Money Talk with Carl Stuart

Carl Stuart answers listener calls and texts on rolling over 401(k) funds, converting to Roth IRAs, Social Security, taxes, and investment strategies. Also, some discussion about the long-term solvency of Social Security and how younger people may have to rely less on it in the future.

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 [00:00:02] This is Money Talk with Carl Stuart. 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 KUT News 90.5 and on the KUTF. If you’re a first-time listener, welcome. Money Talk is a broadcast about the world of financial and investment planning, where you always determine our agenda by calling or texting 512-921-5888. I always encourage our listeners to call or text early in the broadcast, giving me ample time to do my best to answer your questions. My rule is that I take to get today’s calls first and then today’s texts, and then after that, previous text. So I’ve got some previous text here that I can read, and when we get text today, you will actually hear the noise go off on my KUT Money Talk phone. So one more time, 512-921888. Okay, let’s go look for these that we got in the past. Okay, I see that. Here we go. Hi, Carl. Rollover and conversion questions seem popular recently. And here’s another one. I’m changing jobs and will roll over my 401k into my traditional IRA with Vanguard. If I then want to convert it to my Roth, can I do it slowly, like for example, $10,000 a year to minimize the upfront tax hit? How long do I have to convert my traditional IRA? I turned 50 this year, thanks. Well, I have good news for you. You can convert as much or as little as you want. So what we’re talking about here is let you have money in your 401k. You change jobs or you ston’t you retire and you put that in an IRA rollover, or you’ve been contributing to a pre-tax, tax-deductible IRA over your lifetime. And now you’re thinking, gosh, I may not need all of this money, or I’m approaching the period of required minimum distribution, and I really don’t want to have to take it out, and I sure don’t like paying taxes into the future. How can I deal with that? Well, a conversion is to take money from this IRA and put it into a Roth IRA. The deal is you have to pay taxes on whatever amount of money you take from your IRA. So is there a limit as to how long you have to do this or a limit as to how much or how little you convert? And the answer the good news is no. You can actually do this for as long as you want. Excuse me. And as as you suggest in your in your text, the important thing is to look at what tax brackets you’re in because you should take the amount of your other sources of taxable income and then add to that the amount that you convert. If you heard me, I just picked up the 2025 tax table. So for example, let’s suppose that you’re a married filing jointly taxpayer, and that your income, that’s taxable income, social security, dividends, interest, pensions, whatever the case is, is above ninety-six thousand nine fifty, but below two hundred and six thousand seven hundred. Everything above ninety-six thousand is taxed at twenty-two percent. The next tax bracket is frankly not that big a deal, about two percent not about, two percent points above that. You go from a twenty-two to a twenty-four, and that goes from two hundred and six thousand all the way up to three hundred and ninety-four thousand six hundred. So the big one comes after that. And that’s an eight percentage point jump to thirty-two percent from three ninety-four six hundred up to five hundred and one thousand fifty. So if you can, you want to avoid that big jump. So you do a what if, you look at your other taxable income, and you decide I’ve can I’m I’m gonna stay in the twenty-two percent bracket, I’ll take that up a certain amount out, or I’m willing to go up through the twenty to the tw top of the twenty-four and you do that. That’s in my view, if you have the time and you’re willing to pay the taxes now, how I would do it. Good question. