Money Talk with Carl Stuart

Carl Stuart takes caller and text questions on the national debt/Social Security crisis and about not letting taxes drive decisions.

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 [00:00:20] Welcome to Money Talk. I’m Carl Stewart and you’re listening to KUT News 90.5 in the KUT app. 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. It’s always a great idea to call or text early in the show. You heard the one coming in just now. Giving me, hopefully, an ample opportunity to do my best to answer your question. I take today’s calls first, and then today’s text, and then previous texts that I have not had the opportunity to answer. So let me give you that number one more time, and then we’ll look up that text. Five, one, two, nine, two one, five, eight, eight eight. Hi Carl, truly enjoy your show, thank you. The Wall Street Journal recently reported U.S. Debt is now greater than the country’s debt. How long can this go on? How worried should I be? I think what you’re referring to is looking at the overall size of the economy, gross domestic product, I think it is, and comparing that to debt. And how long can that go on. I would tell you that I don’t know of any serious economic expert whose opinions I read, who think that this can go on in perpetuity. So we just start with that. But we have this remarkably good fortune being the world’s largest economy, that the dollar is the world reserve currency. Now there are countries that trade barter, they may trade grain for oil or something else like that. But there are no other currencies that have the liquidity and the depth that the dollar does. Not the yen or the euro or pound sterling. And the Chinese yuan is not free-floating and so that won’t work because they keep it in a narrow band to support their export-based economy. So I would tell you it’s going to go on for a long time. And just based on my life experience, we won’t do anything about it until it becomes painful. What would that pain look like? If the government discovered that when they went to sell their regular treasury securities and they had a failed auction or they had to pay sharply higher interest rates to garner interest, that would probably cause a huge crisis around the world for that better. But when things get really bad from time to time, like the global financial crisis, you can ask yourself, what did global investors do when it looked like the financial system was coming apart? They bought treasuries. In 2008, one of the best performing asset classes was US treasurys. So I’m sadly tell you that I think this can go on for quite a while, and that I think our elected officials in Washington know this. And no one wants to stand up on the floor or the Senate and say, let’s cut Social Security or Medicare or Medicaid or let’s all these other entitlements. And when I use the word entitlements, that’s not a pejorative because they are in statute that people are entitled to those benefits, right? And so as long as this goes, it goes on, you know, used to be that we had actually back during the Clinton years, which was not all that long ago, we had a surplus. But we’re going in the other direction. Should we be concerned about it? The absolute answer is of course we should. Should we talk with our elected officials? Yes, but the fact is when you look at the government budget and you look when you add up the Social Security, Medicare, Medicaid and interest on the debt and defense, there’s very little left that could, we always like to hear people talk about. We may not like to hear him talk about waste, fraud, and abuse, but the fact is that those programs, which are mandated to a degree, take up the vast bulk of the budget. So I don’t think that we’re going to have discipline because it’s the right thing to do. I think we’ll have discipline when we don’t have a choice. Thanks for the question. You’re listening to Money Talk on KUT News, 90.5 and the KUT app. Call or text 512-921-5888. Let’s see here. Now, I just heard that text come in, but I don’t see it here, so I’m just gonna go, here’s one from a previous broadcast. And this is interesting because if you follow the financial markets, you know that SpaceX had its initial public offering, and there’s a question about that. But what I’m gonna do is go back to the first text that we just got. Hi, this is JJ, and thanks for reading my question. You’re welcome. My question is about a Roth IRA contribution as a sole proprietor. Is the amount I’m able to contribute based on my gross or my taxable income, and how do I figure this out before filing taxes? It’s based on your taxable outcome. And let me just, I’m gonna read this to you here. I was looking at this before we went on the air to make sure that I give this to ya accurately. Roth IRAs are the lesser of compensation, or $7,500. And you can do this if your modified adjusted gross income is less than $153,000 a year as a single taxpayer, or $242,000 if you’re married violently and jointly. And it phases out over time as your modified adjust your gross income goes higher. So it’s an income number. It’s not a revenue number. So how do you figure this out? Well, you’ve got your sole proprietor, you’ve an income statement, you know what your revenues were for 2025, you know where your expenses are. If you had a net gain, and that is if you had profit, that’s income. And it may be that it’s at such a low level that you don’t have a tax liability. The way this reads is you can have, as long as you have income. And you can put up to $7,500. If you have $5,000 of income, that’s all you can put in. If you have $10,000 income, you can put in $7500. That’s my understanding of it. And as I always say, I am not a CPA. You’re listening to Money Talk on KUT 90.5 and the KUT app. Oh, and by the way, you can catch past shows at KUT.org slash Money Talk. We have all of our lines available. 512-921- 5888 so I was going this question came in last week. I’m not I really don’t want to own SpaceX How can I avoid ownership if you are a member of the teachers retirement system? Or maybe it doesn’t matter so much in that regard because in that situation they’re taking most of the risk Well, I think let me answer that in a broader sense. I understand because TRS is a defined benefit plan You put money in on a mandatory basis, but they take all the investment risk because they make promises to you for lifetime income once you qualify. So SpaceX, based on my reading in the last few weeks, at least a couple of indexes, I think NASDAQ and maybe one of the Russell indexes anticipate putting SpaceX in the index, adding it to the index. Generally speaking, these companies, these people who operate the indexes, want to have a little, what they call seasoning, where a new company, and I might say a new company, an initial public offering, would trade in the market for some period of time before they would add it. However, I think I read that Standard& Poor’s, it’s not going to immediately accept SpaceX, but I think that the NASDAQ may actually do that. You’re listening to Money Talk on KUT News. 90.5 and the KUT app. Call or text 512-921-5888. Here we go. Looks to me like. Let me get this, here we go. Looks like the person is typing, so I’m not going to try to wait for that. On live radio, let me give you this information. I get this information once a month. It’s the Austin Metro Area Residential Real Estate Market Snapshot for the previous month. So this is for May, and there are six or seven different, if you will, benchmarks that I think is useful. And just to understand what’s going on in our local market. So for