I can, if anywhere I can invest a rebuke and you know, put a new building to it because it’s really on a very, very marketable way, very place, good place. If I can find a company and develop it, if it’s possible, we develop it from there and then I can put it in a trust, leave it there and let it grow for the kids and thank you.
Carl [00:30:53] So because it’s worth a lot of money when compared to what you paid for it, and since you almost have eliminated the mortgage, if you want to make an investment to improve the property, then I agree with you that you could get a loan because there’s lots of equity in the house.
So, the bank or credit union or savings loan would probably be very happy to lend it to you. So that is a reasonable thing to do. As long as you have the cash to pay down that debt, to service the debt. If you have to cash to paid the debt, and you can also go out and buy a smaller house, that is a perfectly reasonable thing to do. And the other side of that, of course, is that you need to have other assets beside this property, because you sound like you’ve been around for a while, like I have. And back in the late 80s and… We had a period of time where properties dropped for five or six or seven years in value. So rents dropped along with it. And right here in central Texas, according to my reading, apartment rents have been coming down. And real estate, residential real estate’s been coming down about two or three percent a year.
So, there’s nothing wrong with borrowing the money since you have a lot of equity to improve it. But then you also have to think about if you’re not going to rent it out. Then how are you going to upkeep the house if you’re not living in it, that’s a problem. And you don’t need to put it in a trust for your kids because when you own it, if you don’t sell it, when you die, they get that house, that property, and they get to sell it if they want to and because they will have what is called a step up in basis regardless of what you paid for the house, regardless of how much you invested to upgrade the house. The value of that house upon your death will become their new cost basis. They can keep it or they can sell it. And unless it’s appreciated a whole bunch, which you would not have, then they wouldn’t pay taxes. So I do not see a reason based on what you’ve told me to put in a trust. So bottom line, is it okay to borrow the money to do that based on what you told me the answer is yes, Alex.
Alex [00:33:14] Thank you very much. Thank you. And I was, I’m thinking about, I have other two properties in two different countries. So, I’m trying to go and make a little small house there. I can, you know, and then my other question is, do you think it is a good idea to find a company that can develop this place? You know, they can build a very nice condo here. Do you think is a great idea to do that?
Carl [00:33:42] I only think it’s a good idea if you have the time and the interest to do it. I’ve learned the long, hard lesson I learned is some people love real estate and they have the time, and the interests, and frankly the expertise, and they enjoy it, then the answer is yes. But if you’re living someplace else and this property is there and you fix it up and it’s just lying there, then I don’t think that’s a very good idea, Alex.
Alex [00:34:11] Okay. Thank you sir, God bless.
Carl [00:34:14] Thank you so much. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. It’s time for me to take a break. A perfect time for you to call or text 512-921-5888. I’ll be back.
[KUT Announcer Laurie Gallardo] [00:34:43] This is Money Talk with Carl Stuart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.
Carl [00:34:57] Welcome back to Money Talk, I’m Carl Stuart and you’re listening to KUT News 90.5 and on the KUT app. Call or text 512-921-5888 and shout out to the Music for Fedora Wearing Dudes which is written, performed and produced, you just heard it, by KUT’s Music for the Fedora Wearing Dude Band. Wow, what a mouthful. 512-921-5888 Okay, here we go.
[Text] Hey Carl, love listening to your show, thank you. Can you give any advice about how to find a professional, independent executor? Thanks so much, Gene.
So, what I would do is I would probably do a Google for trust companies because my understanding is that they might well provide that service. They’re not for free. And being an executor is not a long-term thing, so it’s possible that a trust company would not do that because it’s not profitable for them. The other thing is to talk with an attorney, particularly an attorney that specializes in what we call estate planning. You may not know someone that does that. Again, you can talk to our good friend Google about that. And you can ask your friends, people you know at church or your age or whatever, what they do in your situation, and then you can interview that person. The amount that the attorney will charge is primarily a function of the complexity of your situation. For example, if you say you’ve got three beneficiaries that are all adult children, and one of them wants to sell the family residence and two of them don’t want to, or there’s some difficulty in relationships and one’s gonna cause trouble in the disposition of your assets. Then you need to anticipate you’re going to be straightforward, very straightforward with the attorney, so that she can tell you what she thinks it will cost, because the more time she spends, obviously the more expensive it’s going to be, it’s very straightforward, that will cost you a lot less.
