05.12.26 Ask An Advisor With Wes Moss

Clark Howard & Wes Moss: Your Top Money Questions Answered! In this special episode, Clark Howard and Wes Moss join forces to answer real-world money questions from people just like you. No jargon, no fluff – just actionable advice to help you reach your goals faster. Mentioned on the show: Roth 401k Calculator - Clark Howard Roth vs. Traditional 401(k): What's the Difference? - Clark Howard Why Clark Howard Is Obsessed With Roth for Retirement Savings Backdoor Roth IRA: How High Earners Can Still Contribute All this and more on the May 12, 2026, Ask an Advisor episode of the Clark Howard podcast. Submit your questions: WesMoss.com/ask We hope you enjoy our weekly Ask An Advisor episodes. Let us know what you think in the comments! Learn more about Wes: BOOKS BY WES MOSS Wes Moss, CFP® Wes Moss - Clark.com Learn more about your ad choices. Visit megaphone.fm/adchoices

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• 1:16Speaker 02

  Welcome to a special edition of Ask an Advisor on The Clark Howard Show. I'm Krista DeBias and I am here with Wes Moss and Clark Howard.

• 1:27Speaker 03

  Are you jealous that she's got the headset?

• 1:29Speaker 02

  I've got- I'm jealous because I love the sportscaster headset. Yeah. I hate it, but-

• 1:35Speaker 03

  Poor Krista.

• 1:37Speaker 02

  I'm going to be in and out today. I just thought this would be so fun. You're both here at the same time and I thought, why don't we do some Q and A where both of you answer the questions?

• 1:46Speaker 03

  Broadcasting live from the sidelines, Krista DeBias.

• 1:50Speaker 04

  Our sideline reporter.

• 1:52Speaker 02

  Who's your favorite team, Wes? Tar Heels?

• 1:55Speaker 03

  In what sport, pro or college?

• 1:57Speaker 04

  Lacrosse.

• 1:59Speaker 03

  Uh, they're all owned by one big private equity fund, so.

• 2:02Speaker 02

  Pro, pro, pro football.

• 2:03Speaker 03

  I would say I'm a Falcons fan, but I'm also an Eagles fan as well.

• 2:07Speaker 02

  Okay.

• 2:08Speaker 03

  Falcons and Eagles.

• 2:09Speaker 02

  And Clark's Falcons and Jaguars, right?

• 2:13Speaker 04

  Falcons and Jaguars.

• 2:15Speaker 03

  Falcons and the Jags.

• 2:16Speaker 02

  You guys ready?

• 2:17Speaker 04

  The Jags are now the Orlando Jags for a while.

• 2:20Speaker 03

  Oh.

• 2:21Speaker 04

  Cause they're rebuilding the stadium in Jacksonville.

• 2:25Speaker 03

  So they're technically going to be out of Orlando.

• 2:27Speaker 04

  Right.

• 2:27Speaker 03

  They're not going to change a name.

• 2:29Speaker 04

  No.

• 2:30Speaker 03

  All right.

• 2:30Speaker 04

  That was really relevant, wasn't it?

• 2:32Speaker 03

  Yeah, we're, we're ready, Krista.

• 2:33Speaker 02

  All right, I've got.

• 2:34Speaker 03

  Sportscaster Krista.

• 2:34Speaker 02

  I've got a lot of different questions for both of you today. This one came in from Emmanuel in Florida. Emmanuel says, is buying a boat ever financially smart or just a lifestyle choice? I enjoy your advice about avoiding wealth killers and I've often heard boats fall into that category. I'm trying to balance financial responsibility with enjoying life. I'm 47 years old, currently working and consistently maxing out my 401k and Roth IRA. My financial picture looks like this, $108,000 in my Roth, $232,000 in my 401k, $50,000 in a brokerage account, $46,000 in a money market, about $625,000 net worth.

• 3:16Speaker 02

  I owe $243,000 on my home and 23K on my truck. After all expenses and savings, I typically have about $2,000 per month in extra cash flow. I'm considering buying a boat, knowing it's a depreciating asset and comes with ongoing costs. However, I also value making memories while I'm healthy and able to enjoy it. In your opinion, is there ever a point where buying a boat makes financial sense? Or should it always be treated purely as a lifestyle expense to be minimized?

• 3:46Speaker 03

  Hmm. Clark, I can't wait to hear what you're going to say on this one.

• 3:49Speaker 04

  Oh, am I first on the boat?

• 3:50Speaker 03

  Yeah, you're first, man.

• 3:51Speaker 04

  So I actually have experience with this boat thing, Wes. Uh, we used to have a lake home.

• 3:57Speaker 03

  Mm-hmm.

• 3:58Speaker 04

  And.

• 4:00Speaker 04

  There was a lot of uh, energy in my family wanting a boat.

• 4:04Speaker 03

  Hmm.

• 4:06Speaker 04

  And if you think about how cars depreciate, that ain't nothing compared to how a boat depreciates.

• 4:13Speaker 03

  Yeah.

• 4:14Speaker 04

  So I want to deal with this in two aspects. One, is it just straight spending lifestyle kind of thing? Yes. There is no dollars and cents investment in you having a boat. Second, people buy boats totally unless they're commercial fishermen. They buy boats strictly as an enjoyment of pleasure craft. As a result, because it's only a discretionary purchase, there's no have to about it. The depreciation on a boat is unbelievable.

• 4:52Speaker 03

  It's massive. Yeah.

• 4:53Speaker 04

  So we had a Triton boat that new was eighty five thousand dollars. Had only a couple of hundred hours on the engine and we paid eighteen thousand dollars for it.

• 5:08Speaker 03

  So it was new, it was eighty five?