May, the median sales price was $446,000. That’s down about seven tenths of 1% from where it was a year ago. The median sales prize per square foot was $212. That’s done about 2.8% over a year. The total number of homes sold was 2,595 homes. That’s up. 6.8% on a year-over-year basis. The median days on the market, 88 days, and that’s up 10% year- over-year. And I’m not a math major, but these are not averages. These are medians, right? So that means that half of the homes in the market were on the mark for a longer duration than 88 days. And half of homes were for a lower duration. The supply of inventory, that’s about 5.9 months. That’s down 7.8% year over year. I’ve always read that a six month day supply of inventory is considered healthy. The number of homes who sold above list price was 9.4% versus what they were a year ago. And new listings were 3,746 and that’s just flat down two tenths of 1% with last month. You’re listening to Money Talk on KUT News 90.5. And the KUT app. Call or text 512-921-5888. Hi Carl, what do you estimate the probability is that social security would be cut by twenty five percent in the future? Thanks a lot. So I’m trying to think of a date. It’s very soon that the incoming revenues will not pay the outgoing expenses of Social Security. Uh, and that’s coming faster. I just can’t, the date was moved forward recently by a few months. Uh, it’s relatively soon. I want to say it’s more than five years, but, but less than 10 years from now. And what do I think it will be cut? I think they’ll do this. And of course I’m just speculating. I think people who are over a certain age will get their full benefits. Sadly, a significant number of people in the United States depend entirely on social security. And I think there’s not going to be anybody in Congress who’s going to suggest that we just not let those people, you know, be able to eat. And so I think what will happen is there’ll be some kind of line drawn and people under a certain age will not get the same level of benefits. That’s one, I think, plausible solution. Another one that’s actually fairly simple, and it doesn’t seem to me like it would be politically difficult, is right now, this year, if you make more than, I think it’s $180-some thousand dollars, none of that above that is taxed as Social Security. So if you made more than that, and you were paying 6.2% on that amount, Let’s say you made $250,000, the extra $70,000. You have to pay an additional 6.2%. That’s over $4,000 more. Your employer, if you’re employed, pays that same amount. If you’re self-employed, you pay the amount two times. We could change the limit subject to social security tax and that would bring in a lot of money. I think that’s one. Another one is that we could postpone the full retirement age benefit. I’m a little skeptical of that, frankly, simply because I think it’s around 67 now, and yes, people are living longer, but not everybody’s living longer. And I just have this sense of people who are really going to plan on living on Social Security, where they have had really difficult work lives, physical labor, they’re ill. It’s hard for me to imagine that we’re going to tell them that they can’t have Social Security until they’re 72 or 73. Um, and then I think also the one that may come that will be controversial, and it may be means testing. It may be that the system will become so difficult and so precarious that Congress may have to say, you’ve paid in a certain amount, thank you very much, but you have made high income, and we’ve got a bunch of people here who don’t have any retirement savings. So I think the odds of it being cut by 25% in the future. Frankly are really quite low although. I think it could be that we’ll have those things that I said that I just suggested You’re listening to money talk on KUT news 90.5 and the KUT app call or text five one two nine two one five eight eight eight so This comes up from time to time I’m gonna bloviate about it unless you call or test five one to nine two 5888. There is this tax, what happens is when you’re on social security, I believe that’s the way it works, no I’m wrong. When you are on Medicare, you have certain benefits and then you have what’s called Part B and you pay insurance on that, insurance premium. And my understanding is that you either pay it or once you get on Social Security, it’s debited from your Social Security payment. That’s my understanding. And it’s a frustrating thing for a lot of people, and if I bloviate later, I’ll get into that. You’re listening to Money Talk on KUT News 90.5 in the KUT app. Call or text 512-921-5888. I am a 68-year-old man retired with a spouse who is eight years younger than I am and still working. We are considering. Long-term care insurance from me or her. Can you give me your opinion of use it or lose it? Long-term insurance versus an annuity with long-terms care rider versus a hybrid long- term care that may be available at some insurance companies. Well, this is really complicated and frustrating because long-time care insurance is extremely expensive and the benefits are really pretty narrow. And to go back in history, I actually remember when long-term care first came out. And… The insurance industry, frankly, made mistakes. They didn’t know, because they hadn’t existed before, how long people would, how many people would use it and for how long they would use and what it would cost. If you think about it, life insurance is priced very efficiently because insurance companies have years and years of data, so they know how many are gonna die, they know them by gender, they just don’t know them name, right? And Long-term care had all these uncertainties, and fairly quickly, they started losing money. There was a big one with Connecticut General, they just said, that’s it, we’re not gonna do this anymore, we quit. We’ll pay the benefits of the people who have the policy, but we’re getting out of the business for future. And I think Genworth, which was owned by General Electric, I believe, they got out of their business. So what’s happened is, because long-term can be so expensive, and You’re going to pay a really high price for this. And the majority of people don’t use it, frankly. That doesn’t mean that you won’t. And secondly, it’s for a relatively short period of time. I mean, we know what the worst case scenario is, which is because you’re older than your spouse and you ended up with, say, dementia and you own your home and you have to go to a facility and now you’ve got. Money for the price for the facility and you also have the you know running the household yes the question is is that use it or lose it better than taking the other with the rider i’ve been what based on my reading i’m not an insurance expert i believe the insurance with the rider is probably less attractive than just the long-term care but i don’t think either of very attractive. Self-insurance. Uh… If you have the resources would be better now i understand long-term care is also what i would call a psychological purchase some people have it because they need that to sleep nights i’m older than my spouse i don’t want to be a burden to her to him and frankly carl i don’t know what it matter what it costs i didn’t i’m gonna buy it and then just by the long-terms care insurance don’t buy the insurance with the rider But I would tell you that if you have other savings I would work out the numbers before I made the decision to buy the long-term care. Thanks for the question. You’re listening to Money Talks. Time for me to take a break and be a great time for you to call or text 512-921-5888. I’ll be back.