So I think I’d start with the attorney before I went to the trust company. Now that I think this through, I start with attorney. And there are lots of attorneys in central Texas. It’s very common for them to specialize. It might be litigators. They might be real estate people. They might have different specialties. You want someone who knows what’s called, generally they call themselves estate planners and that’s where I would go. Good luck.
You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Here we go.
Denise, you’re on the air. How may I help?
Denise [00:38:07] Hi Carl, um, do you have a, if you can just offer any advice or is there like a big detriment to pulling your pension before your normal retirement age?
Carl [00:38:23] Yes, so generally speaking, pensions are called defined benefit plans because they’re different than 401Ks which are called Defined Contribution Plans. A pension, a classic would be say the Teacher’s Retirement System of Texas. The pension is a function of several factors, how long you’ve worked there and your age and what your income is. Pretty obviously the longer you work, the more benefits you accumulate, the later you take it, the greater the benefit. If you no longer are working at this location and so your benefit doesn’t grow anymore, then there’s nothing negative about pulling that pension before 62. It will be added to your, since you’ve never paid tax on it, it will be add to your taxable income. But if you’re still contributing, the benefit is you’re growing the benefit over time.
So there’s no fundamental problem with it. Let’s say you now have another job or you’re not working and the pension benefit’s unlikely to grow. And you can check with the pension provider. A lot of times, if it’s a smaller business, they will have a third party do the calculations, do all the government filing and everything. And you can simply ask the question, if I take it today, what will be my monthly benefit? And if I took it three years from now, what will my monthly benefits? The other thing you’ll want to consider is a lot of pensions give you choices. I’m just gonna use teacher’s retirement system as an example. Once you turn it on, you can get it a lifetime for you and then it goes away when you die. That will give you the largest benefit. Or if you’re married and you wanna have your spouse get the same amount or 75% or 50% as much, that will affect the minimums, that will affect the monthly deal. But there’s nothing fundamentally wrong with taking it before 62. There’s no tax difference, whether you take it at 62 or later, Denise.
Denise [00:40:37] Okay, well I think you’ve helped me make my decision, so thank you very much.
Carl [00:40:44] Good luck, thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT App 512-921-5888.
Rick you’re on the air, how may I help?
Rick [00:41:01] Well, hi, Carl. Hi. Well, I have a collection of comic books that I have gathered up over the years.
Denise [00:41:08] Mm-hmm.
Rick [00:41:08] Uh… They’re all in uh… Very good condition there are better and my question is if i decide to sell them what do i use as the cost basis uh… What i file my income tax
Carl [00:41:25] Yeah, 10 cents. That’s when comic books were, when I was a kid, um, this is I have some of those. Good for you. This is really tricky. Back in the day, even if you had bought stocks or mutual funds, your brokerage firm didn’t keep track of what you paid for it only when you sold it and you were on the honor system for asserting the cost basis. That, as you can imagine, led to some significant amount of abuse. And so now Vanguard, Fidelity, Schwab, Merrill Lynch, whoever, they have those cost bases and by golly they made sure that they’re on there and that your friends at the IRS know about it. This is a very different situation because these are, it’s like art. You are left with having to assert what you paid for them and your risk is because they are unique in nature is that you assert something. You then pay a long-term capital gain on the difference between that cost basis and the sales price, which is a favorable tax rate, by the way, and then you get a pleasant little letter from the IRS that will make your blood run cold when you see the return address is the Internal Revenue Service, and they say, dear Rick, our good friend, we’d like to help us understand how you determine your cost basis. Now you got a problem.
So, if you really get serious about doing this, you need to pay for a professional opinion because you’re not the only person that has it. These are called collectibles. They can be baseball cards, you know? They can baseball cards. Somebody’s got a 1962 Mickey Mantle New York Yankees card. Well, you might have come with bubblegum. So what I would do is if I was serious about it or I thought it could happen in the foreseeable future, I’d go talk to a tax expert. And ask them what the government anticipates you have to have to prove your cost basis, Rick.
Rick Thank you very much, Carl.
Carl You bet. Good luck. Thanks for calling.
You’re listening to Money Talk on K-Did and Did It. I’ve got all the way through. Money Talk, on KUT News 90.5 and on the KUT app. What time is it? We’ve got about eight minutes. 512-921-5888.
Bob, you’re on the air. How may I help?
Bob [00:44:07] Carl, pleasure talking to you again.
Carl [00:44:09] Thank you.
Bob [00:44:35] The getting on to my question about the The Fed is like, the media is like all about the Fed cuts and this and that and they, I’m not under the impression that the Fed, if they cut, it’s going to affect the 30-year Treasury. I don’t believe they can control that.
