Episode summary
Could You Lose Half Your Retirement Income to Taxes?
Your Money Your Wealth
· · 51 min · Hosts: Joe Anderson, Big Al Clopine · Guests: Carl Sandburg, Jane Addams, Tyrone, Tova, Mark, Boat Drinks
Summary
The episode centered on three tax-planning problems for retirees and near-retirees with substantial assets: whether a 130/30 long-short strategy is worth the added complexity, how aggressively to do Roth conversions when future required minimum distributions will be large, and how to handle non-qualified deferred compensation without creating a tax or employer-credit risk. The hosts said the 130/30 approach can make sense for high-net-worth investors who are comfortable with active management and tracking error, but they would want to understand the manager, the track record, and the tax consequences before using it.
On the Roth-conversion questions, the hosts repeatedly argued that looking only at this year’s tax bill can lead to bad decisions. They said several listeners were on track to face much higher income later from pensions, Social Security, dividends, and RMDs, and that converting in lower brackets now could reduce lifetime taxes and help heirs. They also stressed that Roth balances are inherited tax-free, though still subject to the 10-year withdrawal rule.
For deferred compensation, they liked the planning flexibility but warned that the money is an unsecured company promise, not a protected retirement account. The best strategy, they said, depends on company strength, the number of tranches, and how payout timing interacts with other income.
Key takeaways
- The hosts said a 130/30 product may fit wealthy investors, but only if they accept active-management risk, tracking error, and ordinary-income tax treatment on short-sale gains and losses.
- They argued that high fixed income plus large pre-tax balances is a classic Roth-conversion setup because future RMDs can push retirees into much higher brackets.
- For Roth inheritances, the hosts noted that heirs can inherit the money tax-free, but they still have to empty the account within 10 years.
- On non-qualified deferred compensation, the hosts warned that the money sits on the company’s balance sheet and can be lost if the employer weakens or fails.
- They said deferred-comp payout timing should be mapped carefully across multiple tranches to avoid stacking too much ordinary income in one year.
Notable quotes
“It said it's it's this is something that may be appropriate for high net worth individuals”
“when you have short sale losses, they're always always ordinary. Even if they even if you held them long term”
“this is one of the clearest cases of Roth conversions I've seen in a while”
“Taxree forever for life for you and for your heirs”
How the episode opens
Carl and Jane have 8 million bucks and their advisor is suggesting a 13030 long short investing strategy. Joe and Big Al Pippa on whether this is a smart tax move or unnecessary complexity and whether they would do it themselves. That's today on Your Money Your Wealth podcast number 572.
Plus, Tyrone and Tova think they may never even need their retirement accounts. So, do they really need to bother with Roth conversions if the kids are going to inherit the money anyway? Or could skipping the conversions mean losing half their retirement income to taxes?
Mark in San Diego is juggling Roth conversions and social security timing without blowing up his tax bill or the income related monthly adjustment amount for Medicare or net investment income tax. And Boat Drinks has a big non-qualified deferred compensation plan. How can he structure payouts before it turns into a tax nightmare and before he potentially gets laid off?
If you're watching us on YouTube right now, please do us a favor, subscribe to the channel, and leave a comment below with your thoughts on today's episode. It really helps us out when you do. I'm executive producer Andy Last, and here are the hosts of Your Money, Your Wealth, Joy Anderson, CFP, and Big Al Cloine CPA.
Let's go to um where are we going here? I don't know where we're going. Carl Sandberg. All right. Oh, yeah. Well, that's the name of um my uh junior high school. — Is that right? It is. — Really? So, do you know the whole backstory on who Carl Sandberg was?
Uh, absolutely not. You said junior high. — Got it. Was it though? I went to Samberg and then then — That was just the name of it. — That was the name of my my junior high.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- roth conversions
- social security timing
- medicare irmaa
- niit
- non-qualified deferred compensation
Watch the episode
Watch “Could You Lose Half Your Retirement Income to Taxes?” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Is a $400K Roth Conversion at Peak Income a Mistake? -
Should You Do Roth Conversions in a Down Market?
Your Money Your Wealth, this episode and its artwork belong to Your Money, Your Wealth. Octagon is not affiliated with the show; this page is an independent summary.
