RMDs Without the Fire Sale

SPEAKER_01 0:43

Hello, brethren. Welcome to Talking Real Money. Hi, everybody.

Friday Q&A Kickoff

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It's another QA. It's another Friday. And we go into this Friday in a very big regal way with an Edwardian choir singing us in. And today's the day where I answer those verbal, those spoken questions that you send in at talkingrealmoney.com using the infamous button in the lower right hand corner that looks kind of like a microphone. Click on that, speak your question to me. And please send in some more because they've gotten a little low here at the end of summer, as we're nearing the end of summer. For many, you know, you got kids in school already. Used to be Labor Day, but now it's August. So the the year's getting back on track, but it takes a little while. And so here's the deal. I look at the questions that have come in, and then I generally take about half of those and do them now, saving about half for next week. And therefore, the more that come in, the more questions I can have in each episode. I try to make them last. So go to talkingrealmoney.com, click on the button, speak your questions, and thanks so much for listening to the program. It has been a crazy month or so. Um I don't know what I've mentioned where. It's just a whirlwind. I mean, we had Tom on vacation, then my mother started dying, actively dying, they call it. I didn't even know it had a name. And so I uh flew up to Asheville, flew, drove up to Asheville to uh spend some those last moments with her. She passed, and then um I'm recording this right before I'm going up to New York City for her uh her interment. And then gonna be back in the studio with Tom again, and it just throws the whole schedule off, so I'm very confused, but just wanted to let you know what's going on. So this was recorded before the funeral, then I'm back recording another one and trying to just keep up with all the stuff. So thanks for being a part of the program. We really do appreciate you being here. And let's get to the first, I think it's four today, maybe five, I'm not sure. But let's get the first one out of the way.

SPEAKER_06 3:17

Good morning, Tom and Don. Thank you for taking my question. First of all, I wanted to let your listeners know that the free review with no strings attached with Tom and Appello Wealth is totally honest. I reached out, had a quick response, review of my portfolio, some suggestions, and absolutely no pressure to become a paying customer. It was very helpful at no cost. Trevor Burrus, Jr.

SPEAKER_01 3:46

I want to interrupt here and say thank you for those comments. They're very nice. And yeah, that's what we do. So it it's free, no obligation. Um thank you. And she wasn't paid for that. Now the question.

SPEAKER_06 3:58

My husband and I are both retired. He in his mid-80s, and I'm in my early 70s. We live on our fixed income Social Security and a small retirement and only take the RMDs from our RRAs for now. I will start my RMD next year. We have 175,000 in a brokerage account, 425,000 and 175,000 in our IRAs. Do you have a recommendation or guidance on how many years of RMDs should we keep in our respective IRAs to cover disbursements without having to sell investments? How many years worth of RMDs and bonds or CDs to cover those disbursements? Our investments are with Fidelity, but not managed by them. We've met with advisors rarely when they want to review our portfolios. One advisor suggested 10 years, and then another one a few years later said three years. What a big difference. Thank you so much. Have a great day, and I look forward to listening to your podcast. I listen to all of them. Thank you. P.S. I've listened to Dawn since way, way back when. Thank you.

SPEAKER_01 5:18

Yeah, it's so long ago. Neither of us can remember. It's been a long time. I can't believe how long I've been uh talking about money on radio or podcasts. Long time. Golly. 38 years. There, I just

RMDs Need No Cash Reserve

SPEAKER_01 5:36

found the number. Okay. Well, I'm going to give you a different answer than those guys at Fidelity gave you because RMDs don't mean taking your money out of whatever it's in. It can be just a lateral move. It's really easy. Let's say you have to take an RMD from a stock fund. All you do is you just move that stock fund. You re-characterize it from IRA to regular brokerage account, and you pay the appropriate taxes from other monies that you have set aside for the taxes. And that can come from your emergency money or your bond money, but you don't have to have the money just sitting there in semi-liqu liquidity for the purposes of RMDs. RMDs can just be a transfer kind of in kind. It's just replating the account. Oh, the cool thing is now your cost basis for that account is the value at the time you made the transfer, because you paid taxes on everything. So you don't pay taxes on the appreciation. You have already paid those in the RMD tax, the IRA distribution, which is an ordinary income thing. So you don't have to do really anything. Just keep doing what you've been doing. Build the right portfolio, and then just transfer the assets out of the IRA and pay the taxes. Thanks for listening. Thanks for the comments. And I see why I thought five questions, because the next one is a two-parter. So here's part one.