Jimmy Maas [00:19:15] 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 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 [00:19:51] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:20:05] Welcome back. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. We’re here this afternoon and if you’re listening to the podcast, it’s not this afternoon. Call with your questions or text me. We haven’t had any calls today. Last week we had a bunch of calls. So the lines are available and I will tell you that what I like about calls is that it helps me in this diagnostic process. Sometimes with just text. I have to kind of guess at your personal situation and context. 512-921-5888. Okay, let’s go to the text. Help. I’m a healthy 79-year-old. Almost all my money has been in stocks with a large national investment firm for many years. This company had and continues to make me a lot of money, congratulations. I know I’m supposed to go more conservative, but I’m afraid to jump off the money train advice. Well, first of all, you have an interesting problem that I wish more people had. Because it’s common, you know, money talk, I’ve been doing this on the air for over 31 years. I get calls and texts, I’m 63, I’m gonna retire in two years, I think maybe I’d better put all my money in CDs. The problem with that is you can outlive your money. So I’m glad that you have been making a lot of money. I do think at 79 that it would be prudent to have a more diversified portfolio. Since you’ve been making a lot of money, you’ve probably created a lot of long-term capital, unrealized long- term capital gains. So those are going to be taxed at a lower rate than your income. I would start this way. I would talk to your advisor and the first and most important decision is what’s the right asset allocation for me to help me figure out how much in stocks, how much and bonds, how much in cash, how in alternative investments. That’s a wise and prudent thing to do. We’ve had three now, three and a half good years, three terrific years and this year so far is a darn good year as well in the US stock market and now the last year and a half in the international market. But, Based on history, the stock market doesn’t go up every year, and frankly, I’ve done some studying on this. In the four-year presidential cycle, historically the weakest year is the one we’re in right now, more so than the general election year. So I think your question is coming at an opportune time. I would think you should cut back on your equity allocation. If you choose to put the balance or sum of the balance in bonds I would not recommend one bond fund or one bond ETF. I would recommend three. I’m just using the Morningstar categories, a short term or ultra short term, a core bond fund and a multi-sector fund. And your advisor can look for representations of those three different ones. I don’t think you’re in a need for cash probably. So a money market fund may not be appropriate. The question I would further ask my advisor is, are there investments who’s, based on history, their return profile, how they perform, are there investment that perform differently than the stock market? In other words, when the stock goes down, do they either hold value or go up? Because that’s what you’re looking for there, it’s not just diversification, but you’re also looking there for correlation. So I’ll give you an example of what not to do. High yield bonds have a very high correlation to stocks. So if you’re trying to take some risk off the table, buying high yield bonds when you sell stocks is not a good idea. Buying investment grade bonds when you sell stock is a good ideas. It doesn’t always work. It didn’t work in 2022, but by and large it does. I think you also ought to talk to your advisor about what she or thinks about gold. I’m talking about small position an exchange-rated fund and some alternative strategies. I would go about that and I would tell you, because you’ve done so well, if you don’t want to do it all at once, that’s perfectly reasonable. We talk about dollar cost averaging where we put money in a bit at a time every month or every six weeks. You can take money off the table a bit a time also and dollar cost average into these other investments, but I think it’s 79. I think that’s what I would do if I were in your shoes. Thanks for the text. You’re listening to Money Talk on KUT News 90.5 and on the KUT app. And you can catch past shows at kut.org slash Money Talk. And we have a call. Peter, you are on the air. How may I help?

