Money Talk with Carl Stuart

Carl Stuart takes caller and text questions on retirement accounts and tax advantaged investing in a diverse perspective from young investors to retirees.

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 Stewart. Carl Stewart is an investment advisor representative of Stewart Investment Advisors. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:00:21] Welcome to Money Talk. I’m Carl Stewart and you’re listening to KUT News 90.5 and the KUT Ep. If you’re a first-time listener, now in our 32nd year together, Money Talk is a broadcast about the world of financial and investment planning where you always determine our agenda. There’s no script here, we just do, I just do my best to answer your questions when you call, or text 512-512-9000. 921-5888. It’s a terrific idea to call or text early in our time together giving me a better opportunity to do my best to answer your question. I answer today’s calls first and then today’s text which you will hear coming in and then previous texts that I’ve been unable to answer because we ran out of time. So I’ve got a couple of those ready to go but I want to you that number one more time. Call or text 512-512-7000. 921-5888. Okay, here we are. Carl, I’m 40 years old, I am unemployed, I have enough saved for six months. If I must dip into my Roth IRA, what are the implications? Well, the implications are pretty negative because when you take money out of your Roth IRA before you’re 59 and a half. You’re going to pay tax on that plus a 10% penalty. So I sure hope that you get a job and you can keep the money in the rock because it is after all, probably one of the most attractive ways to plan both for your own financial independence and also for your retirement because after you’re 59 and a half and after it’s been invested for five years or longer, you can take the money out on a completely tax-free basis. And also at 40, this may not make a lot of difference to you, but you’re not subject to a required minimum distribution. And you’re going to find a lot of people find when they get to that point, they don’t necessarily want all of the money or perhaps even any of the money, but they have to take it out and pay tax on it. So the ability to grow without paying taxes and the ability to take out at a certain time of your life, tax-free and the freedom to not take it makes a Roth IRA very, very attractive. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Lee, you’re on the air. How may I help?

Lee [00:03:00] Hi and i but we’re just wondering how i can encourage my young king and to learn about investing when i have near a knowledge about it myself but i know that you have to get head for it and also what would be a good place for him to start small like even with the land like a hundred dollars

Carl Stuart [00:03:20] Right. So there are a couple of things. Of course the world is full of podcasts and that’s a good thing and a not a good thing because you don’t know necessarily the quality of what you’re listening to, but you could do a search there. Also the big, what I call do it yourself custodians like Fidelity and Schwab and frequently have information and educational information on their websites, I’d suggest that your son go there. Also, this is self-serving, but you’re listening today, we put these broadcasts in podcast form, Lee, and so your son could listen to any of these when he wanted to, and obviously not all at once if he didn’t want, because we just get, I just get here, such a wide variety. Of questions that I think if he just becomes a regular listener to the podcast at his convenience, he’ll learn a lot of stuff because people are calling and asking real world questions. I would say because he’s not involved in it today, I would probably avoid encouraging him to read a book because that might be a barrier and he doesn’t want to do it. And it’s frankly difficult to find books that aren’t trying to sell a particular point of view. I really like the Wall Street Journal, but that’s for people who really want to learn. If he’s not highly motivated, I’d say go to those websites. You go first and see what you can find and see if it’s worthwhile for him or not. I don’t make recommendations on Money Talk for particular ways to invest, but I would you that I hear on NPR a promotion by Charles Schwab where they are putting out a, if you will, an offering where a parent and a child own it together and they break down the price of securities into modest amounts like the hundred dollars you talked about. So I’d go to, I have not, I’ve not done my study of this and so I want to be careful that people don’t think somehow I’m recommending it because I have a deep understanding of it. I don’t. But that may give him a chance. How old how old a person is he?

Lee [00:05:45] 13.

Carl Stuart [00:05:45] Okay, so when you do this, you set up what’s called a custodian account. You’re the custodians, and he can make the investment decisions. Both of you would obviously have online access to the account. You do this under something that’s got a fancy name, the uniform transfer and a minors act. And what happens is that when he hits 21, unless you’ve already taken the money out for education or some other purpose. It’s he owns it. It’s his money And if that’s okay with you, that’s a really terrific way to to go I did this with our children when they started working We asked we required them to work in the summertime and make money and have to get up and be some place and work for somebody they didn’t like you know, you know the typical teenager stuff and Whatever they got paid I told them that I would take half of their paycheck and put it to save it for their future for their college expenses, but I put the whole amount in too. So down the road, opening a custodial account and making it say a Roth account where it’s for his future is also worth considering. But just start small, go to those websites, have him listen to whenever he feels like a podcast, a money talk, and I’m hopeful that that will be helpful.

Lee [00:07:11] But it is helpful, especially for more long-term things. Is there something that has like quick returns that might get a hook?