SPEAKER_00 7:08

Good afternoon, Tom and Don. This is Tracy from Georgia. Had a quick question regarding Cloverdale education savings accounts. I chose this option years ago to fund my child's education because of the ability to use it for primary and secondary education. And I'm kind of kicking myself because the 529 plan now allows that, but at the time it

Coverdell to 529 Switch

SPEAKER_00 7:31

did not.

SPEAKER_01 7:31

Well, and the rest of your question didn't get recorded, but I kind of think I know where you're going. And I think this is a good topic anyway. Coverdell's Coverdell, C-O-V-E-R-D-E-L-L education plans preceded 529s. But the good news is, I mean, you you made a perfectly reasonable investment based on the rules of the time. But no, sir, you are not trapped. Um there are a lot of benefits to 529. So if you have a Coverdale, you can move that. You can take the money. The IRS treats uh a uh Coverdale liquidation if you rate retain the documentation and a transfer into a 529 as a non-taxable event. So uh you can set up a 529 with this money if you prefer the the tax treatment and the well, the flexibility of the 529 plan. So I think that was going to be your question. If I'm wrong, please send me the right question, and now I'll go to your next question.

SPEAKER_00 8:34

I had another quick question regarding the fixed portion of my portfolio. I currently have 30 percent in the TSPG fund as my fixed portion. And I was wanting to know, is that uh an appropriate place for me to keep all of the fixed portion, or should I And there again, weird cutoff.

SPEAKER_01 8:58

Uh so Tracy, I'm gonna I I think I can psychically predict this question too, or uh the rest of it. Should you have it just in G like you do, or should you put some in F, which is the aggregate bond market, like BND at Vanguard, the total bond index. The G fund is so unique and so attractive as a risk-free vehicle. It doesn't fluctuate. It has no inherent risk as long as the U.S. government remains intact and can tax. And and by the way, its yield is usually within about a tenth of a percentage point away from the aggregate bond market yield. So with the aggregate bond fund, you get volatility, potentially, and maybe a slightly higher return. But I don't think the trade-off's worth it. If I had the TSP, all of my fixed income would be in G. Thanks, Tracy. And I don't know what's going on with your connection, but you're so far you're the only one having it. Um maybe next time try it on a different phone or computer or something. I don't know.

Best Home for Fixed Income

SPEAKER_01 10:12

Now, where are we? Oh, yeah, we're on question officially question three, but it's question four, because we had two from Tracy.

SPEAKER_02 10:20

Hey, this is James from Virginia. I was just curious uh on your thoughts on this. Uh the bank that I use, uh, I've learned that they have this money market account that um, you know, earns roughly 4%. And it can be used for uh my business account with them as well as uh personal. And uh it essentially you know acts almost like a checking account because there's no limitations as far as uh transactions goes. Uh, and you can also you know write checks from it. Um I was curious on your thoughts of essentially using this as my you know primary account uh for both the business as well as uh personal, uh just to be earning a bit more interest. I do have normally a separate uh high yield savings account for my emergency fund, uh, but I do keep a decent amount, especially in the business, um, just in my checking account to cover the ups and downs and costs of running the business. Um so uh I was curious your thoughts. Uh the bank is Huntington out of Ohio. Uh if you could let me know. Thanks.

SPEAKER_01 11:24

Well, I went and checked, and the Huntington Business Premier Plus Money Market account is yeah, really attractive. If it's paying 4%, uh there's no fee for any transactions. Uh basically it says uh all checks, ACH and bill payment transactions are free. The, you know, of course, you gotta pay for buying the checks, but the check, there's no limit on those, which makes it a great alternative to a checking account that's earning 4%. Now it appears they have a couple of other personal money markets, the smart invest and the personal relationship. Uh the personal relationship doesn't look like it has unlimited, it's not real clear whether it's unlimited free check writing or not, but it doesn't look like it. Uh the uh smart invest money market, though, says unlimited transfers, withdrawals, and free checks. So yeah, great cash management tool. And because it's a liquid account, if you know anything changes with it, you can always just move it somewhere else. So this sounds very attractive. Very attractive. Much more attractive than Bank of America's one one hundredth of one percent on their savings accounts and zero on their checking, um, which is where stupid me banks, but I don't keep a ton of money there, I keep most of it in high yield savings.