Peter [00:25:13] Well off that one question carl the uh… Space x i p o uh… Set from the rather interesting but i heard and i don’t know if you can confirm this that there’s a restriction on when you can sell the which is not

Carl Stuart [00:25:27] Yeah, that’s that surprises me. I think there’s a restriction for the people who got shares because they worked at SpaceX. And I think that’s the difference. 20% of the of the shares that were sold were sold to individuals. And the day the day that it started trading, it would go up and down and up and down. So there had to be sellers, you know, to me, I happened to just catch CNBC. Because I was in an airport and the price would share would you know fluctuate by the second and just logically There got to be sellers to accomplish that so I didn’t read anything about public people in the public being restricted I I personally cannot remember in my 47 year career that I’ve ever seen You buy shares in the open market. You’re not an insider. That’s a legal term You didn’t work for SpaceX, or now you work for them. If you buy those shares free and clear, my understanding, and you want to talk, you may want to, if you do this yourself, call somebody, whoever your custodian is, Fidelity or Schwab, if have an advisor, call her or him. But I’d be surprised that anybody in the public who’s buying them in the open market, I would think you’d have full flexibility to do whatever you wanted to do, Peter.

Peter [00:26:47] Not my understanding was that it was for the institutional

Carl Stuart [00:26:50] Yes.

Peter [00:26:52] Morgan Stanley bought some, they offered up, I don’t know if we were interested, but you can’t sell it right off the bat, so there was no day trading on it.

Carl Stuart [00:27:00] Yeah. Yeah. I don’t know. That may be unique to this situation. That part. I don’t know, Peter. I’m sorry.

Peter [00:27:05] Alright, well that answers my question, thanks.