Carl Stuart [00:07:22] Actually, no, in fact, I would tell you that would be, in my view, the worst thing that could happen because then he would get hooked on quick returns and think, well, this is easy. I can do this. You know, right now we’re in a period of the last three and a half years of quite good stock market and there are people who are trading all the time using some kind of robo trading situation. In my experience over the last 47 years, these things end badly. I think I think you want to focus, tell him that investing in the stock market is investing in human innovation whether that’s back when the internet came along or now with artificial intelligence, but he needs to take that three to five year. When you’re 13, the idea of three to 5 years is like I understand eternity, but you want to emphasize it’s the benefit of having a longer term view.

Lee [00:08:16] Okay, I appreciate you taking my call.

Carl Stuart [00:08:18] You bet, Lee. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 in the KUT app. Call or text 512-921-5888. And by the way, I mentioned the podcast, you can go to kut.org slash Money Talk and listen to those at your convenience, 512 921-5888. Here’s the text that just came in. Carl I have approximately $100,000 in a high-yield savings account that I’ve accumulated. I also just, here we go, from selling a house and just putting money away. I also maxed out my tax advantage accounts except for a Roth IRA because I sometimes get to sell stock of my company and I don’t end up qualifying for the Roth. That’s because this person makes too much money. Sadly, one of the dumb rules about Roth IRAs and IRAs is. You can’t get a tax deduction for an IRA if you make over a certain amount of money. You can put the money in with no tax deduction and you can’t do a Roth with new money if you’re over a a certain level, okay. My company, I don’t end up qualifying. However, I know I have too much cash on hand and I should invest some of it, but I like it being accessible and fairly risk-free as it’s not gonna lose 30% if I need it. But I do. I know I need to do something besides a high yield savings account and not sure what to do. I’ve used CDs but I’m thinking I need put approximately $40,000 to $50,000 away in an investment account but I don’t want to use an index fund like the S&P so I’m trying to figure out what type of account I should put the money in. It’s fairly low risk but will do better than a money market or high yield saving Well, you know… If it were easy to make more money and take less risk, we would all do that. There simply is a relationship between risk and return. There’s no way around that. If you’re in a money market account at a bank or a credit union, I would suggest you look at a money-market fund because money- market funds are mutual funds, but they don’t invest in stocks and they don’t invest in longer-term bonds. They invest in short-term debt securities that mature in a year or less. And they keep the price per share at $1. And all the big companies offer these, the Schwabs, the Vanguard, the Fidelities, and they’re going to pay you more or less what short-term interest rates are, because every day and every week, some of those fixed income securities mature and the managers turn around and buy more. And so if we get into a period of rising interest rates. You can expect the rate to go up. And if we get into a period of falling interest rates, you can’t expect the rates to go down. This meets your safety requirement. The yields are probably around three and a half percent. Really only the way you could do more than that would be and still keep your risk concerns front and center would be to go into a short term investment grade bond fund, where you expect to get a bit of a higher yield. One of the ones I use as a benchmark, the last 12 months, based on today’s price, yesterday’s price had a yield of about 4.4%. Year to date, it was up 1.81. You had those two together, and you get something close to 6%. However, there’s no guarantee that it couldn’t go down. If, in fact, interest rates rise, it could go down, so you have to decide money market fund or short-term bond fund. The next step out… Would be an intermediate term bond fund. After that you’re starting to take more risk and the only other alternative then would probably be something associated with the stock market and it sounds like that’s a bridge too far for you. Thanks for the text. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Here’s text. Hi Carl. First off, I’d like to thank you for all the excellent advice you provide. Thank you. You often suggest that people save their expense receipts and on occasion gather them together to see where they’re spending so they can create a budget. I do indeed. I believe you should update your recommendation given that most people today are computer literate. When I get my bank checking account statement, I see where my cash is going and I simply go to my computer and download that information and put it into a spreadsheet. Likewise When I get a credit card bill, I go online and download that information and put those expenses into my spreadsheet where I have buckets for travel, groceries, dining out, home and garden, clothing, auto, entertainment, ATM and miscellaneous categories. Thus, I can tell where all of my money is going. I think this is a lot simpler and more precise than gathering receipts and manually reviewing them. You can easily download all of your expense information in 15 minutes. Sort it into buckets and you know exactly where your money is going. Thank you for all you do and I really appreciate having your program. Have a good day. Well thank you. And of course you’re absolutely right. I completely agree that if you’re computer literate that makes a lot of sense. Thanks for the advice and the recommendation. You’re listening to Money Talk on KUT News 90.5 and the KUT app. When you have a question, call or text 512-921-922. Let’s just see, that just says podcast. I don’t think that means anything. Let’s try this next text. I think you were wrong with your answer about taking money from a rock. There are two types of money in the rock, contributions and earnings. You were absolutely right. I was mistaken. You wouldn’t pay tax on the after-tax. Contributions can be withdrawn at any time with no tax liability. And IRS rules say when you withdraw the contributions come out first. If you get the earnings, then you have problems. If you aren’t 59 and a half or if the Roth account hasn’t been open for five years, thank you for clarifying me. You’re absolutely right. Thanks. You’re listening to Money Talk on KUT News 90.5 and the KUT app 512-921-5888. Okay, let’s see. I don’t have any new texts coming in. Let’s go here. Hey Carl, just started listening to your show right now. 28 and wanting to invest and build my portfolio. What’s the best place to start? I think if you probably have, there’s a two-part answer to that. One is, how do I educate myself? And then the second, where do I go to invest the money? And I think the barriers to entry to doing this yourself have just disappeared. When I started in this profession, that was not the case. And there’s lots of information out there. I always mention, because they’re large and they’re easy to go to, and lots of people know about them, the three big ones, do it Sulfurs. Are Schwab, Fidelity, and Vanguard. You can look at others as well. And I would start by reading those and understanding those. You’re going to open an individual account. One of the challenges, if you want to engage in an advisor, is that these people need to make a living, just like your CPA or your lawyer or your dentist or whoever. And when you’re 28 and starting out. Probably don’t have a lot of money and it may be difficult to find an advisor. Now there may be advisors out there who will work on a fee only basis, but that’s really more about comprehensive financial planning than it really is about investing. So I would go to those websites. You’re young and no doubt as a previous texter said, computer literate. I would start there. And I said this I think in the last two weeks. I would say that If you determine you’re really interested, I’d read the Wall Street Journal. I started doing that when I got into this line of work. I didn’t know anything about financial assets or about investing. And the thing I learned was if you’ll just take that and go down the left side of the front page, do this online, and read the stories that they highlight, and then go through the first two sections and just read the headlines and where you find something that’s interesting and relevant to you. Read more of it and don’t try to get the whole thing done and take two hours a day to do it and just what i think you will find is if you do that over time i think he will be surprised how much you know about the world you’ll know more about the impact of artificial intelligence on the economy of the job market you’ll no more about international investing you learn about commodities you learn of all kinds of really interesting stuff if you knew that so i’d my suggestion listening to Money Talk on KUT News 90.5 in the KUT app. We’re going to take a break. I will be back. It’s a perfect time for you to call or text 512-921-5888. I’ll be back.