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512 921 5888. Here’s a question. Carl, I appreciate you and your wife’s support of many wonderful Austin nonprofits over the years. Thank you. Well, that’s very nice of you. You’re very, very welcome. My wife and I, and I must say it’s a great joy for us to do it. My wife and I will both turn 65 next year. She is a recently retired school teacher with a modest pension. And I want to retire from my job with a nonprofit. We have a mortgage on our primary residence. We owe $300,000 on a home appraised at three times that amount, $900,000. And we have a rent house that is fully paid for, worth a bit more than our current outstanding mortgage. Our interest rate on the mortgage is low, less than 3%, no kidding. But taxes and insurance exclamation point, exclamation point, are as much as the principal and interest. We are having to draw on our savings, which are substantial, a little bit more or plus $1 million to keep up with the monthly expenses. Once I retire, retire, our monthly household income of $10,000 will fall to $5,000. The question, should we take Social Security at $65,000? Full Social Security for us would be at $67,000, or should we use our savings for the next two years and wait till $67 to draw Social Security? And second question, should we sell the rent house and retire mortgage debt? Okay, let’s take both of those. Because they grow. That’s right, eight percent a year, and there is no investment that you can make with a guaranteed 8% a year. So I would put this together and say, should we sell the rent house and retire your mortgage debt? The answer is yes. I would do that because then while your income drops by five by from $10,000 to $5,000, you don’t have that, you’re not servicing the mortgage any longer. You can’t do anything about the operating expenses, the property taxes and the insurance, but you’ve cut out a big expenditure. Because you have a large substantial one plus one million dollars in savings. If I were in your shoes, I believe that I would supplement my income to the to the extent I needed, if you can, and postpone your social security until 70. Because you’ll have such a larger benefit, and then you can go back and let your savings alone and hopefully your savings will grow. I hope they’re in an investment. So the bottom line is I think if I were in your shoes, I’d sell the rent house, pay off my mortgage. I think being debt free when you’re retired is a wonderful thing and a very big deal. And then I would use my savings to supplement my income for three years until I was able to get it at 70. Now, if there are mitigating factors like you have perhaps a life shortening illness or something else that’s not in your text, then you have to reconsider that. But postponing that Social Security benefit as long as you can would be a terrific thing to do. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512 921 5888. All right, let’s see here, go back and get some other text from the past. Here we are. It looks like this one here. Yeah. Carl, we have about $2.1 million in a Vanguard rollover regular IRA. I have that in 2025 and 2030 target date funds, and about $600,000 in cash. My wife has about $1 million in individual stocks held a long time with a lot of capital gains. We also have a house valued at about $1 million. I’m 65 and my wife is 68 years old, and we get Social Security. But frankly, I’m pretty comfortable with paying on minimum distributions as they occur. Thoughts. My wife’s stock is not in retirement funds. $600,000 is in an IRA. And we do withdraw about $150,000 annually from an IRA per living. So here’s this is this this conversion question I would guess is about the most popular question currently that I’m receiving on Money Talk. And I would tell you that some of it is is perhaps numerical or factual, but in my view, a lot of it is simply psychological. If you’re comfortable paying the taxes now and you don’t want to pay the any more taxes, I can’t come up with a compelling reason for you to go ahead and do the conversion. What I observe when people do the conversion. Is that they’re prepared to pay the taxes because they like that future tax-free income. They know that if it’s let’s just say a male spouse and he dies first, his wife gets the his spouse gets the Roth and she has no need to take it out, then the beneficiaries get the Roth, and they have ten years to take it out tax-free. But you have to decide if that’s pertinent to your situation, because you could just as easily say, look, let’s just let the IRA grow and we’ll take our hundred and fifty thousand dollars a year. And when both of us are gone, our beneficiaries will get a nice a nice amount of money, and they can go ahead and pay the taxes at that time. Is that a reasonable thing to do? The answer is yes. So I would look at your personal situation, your views about building a legacy and what will happen upon your demise. And if if you’re happy with your current situation, then what the heck I would I see no reason to do the conversion if that’s the way you feel. Great question, and good luck. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. We have a call coming in. Rob, you’re on the air. How may I help?