Money Market as Checking

SPEAKER_01 12:44

Well, you see, this is going to be a short one, because I only had a limited number

UTMA 529s Explained

SPEAKER_01 12:49

of questions. We now come to the final question of the day that you spoke at talkingrealmoney.com using the little microphone button, which makes it so easy to ask a question. You can do it anytime, middle of the night if you want. Oh, you I have a question, you think? Well, then just ask it that way. Go to talkingrealmoney.com, click the little green microphone like this.

SPEAKER_05 13:12

Good morning, Tom and Don. This is Kaylin from Texas. I'm calling today about UTMA 529s. I've started to accounts over at Fidelity for my grandchildren ages eight and ten years old. I'm wondering which of the funds at Fidelity you would recommend. And I would also appreciate your discussing the differences between the UTMA 529s and other 529s, which seem to have some different rules. I appreciate all that you do and look forward to hearing your response. Thank you.

SPEAKER_01 13:53

Well, as for the investment in any 529, I think generally speaking, if the costs are low, as they are in this one, and the diversification is good, as they are in this one, that the most appropriate choice is the age-based product at Fidelity. It's going to give you a glide path. It's going to make the portfolio more conservative as you get closer to needing the money for education. So that would be then you don't have to mess with it. And to me, messing with it is something you don't want to do because you're probably not going to do it. Most of us don't do that well. Now let's talk about the UTMA 529 versus the normal 529. We don't normally talk about the UTMA 529 because a UTMA 529 is an irrevocable gift to that child. Can't be changed. The regular 529, you can change the beneficiary. You can do a lot more with it. You have great flexibility as the the giver of the plan. Uh the differences are basically in the custodial, the biggest one, the money belongs to that child, period. Ordinary 529, the grandparent controls it. Uh custodial, 529. You cannot change it. Grandparent-owned, you can change it to an eligible relative. The custodial uh UTMA has to be turned over to the beneficiary. You on the other one, you can retain control. Period. It doesn't matter. You can retain control of the regular 529. Withdrawals must always benefit the kid in the uh custodial UTMA 529. The owner gets to decide what can be taken in, taken out. Not taken in you, because you're putting it in, can be taken out. What withdrawals occur when. You get to decide that. And um the only the only place I can really see where it might be uh but you know, this wouldn't apply in your case. Where a UTMA might make sense is if it was already a UTMA for the child. You can make it a UTMA 529. Uh yeah. Uh I can't I I don't see a big benefit to the UTMA 529s. In fact, I see more almost all detriments. I wouldn't use one. I'd want to have control. Thank you for your question and for listening and for going to talkingrealmoney.com and clicking on the mic and speaking into a microphone as opposed to typing it, because apparently you guys have decided you're gonna type them all to Dom. I I do have a backup. I have a backup plan in case the spoken questions dwindle to the point where, you know, I can't do a show with three. Three is about my low limit. I'm not gonna do a one-question show. What I'll probably do is grab some of Tom's questions, and then I'll just have AI voice them so at least there's another voice on the podcast. I mean, I do that with the music. AI's doing a lovely job voicing it. And remember, go to talkingrealmoney.com. If you want to ask questions, you can type them or speak them. If you want other information, you can listen to the podcast there. You can send us a note. There's a brand new comments button up there in that uh top menu on talkingrealmoney.com. The comments area is for notes. If you want to send us a note, you want to tell us something. You don't have a question you want answered, so it doesn't have to go through that whole rigmarole. It just is a note that comes right to me. And uh I'm not necessarily going to respond because that's what not what notes are meant for. Maybe, but probably not. But just, you know, if you have something you want to tell us, that's the place to do it. For example, if you decided, you know, I really liked that uh Edwardian choir intro to the QA, and I'd like to hear that again someday. I'll make note of that. So send your notes using the comments button. The ask a question is for typing questions to Tom for the regular podcasts. The uh button, the green mic is for recording your questions. I know there's a lot of ways to get in touch. And then the fourth way to get in touch is to ask for help from one of our advisors, as you heard. It's free. There's no obligation, there's no sales pitch. You go to talkingrealmoney.com, you click the button that says meet an advisor. You can even ask for Tom, and he will actually talk to you. And because, my friends, our favorite thing is talking real.

Important Disclosures

SPEAKER_04 18:52

The opinions and views expressed in this podcast were current on the date recorded. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and our subject to change without notice, including any forward-looking estimates or statements which are based on certain expectations and assumptions.

SPEAKER_03 19:06

Although information and opinions given have been obtained from or based on sources believed to be reliable, no warranty or representation is made as to their correctness, completeness, or accuracy.

SPEAKER_04 19:15

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