Carl Stuart [00:27:07] Okay, thanks for calling. 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. Carl, I am a bit paranoid with the war on. What are good recession resistance stocks? Charles. Okay, so. Basically, if you think about a recession, you then have to think a few steps along that process. Is a recession going to result in slower? By definition, it means the economy is weaker. Now, right now, the economy, we have full employment, and we’ve been amazingly robust in spite of rising energy prices. The two big areas that have been driving the stock market are artificial intelligence related to companies, and people are seeing more and more of those, oh, this company’s related to, not just Nvidia, and energy stocks, not surprisingly, given the closing of the Strait of Hormuz. So historically, defensive stocks tend to be more stable companies. One group that comes to mind is consumer non-durables. You know, the Coca-Cola’s of the world, because they just don’t fluctuate a lot. You know the consumer facing companies would be a place that you would go that would be more defensive. Probably electric utilities, because their business while regulated is steady, and they pay dividend. In a recession, The Federal Reserve lowers interest rates. And so anything that would have a high dividend, like real estate investment trusts, tend to do better. But if it’s a deep, like happened in 2008, then that hurt everything. And so I think that’d go consumer non-durables, lower interest rates, maybe financials might be a place to consider as well. But if they’re really gonna be a recession. And the recession comes along with lower interest rates, adding to a bond portfolio would be a wise and prudent thing to do, because the Fed would lower interest rate and then bonds would go up in value. So I understand you’re a bit paranoid. What I’m fond of saying is, if you’re not worried, you’re paying attention. So those are best guesses on my part. You’re listening to Money Talk on KUT News 90.5. And the KUTF. Call or text 512-921-5888. Hi Carl. What’s your opinion of insurance annuities? I’ve been offered an annuity paying 5% with a five-year contract. What’s you opinion regarding tax-free municipal bonds? I’ve encouraged to purchase such paying 4% with well-rated municipalities. Yeah, okay, two very different investments. Let’s start with the second part. Municipal bonds as an asset class have a long-term terrific track record of not failing and as long as you stay with high quality bonds the odds of you losing money unless you sell the bonds or the bond fund in a rising rate environment are very very low. You want to make sure that you’re in a sufficiently high, what we call marginal tax bracket, because that will tell you what your after tax or the comparable tax return is. So you want to do the math or have your advisor on that. Annuities are illiquid assets, and the insurance company will offer you a rate. They’re in business to make a profit, and so they’ve got to have your money long enough to make back. What they’re paying you and still have a profit. This sounds like a fixed annuity, probably has a surrender charge. So if you want your money out, you’re going to pay some money out just because they want to keep it and you may have a possible 10% a year of the value taken out. What you’re doing is from a tax standpoint is you’re basically kicking the can down the road. Because the municipals are going to be tax-free, and if you’re a taxless resident, there’s no state tax. The annuities, that money’s growing in there at 5% without any current taxation, but if you take, when you take that money out, if you are over 59 and a half, you pay income tax on it, right? So it’s a tax-deferred type of investment. I’m not a big fan of a lot of different kinds of annuaries that have all kinds of bells and whistles like so-called index annuities. However, if this is just a straight fixed annuity, as long as you have confidence in the insurance company and you like the tax deferral rather than the tax-free, then I don’t have a problem with it. If you don’t need the income, buying a quality intermediate term, or if you can too, a short intermediate term tax exempt municipal bond fund, and you get these tax- free dividends and you reinvest in it at no cost to yourself. You end up compounding that growth. I like that better than the annuity as long as you have sufficiently high taxable income. Thanks for the question. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Renee, you’re on the air. How may I help?

Renee [00:33:18] Hi, I’m calling because I bought an annuity, not an annuities, sorry, I was listening to the radio, to what you were just talking about. I bought a timeshare in April and instantly regretted it, but I did not regret it in time to exit during the rescission period, so I do want to exit. I think maybe there’s a way to do that, and I figured I’d see if there are any option.

Carl Stuart [00:33:46] So I really I guess I should say fortunately I’ve managed to lose money in every conceivable way Renee But this is when I this one I overlooked

Renee [00:33:54] I managed to find it somehow. Well, I shouldn’t even say somehow. It was at the mall. Oh, gosh. There you go.

Carl Stuart [00:34:01] There you go. Well, I’ve just read these horror stories that, you know, it was just like the cockroach motel. You could check in, but you could never leave.

Renee [00:34:12] Yeah, that’s what I’m nervous about, and I think the fees are probably going to go up every year. I already learned, you know, if you book something and then cancel, there’s a cancelation fee, and if you don’t cancel within a certain period, like say if you cancel too close to the date, you’re going to stay there, that cancelation fee goes up. So based on that, I know that this is not a good idea.

Carl Stuart [00:34:37] Yeah, you can, I would tell you this, you would do exactly what I would do. I’d get, get your friend, your two friends, chat GPT and Google.

KUT Announcer: Laurie Gallardo [00:34:47] Yeah.

Carl Stuart [00:34:47] Uh, and, uh, and see what they say because there are companies that will pay you to get out, but they’re looking for a certain rate of return and they’re not going to pay you anything close to what you paid in. So I think there’s a two, there’s two part step. One, see if you can identify, uh companies that specialize in buying time shares. And then the worst that happens is you contact them. And they’ll tell you what they’ll pay you for it. And you can either bite the bullet and say, well, that was a learning experience, take the money and run, or say, no, that’s just, I’m not willing to take that kind of loss, but there’s no public market. There’s no mutual fund that’s gonna buy it from me. There’s not public company that’s going to pay you what you paid for it, so you just have to do some homework to see if you can find companies that do this, and then just… You know see what they bid and then make your decision I’m gonna I don’t you know, I don’t want to look back on this and own this thing ten years from now I’m just gonna accept the fact I made a mistake Taking my beating and move on down the road or nope. I’m, just gonna keep it, but it’s gonna be a process It’s not gonna be easier tonight

Renee [00:36:04] All right. Good to know. Well, thank you.