Rob [00:11:38] Yes, sir. Thank you very much. You’re welcome. I am just curious. I am a retired IRS employee and I know everyone hates the IRS. I I don’t know that I liked it that much myself. But when when you think about taxes and what takes place, every dollar invested in the IRS brings back five to seven dollars to the United States economy. And I was I was just looking for your opinion about you know how that works because the the we as public servants we we did the best we can.

Carl [00:12:20] I’m sure you did.

Rob [00:12:21] And and and we are just merely looking to try to help everyone else. Yes. And nobody realizes that w the work we do actually brings so much more back into the government.

Carl [00:12:37] Well, first of all, my view is that the fact that I pay taxes is because I have income. And if I pay a lot of taxes, it’s because I have a lot of income. And I’ve done enough travel around the world to know that I am really grateful that I was born in the United States of America. I didn’t choose this, and I’m a first generation college graduate and I’ve worked hard and I’ve enjoyed a level of financial success, and my view is I’m a gr you know, I’m a graduate of public education, both sch high school as well as university, and I’m more than happy to pay my taxes because I’ve been so fortunate. And so I see it that way, full stop. A lot and that’s not shouldn’t say a lot. Some of my friends, who also have been financially successful have a completely different view. Their view is taxes are a terrible thing, and they don’t want to pay ’em. Now there is a middle ground, and that is I would say suggested by the editorial board of the Wall Street Journal, which is a dollar that I pay in tax is a dollar that I don’t have to in to spend the way I want to and perhaps to invest for my own future. I get that. So it’s a balancing act. But to to your point, you spent your career there, and for every dollar of your compensation, not you personally, but your co your cohort cohort brought in more than you were raising. I happen to agree with you. And so I don’t have a problem with it. I do understand people’s frustration because they feel like they’re paying taxes and they would do better with the money. I get that. But I I understand your point of view, Rob, and I get it, and I thank you for calling. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Caller Text 512 921 5888. Here we go. Carl, I read that the Social Security Trust Fund will be facing shortfalls in the twenty thirties. What will happen to folks relying on Social Security? I’m not o I’m only in my thirties. And I’m not very optimistic about the program’s future in my lifetime. Well, I share your lack of optimism. I think a lot of people believe that they’ve paid into Social Security for their working career, that they have an account of Social Security and they’re getting money back out of that account. That’s simply not the case. Social Security was designed back when you had, I’m making this up, but I’m doing this from memory also, about 30 or 35 people in the workforce for every person who qualified for Social Security. So more people were paying in than were taking out. And the other thing that happened was life expectancies in the 1930s, I believe that’s when Social Security started, was much shorter than it is today. Today you have a lot more people, the baby boomers, taking money out when compared to the number of people putting money in. And that’s why the trust fund will be will not go broke immediately, but it will be diminished. Now, the answers to solve this are very straightforward. If you follow these things, what happens is, and I’m doing this from memory, if you make more than more or less 160,000, I think it’s 160, maybe a little more, everything over that is not subject to Social Security tax. And the Social Security tax, if you’re a W-2 employee, is 6.2%. If you’re own your own business, it’s twice that. So if you either eliminate the cap or you raise the cap, you would bring in a lot more money. The second thing is given longevity in the United States, you could raise the age at which Social Security eligibility began from 65 to 70. And third thing is there is a formula each year for determining what the benefit is going to be that monthly benefit is going to be that year. And you could you could change that so that the increase would be diminished. Now, this is I’m not recommending this. I’m simply talking about the answers. But the fact is, we live in a representative democracy, and we elect people, and one of the things we like to be told is I will not touch your social security. Okay. So it’s such a popular program. That nobody wants to suggest we change the benefits. But the other side of it is nobody wants to suggest no one thinks that she can get elected to office saying, I’m going to raise Social Security Tax to protect the system. So based on my experience, is that things have to get worse before it becomes obvious and there can be some kind of nonpartisan response to rebuild up the trust fund. But if you’re in your thirties, I think the only prudent response is to is to believe there will be no social security. And this hope that it’s a pleasant surprise when you qualify for it, and for you and for everybody else to take personal responsibility for their retirement, particularly if you’re under, say age fifty, in my view. Thanks for the question. It’s time for me to take a break. It’s a great time to call or text 512 921 5888. Stick around. I’ll be back.