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KUT Announcer: Laurie Gallardo [00:18:24] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:18:39] Welcome back to Money Talk, I’m Carl Stewart and you’re listening to KUT News 90.5 and the KUT App. As you just heard Lori say, when you have a financial or investment plan in question, call or text 512-921-5888. We have all of our lines available and no incoming text, so you will get your question on the air and I’ll do my best to answer it. I came across some really interesting information. Regarding the U.S. Stock market, rates of return, and historically what happens in a year like this being a mid-term year in the presidential cycle. And I’m just going to read you a few facts, and if you’re a regular listener, you know if a call comes in or a text comes in, I will interrupt myself and take those. So I’m going to just read a couple things. The path of stocks varies greatly each election cycle. But the overall long-term trend of markets has been upward. Since 1931, the S&P 500 index has seen an average return of 4.7% in midterm election years, about half of the 9.5% for all other years, but positive just the same. Going back further to 1933. Markets have averaged double-digit returns during various scenarios, including when a single party controlled the White House and both chambers of Congress as a unified government, a split government, and when a president’s opposing party controls Congress. I thought that was interesting. And then the one measure of volatility, the movement of stocks, is called standard deviation. And since 1970… The midterm elections have had a median standard deviation of returns of nearly 16% compared with 13% in all other years. Interestingly, that volatility in presidential election years has been very similar to non-election years. In other words, in the presidential election year, where you might expect more volatility, it actually hasn’t occurred. The mid-term elections are truly an outlier. You’re listening to Money Talk on KUT News, 90.5 and the KUTF. Call or text 512-921-5888. I am going to bloviate now about a topic that I would call an evergreen topic for people. And again, call that number or text and I will do my best to answer your text or question. It comes down to, shall I do this myself? Shall I do my own financial planning and my own investing or should I engage some person to help me. And the first thing that I think matters is a real clear self-assessment. Am I the kind of person that likes to take care of everything myself? I mow my own yard, I fix things around the house, I wash my own car, I just want to be in charge, okay? Because if that’s the case, then that personality trait is unlikely to go away when you’re investing. Now some of us, I’m one of these, that have controlling personalities, but I can put things aside. For example, I don’t want to do my own income taxes, so I’m not going to do them. I’m going to hire a professional. But there are some people who want to it all, but that’s fine. The beauty of what’s occurred over the last decades is you can do this and reduce the cost because you’re not paying somebody to help you. Okay, let’s just suppose, however, that you do want somebody to help you. They’re going to have to be compensated. They’re not doing this for free. Oh, there comes the text. We’ll see if I get to talk about that later. 512-921-5888. Hi, Carl. I’m a newish listener and a huge fan. Thank you. I’ve recently been lucky enough to get paid my salary from May to the end of December. Whoa. I’ve already divided my money into two lumps. The first is my monthly spending and my savings. I get paid around $7,000 and save 61% of each check, why that’s un-American, congratulations. That said, I have about $45,000 ready to invest, but I’m curious what your thoughts are on a lump sum investment versus dollar cost averaging. So what this person is asking is, I’ve got this money and I know I need to invest it, should I go ahead and do it all at once? Or should I stage it in over periods of time? Now, I will tell you that in my career, I cannot find a study that says the long-term returns are better if you stage it over time or you do a lump sum. But we are all psychological animals, emotional animals, and there is some benefit to dollar cost averaging, which is psychological. And that is, if you take a certain amount of money, so you’ve got this $45,000, you take $9,000 and every month for the next five months put money in. And because you’re saving so much of your income, you can continue to do that. Now, one of three things is gonna happen. This just shows you how brilliant I am. The stock market’s gonna go up during that time, stock market is gonna go down, or it’s gonna be flat. If it’s going to go up, you can say, Well, you know. I shouldn’t have listened to Carl because I should have put all the money to work. Is that a risk? Yes. Because the stock market goes up more often than it goes down. If that weren’t the case, we wouldn’t have these attractive returns that the stock market gives us over longer periods of time. However, the stock is a volatile phenomenon. Because of liquidity, people can change their minds immediately. You can’t change your mind and sell your rental property on Monday because you decide to do that today. But you can decide to change your asset allocation in your 401k on Monday if you want to. And if there’s surprising news that comes out and is perceived by global investors as both surprising and unpleasant, you can expect the stock market to decline. So if you’re taking the same amount of money and putting it in every month, right, then some months the price is going to be down, likely, you’ll buy more shares. Some months it’s going to up, you will buy fewer shares. And over that period of time you’ll buy more shares at lower prices which is a great idea. This is why participating in employer-sponsored plans or taking your savings and really putting it to work is a terrific idea. And I’ve seen people do this over my forty seven year career and it really really does work because of the magic of compounding. So I would say this, I’m inclined to say that I would dollar-cost average, but it’s more for the sleep-at-night phenomenon than it is, I can say to you that I’ve seen the data that this substantiates that. So good luck. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Here’s an incoming text. Hi Carl, I’m 29 and slowly rebuilding financial stability after some hardship. Good for you. I am now at the point where I have about $500 left over every month. I’m not sure where to put it. I have a Roth IRA that is not maxed out, roughly $16,000 in student loans at 5% interest, a $1,000 loan at 7%, and a 401k that already meets the requirements for my match for my employer. I do not have an emergency fund or any other sinking fund. Where should I put this extra $500 a month? Well, I think what I would do is I would first think about the stability of my employment. Because if you have, if you’re in a business that’s experiencing layoffs or volatility, then you’re going to want to have, do have an emergency fund. Other people, however, have jobs where there’s just not, the likelihood of them losing their job are frankly just slim and none, and so. This myth out there that everybody should have six months worth of expenses and savings, I don’t buy it. I think it really depends on your personal situation. So let’s just assume that you’ve got solid prospects for your job and you’re already putting money in the 401K to get the match, which is a terrific idea. So when you think about the $1,000 loan at 7%, I think that the first place I would go is that I would eliminate that. Simply because you get a 7% guaranteed return. And while I think you’ll do better than 7% over time, that doesn’t mean that it’s guaranteed in the stock market. So that’s the first place that I would go. So a little trickier in the student loans, if you’re paying those off and your cost is 5% and you’re only 29 years old, I think that the question I would have is, can I deal with the risk of the stockmarket? If the answer is yes, then you’re perfectly appropriate to do what I was just talking about in dollar cost averaging into a low-cost exchange traded fund that owns an index like the total stock market or the S&P 500. I think that makes sense as well. I’d probably pay off the debt. I’m ambivalent about the student loans. You just make the payments as you’re doing it and begin to invest in equities. If, on the other hand, you think that you need liquidity… Then the money market fund I’ve talked about, a government money market fund at one of the big providers is a reasonable thing to do. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Here’s a text. Hi Carl, I really enjoy your show. Great! Regarding required minimum distributions from my three 401k accounts, do I need to withdraw from each account or can I take my total required minimum distribution from one or two accounts? It’s absolutely my understanding that you just have to take the total required minimum distribution and if you had three accounts, you could take it all from one as long as you meet the required minimum because a custodian will disclose that, my understanding is. The IRS. I don’t know that for a fact, but you do want to take the RMD. The place from which you take it is entirely up to you. Thanks for the question. You’re listening to Money Talk on KUT News 90.5 and the KUT app. We haven’t had any phone calls other than Lee today. If you want to talk, call 512-921-5888 or of course you may text the same. Let’s just see. Here’s a text. Hi Carl, love the show, thank you. I will be 67 years old this year and plan to retire at age 70. I have $176,000 left on my 5.25% mortgage and pay an additional $230 towards the principal each month. I recently moved my Fidelity 401k through work and to my other 401k where it had better returns. I contribute 11% towards the Fidelity Raw 401k. Employer matches 4%. That’s great. I usually have at least $1,000 a month extra after my expenses are paid and currently put it into a money market account where it currently has $10,000 and pays 2%. With regards to the extra money in the money market, does it make more financial sense to pay down the principal on my mortgage, max out my Roth 401K contributions, or put the money in money market, mutual funds, something else. Thank you. That’s a really interesting question. I think that if you could, you’re seeing your three years from retirement. If you retired and didn’t have a mortgage payment, that would be terrific because it would give you maximum flexibility. If you wanna reduce or increase your expenses, you’ve gotten rid of the one major debt that you have. Now, you have a favorable interest rate at 5.25%. So I would say, depending if you’ve got a healthy balance into your company plan, your Roth 401k, and you’ve made the contribution from your employer, I think that I would begin to think about taking and more than an additional $230 of principal each month because you have $1,000 of extra. Maybe bump that up. To maybe another, put another $500 in. You know, your. Probably down to mostly principal though. So as I think out loud about this, you’re probably not paying a lot of interest if it’s a 25 or 30 year mortgage and it was a lot more. If it’s predominantly principal, you still gotta pay it off. So you might wanna kind of split the deal and put $500 more towards the mortgage and take that extra other $500. Now here’s the thing. You could go to a government money market fund and get more than, you’re getting in a money market now, about 2%. They’re currently paying, government money market funds are currently paying about 3.5%. And you have daily liquidity, and in my view, they’re safe. Or you could decide to invest outside of your 401k. I really am glad that you have a Roth 401k, because that’s going to give you that maximum flexibility when you retire to put that into your own Roth IRA. And you have the ability to take it or not take it and not pay taxes on it. So I guess I’ve kind of split it, it seems to me. If I think of, if you know that you have $1,000 extra, I’m just doing the math, and you paid more on the mortgage, you might want to run the numbers and see what that would do to your mortgage. I can’t do it in my head. What that would pay due to your mortgage liability when you retire, how much more you would have left on your mortgage, that would be something I’d want to do as well. Thanks for the question. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. So go back to my bloviation topic and that is, let’s assume that you are not a do-it-yourself person and you want help, okay? Fortunately, if you live in central Texas… There are a lot of people who are financial advisors. Now, financial advisors, that’s not a term of law, it’s a term art. Generally, these people have licenses. They may have something called a Series 7 or something called the Series 63. They have different employment models. They can be an employee and can work for companies that have household names like Wells Fargo or Bank of America. UBS, Morgan Stanley, Edward Jones, and they’re generally, not always, you’ll have to ask them, W2 employees of the company. Then there are people who are independent contractors. Let’s just see what this text says. Oh, good. Here we go. Hi, Carl. Just checking if I got the number right for Money Talk. Yes, you did. All right. Here. Hello, Carl, I’m an ancient guy. That makes two of us. Fairly recent listener and a huge fan. Further, your thoughtful guidance would have been very helpful, capitalized, when I was young and stupid, financially. Well, I was younger and stupid every which way. And otherwise, I got lucky. A few months ago, you and one of KUT’s managers teamed up to provide an investment primer over three or so episodes. I’d like to gently lead my two kids. That was my good friend, Jimmy Moss. I’d like to gently lead my two kids who are in their 40s into a better financial future than I lucked into. Could you provide the dates of those episodes in your archive? And finally, they aren’t radio folks. Where’s your website? Okay. So I’m going to give it out. I don’t talk about myself, but if you go to stewardadvisors.com, that’s where you’ll see it. And also you can go to kut.org slash money talk and they can get the webcast, the podcast. Can’t tell you off the top of my head which one of those that Jimmy and I did. I’m really sorry. The other day I looked at the podcast and it said it was from May 23rd but it was actually from the week before. So I apologize right here on the air. I don’t have a list of the broadcasts and the topics of the broadcasts but I think they do put a short statement before each podcast what it’s about, if you go to KUT.org, that may be helpful. If you have to, you listen to the first few minutes and you’ll know immediately if it’s just me, then that’s not the one you’re looking for. I really appreciate you helping your kids get educated because the earlier they begin, the better off they are. I’m going to take a break. Now a great time to call or text 512-921-5888. I shall return.