Carl Stuart [00:36:06] OK, you’re welcome. Good luck. You’re listening to Money Talk on KUT News 90.5 in the KUT app. I remember I’m not even going to tell you how many decades ago this was, but we were youngsters. My wife and I were in our 20s and we were in Madrid, Spain. My wife was a school teacher and she had some summer months off and we went to Madrid, backpacked in Madrid. Some of you older listeners will remember that lovely book of Europe on five bucks a day. Yes siree, well anyway, we’re walking along, we must have looked like total tourists, and some nice person walked up and engaged us in English, we were in Madrid, offered us a tour of the city for nothing, how can you possibly go wrong on that? So we did it, and the tour ended up at this one large room where people were sitting around at desks and you were told to sit down at the desk and you got the hard sell for the timeshare. It’s funny, Renee just reminded me. I haven’t thought of that in a hundred years. Luckily, uh, we didn’t have any money, so it was easy to turn them down because we couldn’t have bought it if we wanted to, you’re listening to money talk on KUT news, 90.5 and the KUT app, call or text 512-921-5888. Carl, love the show. Thanks. I think you’re right about the national debt. In 1967, Abba Eban, I remember him, Israeli diplomat noted, men and nations behave wisely when they have exhausted all other alternatives. It’s like Churchill said about the Americans. The Americans will always do the right thing, but only after they’ve tried everything else. Well, it’s time for me to take a break. We have our lines available. Call or text 512-921-5888. I’ll be back.

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KUT Announcer: Laurie Gallardo [00:38:42] This is Money Talk with Carl Stewart. Call or text him with your questions at 512-921-5888. Now, here’s Carl.

Carl Stuart [00:38:56] Welcome back. You’re listening to Money Talk on KUT News 90.5 and the app. When you have a financial or investment planning question, give me a call or a text at 512-921-5888. Here’s the text. Carl, I have been lucky enough to accumulate a lot of stock which has grown a ton in value, many from restricted stock units. I’m afraid to sell it because of the tax hit. I’ll take based on the But I’m sorry I misread that based because of the tax hit I’ll take based on the additional earnings it would add for the year. So I’m already near the top bracket. Are there any tax incentivized ways to go about selling so I may diversify or is it just down to long term investments and more money more taxes. So I should just pull the bandaid yes rip the band aid. That’s what my colleague and daughter Lindsey says. Yeah, I think first of all that I believe forever, there’s always been a distinction between the sale of capital assets held for a year or longer, and what we all call ordinary income from work or dividends or interest. And I suspect that you’re probably going to have to rip the bandaid. The top bracket in this weight, you know, if you’re total, it says 20 percent, but I think they add 3.8 percent on top of that. Which you’ll probably pay 23.8, but if you’re paying 35 or 37% tax, that delta is still pretty significant. If it were in one stock, because of the restricted stock units, there’s a strategy out there where you can put your stock in, let’s just say the stocks, I don’t know, Apple, you can put it into a specific type of investment that becomes part of a broader diversified investment. And you’re putting it in, when you’re doing it is you’re kicking the can down the road about paying the taxes. Because when you sell that investment, obviously what you will have is a tax liability. You’re getting diversification and that’s for people who have huge concentrated positions. But I would tell you, I’d look at the tax bracket and if it’s got a lot of money and… It’s gonna keep your income above 250 every year for the next several years. And you’re looking at a stock market that’s had a terrific run. I’d just get, you know, take that bandaid, rip it off, I think, that’s what I would do, and be grateful that you’re in a position where you’ve made all this money. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text, 512-921-922-512-5113. 5888. And we have a call. Timmy, you’re on the air. How may I help?

Timmy [00:41:55] Hey, good afternoon. I have a question. My two children recently inherited some money from an IRA, from a deceased family member. And because they are minors, we’ve been, over the past few years, been taking the minimum distribution and reallocating that money to an UGMA account for the children. And so my question is, is it better to just fully withdraw all those inherited IRA funds and just make it transfer over to the UGMA account in one big go, or is it better to do the little by little minimum distribution over a long time?

Carl Stuart [00:42:33] Yeah, great question. So for everybody else, when a person has an IRA, they have to have a state of the beneficiary. If they’re married, it’s their spouse unless their spouse signs off on it not being. But when you inherit an IRA from a person who’s not your spouse, that’s called a beneficiary IRA. And that’s what Tim is talking about. And the rules now because it didn’t used to be this way, is you have 10 years to take the money out. And so the question then is, you’re turning around, and I don’t know if you’re putting in an UGMA or an UTMA because a Uniform Gift to Miners Act is their money at 18 years of age, is my understanding. And the Uniform Transfer to Miner’s Act, it’s their control, it’s our money already, the control to 21. So the only thing I can think of, because it’s a custodial account, and it’s there money, but I believe that the income uh… Is taxed at your rate and so this really comes down to kind of a tax planning situation uh… Either you can do this or sit down with the tax professional and run through the hypothetical what would what if we took all the money this year would that be more taxable would it put the put them in a higher bracket you in a higher bracket if not you can just take it all now if it’s going to thrust you into it. If you go from a 22 to 24% bracket, I don’t think that’s a big deal. If you got from a 24 to a 35, that’s big deal, and so you wanna run what it would do to the tax liability, and then you can decide whether to take it rateably over time or all at once, and that’s significant enough. I think you oughta get some professional advice on the tax consequences, and that really seems to me to be the real and only question, Timmy.