KUT’s Jimmy Maas [00:18:50] Money Talk airs every Saturday at 5 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 nonprofit 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 [00:19:26] This is Money Talk with Carl Stuart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl [00:19:40] Welcome back. You’re listening to Money Talk. I’m Carl Stuart, and you’re listening on KUT News 90.5 and the KUT app. I failed to mention during the first segment that you can listen to our past shows by going to KUT.org slash money talk. Right now, call or text 512-921-5888. Here’s a text from last Saturday. Hi, Carl. I have a question on whether to start receiving Social Security benefits or delay it. I am 63 years old. Do you think Social Security will run out of money? Will U.S. Government allow that happen to happen? What effect has happened to people who rely on Social Security to survive? Thank you so much. Well, I pretty much answered that before we took a break. But if I were you and I were 63 years old, I would not I take the benefit. I just don’t believe that people in your age cohort are at risk. Now we had an earlier texture who was 30 in his 30s or her 30s, and I advise that person to to not expect it. Be glad if it occurs, but plan on being your retirement being strictly on your own shoulders. And now what would happen to people if it stopped today? Well, sadly, a lot of people either haven’t or haven’t been able to save for retirement, and they have to rely exclusively or or substantially on social security. And I can tell you that I that that just is simply not going to be a problem for people who are on the benefit today in my view. 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. Here’s the text just came in. You heard it. Hi Carl, love your show. Thank you. I am old school and have always prepared our tax return each year on paper. All right. When I have something out of the ordinary, I research and then call IRS Customer Service. They have always been very helpful, so thank you. Well, good for you. I’m glad that you listen to the show, and I’m glad that you do your own that you do your own taxes. Ha! You remind me years ago, decades ago, I did my own taxes. And Sent them in, and a few months later I got that letter in the mail and I looked at the return address, and if blood could run cold, my blood ran cold because it was the Internal Revenue Service, and I had made a mistake and they were going to do whatever they were going to do. And I thought to myself, really? And the anxiety, having receipts all over the living room floor, I thought, you know, I’m going to hire an accountant. And the minute I thought that I thought, well, let’s see. As if if I go interview three or four or five locally based accountants for for a straightforward income tax situation, what is it going to cost? Well, at the moment I didn’t know what was going to cost, but what I did think about was that if the competitive marketplace works. And when you seek a professional servant, those who are similarly situated are going to charge more or less the same thing, frankly, because that’s the marketplace. And I thought, boy, I chose CPA, and boy, what a great relief that was. You hear those texts coming in. 512 921 5888. Let’s see what this is. Don’t scare me. Okay, I won’t do that. Here we go. I have heard several I have heard several times and from several sources that various administrations use Social Security Funds for other purposes. Is that true? If so, does it matter? Well, we’re out there on the edge of my knowledge. My understanding is that yes, that the revenues that come into the Social Security system are turned around and lent to the federal government, and the federal government presents an IOU to the Social Security system that they will pay back into the system when the money is available. So that’s my understanding of what occurred. And when we talk about the trust fund not being able to fully fund Social Security, it’s my understanding that it that when the government takes the money and puts it back in the into the trust fund, the demand from Social Security benefits exceeds the amount in the trust fund. So what you heard is accurate, but I suspect that that’s going on and has for a long time. So good question. Right as I say, we’re right on the edge of of my knowledge. You’re listening to Money Talk on K U T News 90.5 and the K U T app. Call or text 512 921 5888. Let’s just see here if I have any text from the past. Okay. As a Carl as a 52-year-old, what should I do with my 401k from a previous employer? It’s about 100,000. Well, because I think, and there’s a theme developing here this afternoon, I think that you need to plan on being fully responsible for your retirement, and then feel really pleasantly surprised to also have a social security benefit. So you’re 52. I I can’t tell obviously if you’re a male or female, and we assume you’re in good health. You have to plan to be 90 years old. You may not live to be 90, but you don’t want to be 88 and broke. So you need to plan on that. So you have three unknowns, and that is how long are you going to live, and what’s going to happen what’s going to be the rate of return on this $100,000, and what’s going to happen to the cost of living. I think about the only thing in there that you can say with some certainty is that the cost of living is going to continue to rise. And as you grow older, the components of your personal cost of living will change, but you’ll still have rising costs, whether that’s from medical expenses or whatever the case is. So now is the time to take risk. And long-term listeners know that I always say this because it happens to be true, there are really only two asset classes over the long term in American history, which have outpaced inflation, and that’s income-producing property, because rents go up over time, and all of all other things being equal, the values go up too. If I’m willing to to buy a property, pay the expenses, and get a 6% return at the rent minus all my expenses, and the rent goes up every two or three years, and I still get the 6% return, the math is straightforward. The value of the property goes up as well. And the other one is is stocks. And the reason is that investing in the stock market is investing in human ingenuity. And over time, the United States stock market. Has gone up. Now are there long periods of time when it hasn’t? Yes. Are there long periods of time when real estate hasn’t? Yes. Can you lose money in the stock market? You can. Can you lose money in the real estate market? You also can. But if you’re 52 years old, you have to you have to depend on the belief in historical returns. So you have a hundred thousand dollars and you had it in a 401k and it’s a previous employer. So here’s the decision. You can leave it with your employer if the employer allows that. The argument for doing that is you’ve got a menu of mutual funds from which to choose some individual or group of people who