Jimmy Maas [00:36:52] 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 [00:37:28] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:37:43] Welcome back. You’re listening to Money Talk on KUT News 90.5 and the KUT app. I’m Carl Stewart and I’m really glad we have such smart listeners because I was responding to the person who asked about taking the RMD from different accounts and I was thinking in my head about those being individual retirement accounts and we got a text that says, Carl for required minimum distributions from 401k accounts are different than IRAs. For 401k accounts, the required minimum distribution must be taken from each account separately. Possibly a reason to roll over to an IRA. That’s terrific. I tell you, I listen to this show because I learn stuff. I hope you do too by calling or texting 512-921-5888. Here we have a call. Rob, you’re on the air. How may I help?

Rob [00:38:37] Hi, Carl. Good afternoon. Thank you. I’m 47 years old and I have about a combined net of traditional 401k and IRA of about 1.3 million. And in speaking with my mother, who is just recently retired. We got to talking about RMDs and the Irma and My question is, what strategies do I need to employ now so that I am not in a situation where I have to research what’s called a tax bomb?

Carl Stuart [00:39:17] Yeah, I’m not aware that there’s many ways that you can get around. What we’re talking about here is when you’re 65 and go on Medicare, the premium that you pay for that, which is deducted from your Social Security, if you take Social Security. If not, I guess you must pay for it until you take social security at 70. It’s not a gradual, the premium doesn’t go up gradually. It actually stair steps. And so once you hit a certain level of income, it goes to another higher one. I’ve had this experience. I’m having this experience now. I frankly, Rob, get philosophical about it. If you and I are lucky enough to have done some good things and we have accumulated a lot of assets, because if you take your $1.3 million at 47, and compound debt at some modest amount, say 6% where it doubles every 12 years, you’re going to have millions of dollars and I suspect you’re going to continue to invest between now and then anyway. I have not come up with any thoughtful way that’s legitimate to avoid the IRM attacks. I just haven’t done it. So I think my view is that’s the way it goes. I’m glad that I’ve been successful and I’ve saved and invested. I’m sorry to disappoint you Rob, but I do not have any way around it, but thank you for your call. You’re listening to Money Talk on KUT News 90.5 and on the KUT app 512-921-5888. Matt, you’re on the air, how may I help?

Matt [00:40:59] Thank you. Hey Carl, this is my first time listening, so thanks for sharing with us. Thank you. I am 36 and I’m looking to invest some money and I am wondering which direction I should go. I have a mortgage that I’m six years into, if there’s stock market investments or like maxing college tuition. I have two kids and one more on the way. Okay. That’s right. Yeah

Carl Stuart [00:41:30] Thank you. I think you’ve got, first of all, you’re doing the right thing by thinking about these things. A lot of people wait until the kids are 17 to think about paying for college. So I think, first, you and your spouse, long-term goal is to be financially independent, which means you don’t have any debts, the kids have grown and gone. And when you get up in the morning whatever you do that day you do it because you went to and not because you have to That’s that’s the long-term goal But in between now and then you’ve got these kids two now and one on the way and you don’t want to say to them When the first one turns 18 your mom and I don’t have enough money Why don’t you come back when you’re 25 and we’ll help you go to college That that’s just not a good idea. So that but if you want to call that a liability because it is future education expense is going to hit sooner than your ability to hang it up and retire. So I think the first place to start saving, particularly hopefully they’re younger because they get the magic of compounding, I would start putting money away for that. And I would tell you there’s two ways to do that that are, I think, just fine. One is you can open up what are called 529 college savings plans, and you put the money It’s just generally it’s a state-sponsored plan. You’re given a menu of choices, mutual fund choices, and then when they have education expenses, you can take the money out and not pay any tax on it, and you can move the beneficiary. So let’s suppose your first child turns out to be a division one tennis player and she or he doesn’t need the money. You can still have it there for the second or the third child. On the other hand, these I find, There’s another way to do it that gives you more flexibility, and that is you just have an account. You can even call it the Matt and Susan Education account, and you put money in regularly into mutual funds. My favorite would be very low cost, very tax-efficient, exchange-traded funds from somebody like Schwab or Fidelity or Vanguard. They grow in value over time, but that’s your money, right? It’s not their money, and you can’t tell today. If they’re gonna go to college, where they’re going to go to collage, and so it gives you that maximum flexibility. The other thing that I would do that’s more of a financial than investment planning is I would begin to have the conversation, first you and your spouse, and then with the kids on an age-appropriate level, what are we willing to do for your college expense? So for example, in my case, we insisted that once the kids were old enough to. Get a money job. I think back then it was age 14, but I can’t remember. They went to work in the summertime and I said, give me your paycheck and I’m going to put the money away for your college. And I think that, and then setting realistic expectations. I think one of the saddest things I’ve seen, Matt, is when kids grow up. I mean, after Oh, you remember how dumb you were when you were 16. Kids grow up. And they don’t understand what’s coming at them in terms of college and the cost of it. And so I think having that conversation with three kids on an age-appropriate basis about what you and your wife are doing and what you expect them to do. And it’s reasonable to say that we’re gonna pay for 25% or 50% or we’re going to pay for this if you go into an in-state tuition. Those are realistic things to do and putting money aside in what I call an education account. That gives you maximum flexibility, because one of the kids may need more money than the other, or they may not need the money, it’s still yours. I think that’s how I would begin if I were in your shoes.