Carl [00:44:56] You’re right.
Bob [00:44:57] I’d like to comment on that, and also, I’m thinking that the Fed, when they do cut for the equity market, it’s only temporary, and what really affects the equity and stock is the dollar. If it’s weak, we do well, here in the U.S. If it’s strong, then the equity market doesn’t do as well.
Carl [00:45:22] Comment on that? Sure, sure. I think, obviously you follow these things closely, Bob. So the dollar has been weak this year. Historically, that’s been to the benefit of investors who own international securities because when they translate back into the dollar, it’s to their benefits. So I think the odds are. That there will continue to be some pressure on the dollar simply because of the fiscal situation with trillions of dollars of debt and this is not a political statement, the congressional budget office says that the new tax law, the big beautiful bill will add somewhere over two trillion to three trillion dollars to the debt. That’s not a secret.
And so, if you think through that into the future… The government’s going to have to be borrowing more and more money. That is not a good thing. And that could be a downward pressure on the dollar, an upward pressure on all things being equal foreign securities, including debt and equity. And would also be a positive for gold. And that may be one reason gold has done so well the last couple of years. And The Fed can only control the so-called Fed funds rate, which is the overnight rate. The world determines what the price of the 10-year treasury is, or for that matter, any other treasury. You’re absolutely right.
And so I think where you would begin to see the problem becoming serious is if the Fed held an auction and to get all of the debt sold, the rates would have to jump higher uh… For global investors to to loan us the money. That would be a significant event. That would be very negative for the equity market and frankly, for real estate and for all kinds of risk assets because that would mean that we’re finally going to have to make some very difficult decisions and reduce expenditures and nobody wants to do that. So I think the outlook for short term interest rates is murky.
I think that the Federal Reserve is caught between a rock and a hard place. Because if they lower rates and the economy is strong, that’s inflationary and if they raise rates, that’s hard on the economy and increases unemployment and as you know, they have a dual mandate to keep a solid lower rate of inflation and full employment. So you’ve correctly identified the situation. Frankly, I think we’re gonna get away with this for a bit longer. Simply because there’s no other reserve currency in the world. The yen and sterling and the euro are simply not large enough. The Chinese renminbi or the yuan, the government controls it, that you can’t have a reserve currency where the government control it. It has to be free-floating and the Chinese are unwilling to do that. So that’s my view, Bob.
Bob [00:48:39] Totally agree, Carl. Now, can you do me one last favor?
Carl [00:48:42] I think I’ve got a couple of minutes, please go ahead.
Bob [00:48:46] Let her know that we need to postpone the European vacation because of the weakness of the dollar.
Carl [00:48:54] Did you say what about the European vacation?
Bob [00:48:57] We need to postpone our European vacation because of the weakness of the dollar. Give my wife a call, please.
Carl [00:49:03] No, I’m going to tell her right now, go ahead and do it. Thanks for calling, Bob.
You’re listening to Money Talk. Let me see here. I think I may have a time to get a text. Let’s just look here. All right. Here we go.
[Text] Hi, my sister died unexpectedly. I’m sorry. And, um. Our dad is the beneficiary, as far as we can tell. Dad is 93 years old. The sister had several retirement accounts. What are some ways to convey that money to dad?
If they’re retirement accounts, she had to have a beneficiary. And if she was married, the husband has to be the beneficiary. The only way it could be somebody else is he would have to voluntarily sign a form. That it was okay for others to be a beneficiary. So the odds are, your father is what’s called the primary beneficiary— now let me see— it’s his sister died, I apologize.
So, you have to look at the retirement accounts and see who the beneficiaries are. That’s the way the law goes. If it’s to her children or somebody else, then that’s who it has to go to. Those people, if it’s not your father, those people would have to go ahead. And give the money to your dad.
There’s no tax consequences on that. If he’s the beneficiary, there’ll be a process to go through with the certificate of death and some other documents. And then the custodian for the various, custodians for the the various retirement accounts will distribute the money your dad, if not, they’ll distribute it to the beneficiaries and then it’s up to them to decide what to do with the money. So good luck.
Well, been a lot of fun this afternoon. I want to thank Marc for doing his usual terrific job and it reminds you that next Saturday after the news at 5 be sure and tune in to Money Talk.
This transcript was transcribed by AI, and lightly edited by a human. Accuracy may vary. This text may be revised in the future.