had fiduciary responsibility selected those investments. And because the plan has a number of plan participants, the cost of the plan is less perhaps than it would be for you individually because it’s sprit those costs are spread across the plan participants. On the other hand you could put the money in an IRA that’s called an IRA rollover. What you do is you select a custodian. Well the way in which you select a custodian is first determined by this are you going to do this yourself or do you want somebody to help you? If you’re going to do it yourself then you go to a do-it-yourself custodian and I I make no recommendations. The big names most people are aware of like Fidelity and Charles Schwab and Vanguard and many others as well where you open an account an IRA and then you go to your former employer and you say I want the money and the former employer has a form and they say would you like for us to write you a check payable to you and the answer is no I would not because that would cause it to be taxable income to me. And at 52 and 52 years old you’d pay income tax plus a tax penalty because you’re under 59 and a half bad deal or would you like for us to make it payable to your IRA and the answer is you bet. So it’s Charles Schwab for the benefit of in your name IRA. Now if you this is something that you don’t want to do on your own then you can engage an advisor and the advisor’s custodian whether that’s Wells Fargo or Morgan Stanley or MarePrize or whoever that advisor’s custodian then is the custodian of your IRA. And then what you should do then is explain to the advisor, I’m going to go down that path, that what your goals and objectives are. And I would suggest your goal is to make the money grow. But $100,000 is a lot of money, and periodically the stock market drops 20 to 30%. Not a lot of fun, because if you’d put this in, say the standard of poor 500 at the beginning of 2022, just three years ago, what would have happened is that the standard port 500 was down 19%, and the NASDAQ was down 33%. Guess what? If it goes down 33%, you got a big hold of it again. So you want to think about the asset allocation, which is the mix of various assets, stocks and bonds, commodities, and other alternative strategies. But you want to have the majority of your money at risk, and the reason is you want the money to grow. If you put it all in bonds or in a money market fund or a C D, it won’t grow. So you want it to grow and you want it to grow faster than inflation, and let’s just assume inflation is 3%. That’s a reasonable assumption. So it’s a pr it’s an important decision. It can be a complicated decision. So you start with, who is my custodian? But actually, you start with, I’m doing this myself, or I’m going to have somebody help me. And then you move from there. Great question. You’re listening to Money Talk. We have all of our lines and no text in coming. All our lines are available. Call or text 512-921-5888. Here is a former text. Carl, can you please explain the difference between an SCP-IRA versus an individual 401K? So not many people use the individual 401k in my experience. The SCP IRA, which has been around for a very long time, is specifically designed for self-employed people. I think that’s the SEP part, self-employed. And the reason is a traditional 401K has lots of response, lots of reporting responsibilities to the government. And it doesn’t matter whether it’s the 401k for Microsoft or for if it’s a 401k for Dan’s plumbing, you still got to participate, you still have all of those various rules to handle. So an SEP IRA is an individual retirement account. You set this up as the business owner, and you can put in a lot of money, up to 25% of your taxable income to a certain limit. Now, if you have employees, and you may not, since the way you answer the question, you have to have them give them a participation, you have to make a contribution after they’ve worked there for three years. So if you put 15% of your compensation in, and you choose to not wait for three years, you would put 15% of their compensation in as well. But the administrative costs are virtually nil, like having an IRA. That’s a primary benefit of an SEP. And also, those accounts that your employees have are individual accounts. They can invest it along with you with a custodian, but they don’t have to. They can take the money and go wherever they want to. I’m doing this from memory, you cannot put in more money among above a certain limit. It has to be a Roth 401k contribution, meaning it’s an after-tax contribution. So the bottom line is if you want to put more money in than you can do with the SCP, then the individual 401k is worth taking a look at. But they have made that change so that if you say make 250,000, maybe you won’t be able to put the maximum in pre-tax and some of it will have to be Roth. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. Call or text 512-921-5888. Here’s the text that just came in. Carl, thanks for taking my question. What’s your take on indexed universal life insurance? I’ve had some agents approaching me, approach me wanting to sell me an IUL product. They seem to be a little complex, no kidding, with monthly premiums ranging between 300 and 500 a month, depending on the face value of the policy, and any associated writers. Am I just better purchasing, am I just better off purchasing a term policy and prioritizing my money on other investments? The short answer is yes, you are. Anytime that you purchase a life insurance policy product and it has an investment component, it has to have more expenses than if you just did the investment on your own, because there’s the insurance expenses, as well as the agent gets paid a commission. These are very complicated products, and you have to have a real need for the other benefits to justify paying the same expense. Simply, let’s just assume that your Universal Index Life Insurs in the Vanguard Index 500, and you invest outside this in the Vanguard Index 500. Ten years from now, which is going to be the higher value? The one that doesn’t have all the insurance expenses. And because you’ve invested in an index fund, you haven’t been paying capital gains along the way. So it’s not that these insurance products are necessarily a bad thing. It’s just that there needs to be a reason for the insurance component. They used to say, well, you don’t pay taxes on the growth. Well, if you own passive index funds, you’re not paying you’re maybe paying a bit of taxes on the dividends of the underlying stocks, but other than that, they’re very tax efficient. So really look at this carefully and get v absolute clarity on what the operating expenses are on an annual basis and also what the expenses are for that associated with what is the agent getting paid. Thanks for the text. Looks like it’s time for me to take a break. A perfect time for you to call or text, five one two nine two one five eight eight eight. I’ll talk to Steve when I return.