Matt [00:45:28] Okay, awesome. Thank you very much.

Carl Stuart [00:45:30] You’re very welcome. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Dave, you’re on the air. How may I help?

Dave [00:45:49] So I was wondering about bond funds, which I don’t have that much experience with, but I have some. Yes. And with people talking about, or the bond market, suggesting that interest rates will rise. Yes. Would that change your strategy for a range of bond funds?

Carl Stuart [00:46:07] It would not.

Dave [00:46:08] In my early 60s and probably want to be moderate to aggressive for the next 20 years.

Carl Stuart [00:46:14] Okay, so in my own personal portfolio I have 20% in bond funds, so I find that to be, I don’t think that’s very, I think that is conservative. I mean, the old model, it’s not necessarily wrong, 60 stock, 40 bond, so i’m 20% bond. But I like having it spread over those three, and you’ve listened to me because I can tell from your question, a short-term investment grade bond fund, an intermediate Corabon fund and a multi-sector fund. And the reason is, it takes the prediction of interest rates away. So I do this every Saturday before I go on the air and the bond market on a year through yesterday using something called the Bloomberg Ag, which is the index, and you can buy the Bloomberg ag in an exchange traded fund. The year to date is down 0.14% and over the last 12 months, the dividend yield divided by the current price is about 3.95%. Then that intermediate one’s down more, as you would predict, it’s down 0.28%, and its dividend yield is higher, as would you presume, at 4.05%. And then the Go Anywhere multi-sector fund is up 0.12%, so it’s flat, but over the last 12 months, its distribution yields 5.8%. So if you look at those and if rates go higher based on history. The longer end of the yield curve, long term bonds have the greatest risk and that’s why I don’t buy long term bond funds. And if interest rates go up because the economy is going down, heading toward a recession, high yield bond funds have a very high correlation to the stock market and that is the reason I dont buy them as well. So I would say spreading it out between a short term investment grade, a core bond in a multi-sector fund but not over weighting bonds because you want to be aggressive. Is the right thing to do. So I’m sticking with my three bond funds because I think if rates go higher, I’ll benefit from one of them. And if they go lower, I’ll benefited from two of them and not from the short term. So that’s my story right now, Dave. I’m stickin’ with it. Alrighty, thank you very much. You bet, 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. Here we have a call. James, you are on the air. How may I help?

James [00:48:51] Hey, thanks for taking my call. First time caller. I’ve got a couple of boys, nine and twelve, looking for some advice on maybe trying to improve their financial fluency. All the different types of opportunities that are out there to learn, listening to your station or reading literature. What may be one or two things that are the most effective that you found over your experience over the last several decades? Yeah, yeah

Carl Stuart [00:49:24] I think if you can get them to listen to the podcast from this broadcast, because the questions are so varied and so many of them are real life questions like this, I think that’s the single best thing to do and you can look for other podcasts. As I always say to people, you just have to be careful, it’s like books on finance. There are books that are going to be difficult for them to read and maybe tedious. And then they’re going to be books that are promoting one way or another to invest and you want to run away from those as fast as you can. I think in this great world of podcasts, that’s where I would start. And then I would also have them go to the websites of the three big, um, you know, fidelity, Vanguard and Schwab, uh, look on there for additional information and they will have podcasts as well. And I think that’s the easiest way, you know, back in the day. Uh, when I was a youngster and there was no internet, uh, you basically didn’t have this kind of stuff. So I think the podcast, this show, go to those three websites, uh. And then begin to narrow down other podcasts as well. That’s in my view, there’s a woman that does a podcast for Schwab. Her name is Liz Saunders. Um, my colleague, uh Lindsay really likes her podcast. I don’t know if it’ll be too, uh Detailed for the kids, but that’s one that I’ve had recommended to me. Thank you. Appreciate the tips. You bet. Thank you, thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. MK, MK you’re on the air. How may I help?

MK [00:51:16] Okay, I have a couple of questions. I’m a 42 year old. My first question is, for my 401k, I think there are two options. You know, I can contribute my pre-tax money to traditional 401k or I can do after-taxt money into broad 401k. So I just want to know like which one is good, you know. Save tax upfront or should I pay tax now and then get tax free earnings? That is one question.