Timmy [00:44:26] Okay, yeah, thank you. I’m just getting tired of paying professionals that do those taxes every year, to be honest.

Carl Stuart [00:44:32] Well, that, you know, then just as long as it’s not going to cost you a whole bunch of extra taxes by taking it all in one lump sum, go ahead and take it out because they’re going to pay taxes eventually anyway. Right. Okay. Well, thank you very much. You’re welcome. You bet. Thanks for calling. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Mark, you are on the air. How may I help?

Mark [00:45:03] Yeah i carl i had a question uh… My daughter recently graduated from st edwards last month and i think together a couple thousand dollars that i want to put together i had to come back about i think that’s been or growth tool that you can kind of leave off the side and use down the road when she needs it and i wondered if you had a good suggestion for yes that money to work out on the bus

Carl Stuart [00:45:27] So she’s young and she doesn’t need the money now, and you can give her the money. She should open an account, and she’s obviously at her age, she’s very tech savvy. Tell her to go to the two or three large do-it-yourself custodians, Fidelity and Schwab and Vanguard. She can do her homework. I recommend that she buys something called an exchange traded fund uh… And that by that owns this total stock market uh… So it’d be an exchange total stock-market exchange traded fund very very cheap uh… In their very tax-efficient uh… End it will based on history overtime grow uh… I’d like for her to get two of them but i’m not sure two thousand dollars will be adequate if she if it’s if she can’t do I would do 75% in a total stock market and 25% in total international stock market with stock with companies outside the US, but with 2000, she may not be able to do both. And if that’s the case, the total US stock market exchange traded fund, they’re available from all three of those companies. And just see if there’s a minimum to start, choose the one that’s most easy for her to do. And that’s what I would do, Mark, if I were in your shoes.

Mark [00:46:49] OK, great. Thank you.