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KUT Announcer Laurie Gallardo [00:37:03] This is Money Talk with Carl Stuart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl [00:37:17] Welcome back to Money Talk. I’m Carl Stuart, and you’re listening to KUT News 90.5 and on the KUT app. And if you’ve enjoyed the broadcast and you’d either like to hear it again, or you have friends who you think would enjoy it, tell them to go to KUT.org slash money talk and you can listen to all of our shows since the first Saturday of April. Let’s go to the lines. Steve, you’re on the air. How may I help?

Steve [00:37:47] How you doing, Carl? I appreciate your pro appreciate your program. Thank you. I’m eighty years old. I wish I’d have had it fifty sixty years ago. Okay. Uh ’cause all your advice is anyway, it’s really good. I have a quick question for you.

Cark [00:38:05] Mm-hmm.

Steve [00:38:06] I’m eighty so therefore I’m taking my R M Ds from my traditional R I’s. Yes. Can I roll those over into a Roth IRA?

Carl [00:38:19] Ab yes, the answer is absolutely yes. You would you take your you go to your current custodian who ha with the IRA and you a and you set up a Roth IRA and then you can convert by transferring money as much or as little as you want every year, you add that to your social that amount to your social security and any other sources of income, pensions, dividends, interests, what have you, and you pay income tax on the amount that you convert. But there’s no limit as to how much you can convert nor is there any time limit. So yes, you can absolutely do that if you choose to, Steve.

Steve [00:38:58] Okay. So well to avoid paying a lot of tax, I just if I just took the R M D. Yes. Moved it over then I’d pay what I had to for that’s true.

Carl [00:39:09] That’s true. You yeah, that’s your that’s a good point. What’s what for everybody else, what Steve’s saying is once you hit a certain age, this year it’s seventy three, you’re required to take an amount out, and the amount is determined by the December thirty first value of your IRA. And each year that’s called a required minimum distribution and you have a year, that calendar year to take out the money and it’s taxable income. So your point is you’re gonna pay income tax on the RMD anyway, why not go ahead and put the money in a Roth? And I think that’s a terrific idea, Steve. I I think that’s a great idea.

Steve [00:39:45] Okay. Thanks, I appreciate it. I got one comment about the Social Security, if you’ve got a second. Sure. I’ve given this a lot of thought over many years and I’ve been taking social security obviously for almost a decade. Right. It occur it occurred to me that one way to increase the funding of the Social Security without raising the t taxes or anything on the people who are living is take it out of the make it part of the estate tax. In other words, during the my lifetime I take out X thousand dollars from Social Security and use it however I want to. So when I die, if I’ve got X thousand dollars left in the bank, why not refund mine the entire amount that I paid in and would go into the social security account and that way no living person would be penalized but the fund would continue to

Carl [00:40:57] Interesting idea. I’ve n I’ve actually never ha I’ve thought of that before. Yeah, interesting idea. Well you’ve given it a lot of thought. You know, I you and I are pretty you you and I have been around long enough to know that they’re they’re good answers but by the time they get to the floor of the Congress they seldom occur. So we’ll see what happens.

Steve [00:41:18] Yeah, yeah. Anyway, all right. Appreciate it.

Carl [00:41:20] You bet. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the K U T app. Call or text 512-921-5888. Here’s a text that just came in. Hi, Carl, first-time listener. Loving your show so far. Well, thanks. Make it a habit. My question is, I’m not very good at understanding investments. I have not been very active for saving for my retirement. I am 31 and I want to get started. Who is a good company to use? Edward Jones is a popular company in my area. Should I use someone more local? Thanks. So, first of all, congratulations on coming to this conclusion when you’re 31. Sadly, a lot of people don’t come to this conclusion until they’re ready to retire. So you’ve you’ve determined that this is and you’re right, this is a complicated area, and that you’re not very good at it. So you’ve decided to have an advisor. I think that’s a terrific idea. And I think rather than looking at the company, I think you want to look at the individual or individuals. It’s appropriate to go to Edward Jones, find firm. It’s appropriate to go to other people as well. There are two or three things I would tell you to do, and one or two things I would tell you to avoid. First of all, I would want a face-to-face meeting if I possibly could. Zoom’s okay, but it’s not as good. If I could have, but either way, I’d start with this. When I sit down with the person, she or he ought to be asking me questions. It’s a diagnostic process, right? You don’t go to your doctor and the doctor says, Hi, take this prescription without having any idea what your symptoms are. So they ought to understand your situation, and you need to be forthright and open and honest with them. And then there are three things that you want to ask, and maybe 33 things, but for sure these three. I’m 31. What is your investment strategy? How do would you invest my money? Explain to me in words that I can understand how you would invest it. Because if they can’t do that, you need to keep going, right? Because you need an education, and part of that advisor’s responsibility is to explain things to you in plain everyday English. So that’s number one. Number two, how are we going to work together? A lot of data indicate that people, when they’re unhappy with a professional service provider, is because there was a mismatch of expectations. So you want to understand how you’re going to interact with this individual. And third, you’re going to want to know how she or he is compensated. Now, while I personally having done it both ways over 47 years, I personally prefer the asset advisory fee where there aren’t any commissions, that may not be practical if you have a very modest sum of money. And the reason is just mathematics. If your advisor is going to charge you 1%, but you’re starting with $5,000, they can’t make a living doing that. So you have to understand that. So you want to understand how they’re compensated. They need to be very, very clear with you about that. So if you go to a person, you understand what their investment strategy is and how they would invest your money in your situation, right? And then secondly, what that relationship’s going to look like into the future in terms of contact, meetings, etc. And then third, how they’re compensated. That’s how you would get started. So I think that’s a good idea, and I wish you the best of luck. If you’re listening to Money Talk on KUT News 90.5 and on the KUTF, call or text 512-921-5888. I think we have another call. David, you’re on the air. How may I help?