Carl Stuart [00:51:48] Yeah, I’ve learned over the last few years. I really like the flexibility of the Roth 401k. My understanding is you get the employer contribution as pre-tax, so eventually you’re going to have pre-tax money anyway from the employer matching contribution. But the beauty of having that Roth 401K that you eventually roll over into a Roth ira. And you have that maximum flexibility to take the money when you want or not. The other thing that I’ve observed over my career is that back when I first started doing this, I was told always put as much as you can in a pre-tax account because you’ll be in a lot lower tax bracket when you retire. I have downed that to not be the case. For people who have good jobs and do a good job of saving and investing. They’re not necessarily dropping sharp. They may drop from a 24% marginal bracket to a 22% bracket, but they’d seldom drop from a 20 to a 10 or 15, and frankly they don’t want to because they don’t want to have that kind of retirement income. So my personal gut is I’ll forego the tax deduction for the future flexibility of tax-free income and no required minimum distribution. That’s my thinking, MK. Thank you, I’m very welcome up. Sorry. I thought you were done. I apologize. I do you want to call back? You’re welcome to do that. You’re listening to money talk at five one two nine two one five eight eight eight I will not hang up so quickly next time Paulette you are on the air. How may I help?

Paulette [00:53:31] Hi, I have elderly parents that are in their late 80s and have sold a house and moved into independent living. So they’ve bought several CDs, but it’s a pretty substantial amount of money. And what’s the best place to park it? Is it CDs or are there any funds that they should Yeah

Carl Stuart [00:53:55] So this is a really interesting question because it all depends on what they can sleep nights or risk tolerance. I mean, I will tell you, I always love to tell this story. I had a friend who was in his 90s and he had 65% of his liquid money in the stock market and his name was Lou and I said to Lou, you know, all the literature says you ought to have all your money in bonds and CDs. And he said, well, Carl, I’m not going to spend all this money. So I’m really investing for my kids and grandkids and he smiled and said I’m a long-term investor which we both laughed about and he died at 102. So it depends on your parents and their goals and objectives. If they are risk-averse and don’t want to take any risk then a CD ladder, LADDER, where they take a large sum and they divide it into say four parts and they buy CDs that tour in one, two, three, and four years. And every year, a quarter of the money comes due. They don’t need the money. They buy a new four-year one, because last year’s four is now a three-year. That’s the most conservative thing to do. There’s also money market mutual funds that today are paying about three and a half percent. There’s three kinds, a prime, a government, and a treasury. I’d recommend the government one. Those are the things where the income is whatever the market will give us, and the principle doesn’t fluctuate. If they are reluctant to take risk, then that’s the thing to do. If they will take a very modest risk, taking part of the money and putting it in a short-term investment grade bond fund will pay more over time than the CD. It will fluctuate a little depending on the direction of interest rates, but that’s the next step out. If they ever decide in conversation with you that, gosh, we’re not going to spend all this money we’d like to. Leave a legacy for our family or our church or synagogue or a non-profit, that’s a whole other conversation, Paulette, and it really comes down to how they feel about that.

Paulette [00:56:03] Okay, great. Thank you.

Carl Stuart [00:56:04] You’re very welcome. Thanks for calling. You’re listening to Money Talk on KUT News, 90.5 and the KUT app. I am not going to ask you to call me because we’re running out of time. Here is the text. Hi Carl, following up on previous message regarding the 45 ready to invest. I’m 29 and if I want to add that I have maxed out the Roth IRA for two years in a row. I have $10,000 in a high yield savings account for my sleep money and feel pretty secure about investing the $45,000. My follow-up question is this, if I do dollar cost average with the money, does that mean I need to invest a lump sum and then DCA the rest? No. It’s my understanding that some accounts have investment minimums. You’re right. So what you want to do is, at $45,000, I would think you would be able to, at $9,000 for five months, you ought to be able invest in exchange-rated funds at that $9000 level. I would start with a U.S. Total stock market fund, and if you can, also add a total international fund that’s all stocks outside, no right allocation, you’re a young person, maybe even a little more in the international than I would do for someone older, perhaps along the idea of maybe 30-35% international and the rest domestic. But you do need to look into the minimums, go to those various websites I’ve talked about on Money Talk and see what they are. If you have to wait, or if you have put more in, then just put, if it’s 10,000 or 15,000, put it in and spread it out so you don’t do it every month, you do it in every two months so that you have an adequate amount to meet the minimums. Good luck to you. You’re doing the right thing. Well, we’re running out of time, but a lot of fun this afternoon. You can see these textures still coming in. Perhaps I’ll be answering those next Saturday. I want to thank Mark for doing his usual terrific job. And thank you for listening and remind you the next Saturday at five o’clock. Be sure and tune in to Money Talk.

KUT Announcer: Laurie Gallardo [00:58:10] You’ve been listening to Money Talk with Carl Stewart. Carl Stewart is an Investment Advisor representative of Stewart Investment Advisors. And this is KUT and KUT HD1 Austin.

This transcript was transcribed by AI, and lightly edited by a human. Accuracy may vary. This text may be revised in the future.