Carl Stuart [00:46:50] You’re very welcome. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888. Let’s see what another text is. Carl, my mom is 92 and in good health. Terrific. We are reviewing her assets and she has a mutual fund with a $30,000 unrealized loss. Uh oh. Should we consider selling the fund so she can take the tax advantage of the loss and avoid a future step down in an inherited basis? Yes. Well, that’s smart, Craig. I mean, she can the loss, and I suspect you know this, she can offset other gains, then she can off set $3,000 of taxable income, and then the loss can be carried forward. And for everybody else, what Craig’s talking about is. When you own capital assets, real estate, stocks, bonds, mutual funds in your own name, okay, not in an IRA, in your name, and you pass away, your beneficiaries, remember, this is not an IRA. Your beneficiaries get what’s called a step up in basis. But in this case, with Craig’s mom, it’d be a step down in basis, so let’s just go through this. So let’s say that she has a mutual fund worth $70,000. And her cost basis is $100,000. If she were to die and Craig were to inherit this, he would then have a new cost basis at $70,000, and if she sells it now, then she has that loss that she can take advantage of. So just based on the way you’ve articulated your question, I think if I were in her shoes, I would do that. Frankly, I think it’s a pretty good idea. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Call or text 512-921-5888 and you can catch past shows at KUT.org slash Money Talk. Carl, my understanding is that you are allocated SpaceX shares to buy at the IPO price from your broker. You’re restricted on selling those for something like 45 days. Like you said. If you bought them in the open market, you can dispose of them anytime you want. Good, thank you. So I didn’t, you know, I don’t do that kind of stuff, so I’m really glad that you told me that. Okay, here’s another one. Carl, I hope this makes sense. So do I. I have an Alliance Endurance 15 annuity. The contract date is June 3rd of 2009. This year, ending accumulation value is $61,800. The enhanced ending value is $81,000. I started drawing 10% per year about three years ago. This past year was $9,800. So when I began, I had $98,000, do you think I should stay with this idea is the amount of enhanced value worth hanging onto the policy or taking out the $61,000 and investing in something else? I don’t wanna pay possible taxes if I were to withdraw all of it at once. I’m basically poverty level with my income. I only have this withdrawal, my Social Security, which is about $14,000, and some interest from savings accounts. So I don’t usually ever pay income tax. I don’t make enough. So should I stick with this? Also, with this policy, I’m wondering which index allocation I should choose with the new year beginning. Honestly, I didn’t even know this was a thing or what I had chosen. I’ve included a pick of the choices. Please advise, Julia. Wow. Well… Ah, well, this is one of the things that drives me about, this is a complex investment and you weren’t. Adequately insured by your own definition when you did it. And it’s expensive to get out of. And because of the way you describe yourself, I’m reluctant to tell you to get out of it because I don’t want you to get into something bad or be taken advantage of. I would tell you this is expensive. What you don’t see are the internal costs of this and that’s gonna make it, if you just were If you were confident that you knew what you were gonna do with it, and you took this money, you cashed it in, you only pay taxes on the amount that exceeds what you put in, okay, you could make another investment in a balanced portfolio of stock and bond exchange traded funds. And based on history, obviously, I’m not gonna predict the future. I think you’d be better off. You wouldn’t have a big tax liability. I think it would grow, and you lose that 10% per year withdrawal, you can take out however much you want. I like the idea of cashing it in and reinvesting it. But the way you describe yourself, I’m concerned that if you do this, that you might fall prey to somebody who’s gonna put you in something you shouldn’t be in. So I don’t have, I don’t have a comfortable answer for you if you have people whom you trust. Who you believe have knowledge, experience, and judgment. Before you do anything, talk with them. I don’t like this investment. I’d like to see you get out of it, but I don’t want you to get out if it’s gonna put you in trouble in another way. So good luck to you. You’re listening to Money Talk on KUT News 90.5 and the KUT app. Got another six or seven minutes if you’ve been thinking about calling or texting, now would be the time to do so. At five, one, two. Carl, a follow-up question on annuities or municipal bonds. Is it wise to take some money in an IRA account and buy an annuity as part of an IRA? Probably not. I would tell you in my 47-year career, early in my career, the variable annuities, which weren’t these fancy index and enhanced life benefits and all this hoo-ha, people were so, if a person was so risk averse that she or he was very scared to invest in the stock market, it was in an IRA, they weren’t gonna take the money out for 25 years, and they could invest in really high quality stock mutual funds, doing an annuity. Because it had a death benefit. So they knew that if they died, that their beneficiary would either get the market value or their original investment, whichever is higher. Those were very simple, probably okay. But if you look at this and you say, if you buy an annuity as part of an IRA, or you just took that money and invested it, So apples to apples, let’s suppose that you’ve got, you could buy an annuity with a really robust set of investment options, stock funds and bond funds. You could do that, if you did that outside the annuity, 10 years from now, it would be worth more than if you bought the same securities inside the annuity because the insurance company gets paid, and that’s not evil, that’s just the way it is. And so. I’m not a big fan of buying inside the annuity, unless there’s some benefit, some emotional benefit to you of doing it inside an IRA, I guess I’m just not really a fan of that. 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. Carl, sorry to hear about the lady who bought a timeshare. In the late 60s, my wife and I were on our honeymoon in Acapulco. Uh-oh. I had one year of college left, and my wife was getting ready to start a teaching job for $300 a month. Whoa! We spent everything we had on the wedding and honeymoon. I tell you, the same kind of financial planning I did. No money left. In the lobby of our hotel. We were approached by a nice young lady, who invited us to go to a bullfight and have lunch. Boys, does this sound familiar? As it turns out, the lunch included a pitch for some Swampland in Florida. It took several responses, but we finally convinced them we had no money. Ha ha ha! It wasn’t much later that Disney announced the building of Disney World in the area where they were going to sell us the property. Might have missed my big chance. Yeah, well, that’s a little bit like going to. Las Vegas putting all your money on red 25 and it shows up red 25. I mean, it’s plausible, but it sure as heck isn’t likely. That’s a great story. You’re listening to Money Talk on KUT News 90.5 and the KUT app. I’ve got about two minutes of bloviation here. I’m going to tell you this thing called Irma. And here’s what people get all worked up about around the axle. If you are great have if you have lesson $218,000 of a modified adjusted gross income, the Part B insurance premium that you pay for Medicare is zero. Once you get above $219,000 to $274, it’s $81 a month. Here’s the one that drives people nuts. The minute you get about $275,000, the premium goes from $81.20 a month $202.90 a month. All the way up to $342,000, and then it jumps to $324,000 and then $446,000 and then 487, yes, I understand that. And if you plan your income when you are on Medicare in such a way that you don’t jump a big amount, well, yeah, I think that’s a terrific idea. But in my view, this is like the person who had the techs that had the big gains in her or his investments. It’s an old phrase and I really believe this. You do not let the tax tail wag the dog. Don’t let the taxi tail wagged the dog, you hear the music in the background. I wanna thank you for listening. I think I’m gonna thank my producers for doing their usual terrific job. And to remind you next Saturday at five o’clock, be sure and tune in, do money talk.

KUT Announcer: Laurie Gallardo [00:58:00] 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.