David [00:45:29] Yes, sir, Carl. I’m gonna follow up on one thing and then I got a a little note about another. I’m sixty-three, just for the record. Okay, so I was the one that you were talking about the when I told you about the energy stock that was hemorrhaging money real bad. You stubborn the money. I remember that. And I wait and I waited like a week, Carl, you know, not listening to Carl like I should, and it went down more, but guess what? It’s gone back up a little bit. But I did what you th and I you know, in my gut and and just for everybody, I did what Carl, you know, yeah, I I think I did the best thing. It’s it’s now over in my vanguard. So I didn’t lose the money, but I took that what I had left to put it in the vanguard. It hasn’t made as much the stock went back up, but whatever. All right, another note. I was gonna call with a question because when I’m on with my personal advisor of Vanguard, the past two meetings, he’s been nodding off and falling asleep. Thank goodness I had the camera on.

Cark [00:46:16] Oh.

David [00:46:17] I’m like, dude, I’m paying you. This is like me watching one of my students in the class. If you want to fall asleep while I’m teaching, that’s your call. You’re paying for the class or the company’s paying for it. But so I called Vanguard and I explained and I the reason I think this is important for the record is what they have, if you don’t want ’cause I said, Well, what am I getting out of this other than watching you fall asleep? I literally said that. Right. You know, ’cause I I you know, it it’s pretty serious. Right. Of course it is. I got a call yeah, I got a call from a very, very gr very, very verse young man, Charles. I said, Why don’t I just have you all the time? Well, he’s in a different program, of course. So anyway, they have a thing called digital advisor, Carl. You can you don’t now I don’t get the benefit of watching someone fall asleep on a on a monitor once a month or however often I wanted to meet with them, but I’m still getting the manipulation and the the you know the what I’m gonna call it, the tool work of my accounts behind the scenes. And that’s all I’ll I’ll I’ll I’ll I’ll hang up and and turn the radio back on.

Carl [00:47:15] Okay, thank you. You’re listening to Money Talk on KUT News ninety point five and on the KUT app. Call or text five one two nine two one five eight eight eight. Maureen, you’re on the air. How may I help?

Maureen [00:47:33] Hi, good afternoon and great show. Thank you. I had a yeah, question on municipal bonds. I’ve never purchased one. They have some now through Fidelity that are Texas uni bonds that are yielding about six point five percent and they’re federal federal tax free. They do sell above their par value, so it really makes the effective rate about five point seven six percent. Yes. Is that a good investment and is that or are there some other factors I should be thinking of before buying that?

Carl [00:48:05] So for everybody else, municipal bonds or tax exempt bonds are bonds that are issued as you might guess by governmental authorities or educational authorities. So the Austin Independent School District can borrow money by selling bonds, and the interest on those bonds are not subject to federal income tax, and if you are a Texas resident, obviously you don’t pay state income tax. So there are two or three things to consider. The the first consideration is what is the underlying creditworthiness of the bond. So for example, let me give you the good a good example when things are good and when things are bad. So a lot of bonds in Texas that are issued by school districts are backed by the permanent school fund, which is a large asset base that is in Texas worth billions of dollars and allows school districts to borrow and get a higher credit rating than they could get on their own. So the Alpine, Texas Independent School District doesn’t have a huge tax base, but if they can qualify for public for the Texas public school fund, then they get a higher credit rating. So you want to understand who’s making what entity is making the interest payments and principal. There ought to be there are non-rated bonds, but most of the bonds are rated a BAAA, triple A, whatever. The failure rate in the in the municipal bond market across the country is extremely low. And the reason is these are public purpose. I once was told that in Texas, school bonds, I’m talking now about as you know, public schools, they have to pay the bond interest before they pay the teachers. So those are really high quality. There’s also the permanent university or PUF fund that has this very similar, very big asset backing. Now, where you can get in trouble is I’ll give you an example. A lot of hospitals raised money on a tax exempt basis, and then if you follow the news, a number of of rural hospitals have gone out of business, and so the bonds failed. So you want to make sure you understand the creditworthiness. Secondly, you want to take that proposed yield. And as you apparently have already done, run it through your marginal tax bracket, the dollar and the next dollar you’re going to pay in income taxes to get the tax equivalent yield. That tells you what would I have to make in a taxable bond to be equal or better than this bond. I mean, five and a half for a tax-free bond is extremely high. Now, what you’re looking at is called a premium bond. It’s selling above a thousand dollars. That’s neither bad nor good. And if you hold that bond to maturity, you’ll get a thousand. So you might have pay a thousand fifty or eleven hundred or eleven fifty, but you’re getting more current income because if you bought a bond in today’s market at $1,000, it would pay a lower income. So you have to understand that. The other feature you have to watch out for, and this is a big deal, many tax-exempt municipal bonds have what’s called a call feature, C A C A L L. And frequently that call feature will happen with say ten years after the issuance of the bond. So the issuer has a chance to take a peek ten years out and say, you know, interest rates are lower now, we can refinance this and pay off Maureen ahead of time, ahead of time, and go out and borrow the money at a lower interest rate. So when you see a premium bond, you don’t want to just look at the yield to maturity, which is a fact, you want to look at the yield to the call, because that could be a lot lower. And when you’re looking at that, count on the yield to the call, because if rates are attractive to the issuer at 10 years from issuance, they will call that bond and the return that you thought you were going to get will disappear. So you want to know at the credit worthiness, and you want to understand about whether there’s a call feature or not, and then understand you’re paying a premium and you will get less in maturity.

Maureen [00:52:30] All right, thank you.

Carl [00:52:32] You bet. Thanks for calling. You’re listening to Money Talk on K U T News 90.5 and on the KUT app. We’ve only got about three minutes left, so let me just go to a text that came in today. Carl, is the federal government required to pay interest on the loans from Social Security? I’m referring to the IOUs. The answer is I don’t know. I I just don’t know if they’re paying interest or not. Hello, I’m a new listener. I love your show. Thank you. I have so many questions. But we’ll start with this one. In about five years, my parents, sister, and I are planning to go to Europe to visit where our ancestors came from. Good for you. I will have a senior in high school and an eighth grader. Terrific. I have student loans, but my husband does not. We have one car loan and our mortgage. No credit card debts. What would be the best way that we could save for this trip for all four of us to go that will grow over the five-year period? Side question, do you recommend any credit cards that have a high return when using? I I do not have any idea on the credit cards, I’m sorry. My view is I invest in the stock market when I have a three to five year horizon. Okay. If it’s shorter than that, historically, the odds of success, while above 50%, are not terribly attractive in my view. Also, you don’t have all the money you’re going to have. I would suggest that you invest in two index funds, one that covers the U.S. Stock market and one that covers the international market. Probably 75% in the domestic and 25% in the foreign. They’re inexpensive. You can go to Fidelity or Schwab or Vanguard, set up an account, and you’re putting money in regularly. So if the stock market goes to heck in a handbasket in the next six months, the money you’re putting in every month is getting fewer is buying more shares at lower prices. If the stock market goes back up, you’re buying fewer shares. If somebody had started this at the beginning of 2022, they’d be really sitting pretty today. I think five years gives you a chance to have a better return. If you’re worried about this, if this is just more risk than you can take, then split the money, take 60% of your money or 65% of your money, and invest as I just told you, take the other 30 or 35% or 40%, and again at Vanguard, Fidelity Schwab. And put that money in what’s called a government money market fund. You will in you will earn more than you’ll earn in the bank. You’ll have daily liquidity, and your return will go up and down depending upon short-term interest rates. But you need the money to grow. It’s going to cost to go to Europe, and with the dollar continuing to decline, which is entirely plausible, it’s going to be even more expensive to go to Europe five years from now than now. So you want to get something that has the potential to keep up with that. Thanks for the text. Well, we’re coming down to 559. It’s been a lot of fun this afternoon. I want to thank Sewa for doing a great job as my producer. I want to thank you for listening and to remind you, as always, next Saturday at 5 o’clock, not even after the news most Saturdays, at 5 o’clock, be sure and tune in to Money Talk.

KUT Announcer Laurie Gallardo [00:55:52] You’ve been listening to Money Talk with Carl Stuart. Carl Stuart is an investment advisor representative of Stuart Investment Advisors. And this is KUT and KUTHD1 Austin.

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