• 5:10Speaker 04

  New eighty five, we paid eighteen.

• 5:12Speaker 03

  So the, the, the original owner lost over sixty grand?

• 5:16Speaker 04

  Using it, almost none.

• 5:18Speaker 03

  Yeah.

• 5:18Speaker 04

  So first, if you're gonna buy something that's strictly a lifestyle thing, that as I just demonstrated, yes, depreciates like nothing you've ever seen. You buy a boat used so that the depreciation has already been absorbed by the original owner. Second, you need to have that boat checked out, the engine checked out and all the rest before you buy it. So you're not just buying trouble. But third, if you do decide that old saying, that the happiest day of your life was the day you bought your boat, and then the happiest day of your life was the day you sold your boat,

• 6:02Speaker 04

  which it was for me, I'm not a boater. You lose almost nothing if it's already flattened out the depreciation curve like the Triton I had.

• 6:13Speaker 03

  So I would look at it as I think of boating, I know that people will try to make it a financial question and it's not really a financial question. It's, it is just a lifestyle question. So it's not even a question. It's a, to your point, there's no asset out there that can depreciate faster than a boat and more. It's, it's a big, heavy cumbersome item and it goes down dramatically unless you're lucky enough or smart enough to be able to buy one that you like that's also used. And that's very possible too. But even then I see depreciation. So I do have some experience with boats too. Even a used boat that a good deal will then even continue to depreciate faster. So it's not so much, it's, don't even think about

• 6:55Speaker 03

  it as a financial move. It's just pure lifestyle. It's a luxury purchase, whether it's a $100,000 boat or a $15,000 boat, it's still a luxury. I think of it though, and Emmanuel, I'd look at it as, I like to think of things as PPU's or price per use. And what is the best thing that you can have in the world for price per use? For you, Clark, it's probably this shirt because I've seen you wear it literally 500 times.

• 7:23Speaker 04

  Eight dollars.

• 7:24Speaker 03

  Eight dollars.

• 7:24Speaker 04

  So I have multiples of this because I'm nearly colorblind. I never want to have to worry about having things that match or whatever. So I just wear the same color shirt all the time, just like the late Al Davis of the then Oakland Raiders.

• 7:40Speaker 03

  Oh, of the Raiders. Yes. Yes. Of the, that same exact black shirt. Now, I think about blue jeans. $50 for a pair of blue jeans, 500 times, it costs 10, I knew you'd like, I was gonna say a hundred dollars.

• 7:52Speaker 04

  $50 on a pair of jeans? Are you crazy?

• 7:56Speaker 03

  Well, hold on.

• 7:56Speaker 04

  Who would spend that much on a pair of jeans?

• 7:58Speaker 03

  I think jeans are kind of in that range now. What, how much are your jeans?

• 8:03Speaker 04

  We're going right from here to Walmart.

• 8:06Speaker 03

  No, we're going to Costco.

• 8:08Speaker 04

  $50.

• 8:10Speaker 03

  But hold on.

• 8:11Speaker 04

  This is outrageous.

• 8:13Speaker 03

  Divided by 500. So you're gonna wear them 500 times at least. So what is that? It's 10 cents, right? So the PPU on a pair of jeans would be 10 cents. In Clark's case, maybe it's one cent.

• 8:27Speaker 03

  Maybe it's one second.

• 8:28Speaker 04

  Does it get that high?

• 8:29Speaker 03

  Do the PPU on the boat. So if it's gonna be 20 grand to buy a boat, even if it's used, be realistic. How many times are you going to use the boat? So I'm gonna take, and this is how I do this in my head, 25 grand for your used boat, divided by, if you're lucky, you're gonna use it 50 times. That's $500 per use. Can you stomach that? Is it worth it?

• 8:52Speaker 04

  Particularly 40, how old, 47?

• 8:55Speaker 03

  He is 47.

• 8:56Speaker 04

  47. You need to put more effort moving forward on putting more money aside for your future. You're getting there, but you need more money that you're putting aside than the 300 and

• 9:11Speaker 03

  625 total.

• 9:12Speaker 04

  But I'm looking at money in IRA and 401K. Yeah. So late 40s, we're gonna call 47 mid 40s or late?

• 9:23Speaker 03

  I say mid to late.

• 9:25Speaker 04

  Mid to late. So I would say that if it diverts you from beefing up the money you have in retirement accounts, the boat becomes risky. But there is, you just pointed out something so valuable. There is a third way, and that is you rent a boat a few times and see if it sticks. Because I know somebody who bought a Mac Daddy RV that they spent over $700,000 for. How many trips did they take in that RV?

• 10:01Speaker 03

  10?

• 10:02Speaker 04

  One. They thought so much that this was what they were gonna wanna do and put all that money in one. And that's why you rent an RV, you test drive it several times to see if it's what really fits your lifestyle. And so if you rent a boat a few times, then you have an opportunity to see, yep, this is something I'm gonna wanna do weekend after weekend after weekend or Well, I thought that was a good idea.

• 10:35Speaker 03

  And RVs are famous for that, Clark. You're right. And boats are famous for that. You think you're going to be out there every weekend. You look back on the summer, you say, wow, I used the boat three times. Think about your PPU then. All right, Krista.

• 10:47Speaker 02

  Okay, let's go with another question. This one's from Patrick in New York. Patrick says, Clark always says a Roth 401k is preferred to a traditional unless you're making hundreds of thousands of dollars in income. I currently make $140,000 per year gross, but I've managed to keep expenses low at $40,000 per year. At retirement, I'll be in a much lower income tax bracket. Wouldn't it make sense to wait to pay the tax later when I'm in the 12% income tax bracket instead of 24%?

• 11:19Speaker 03

  So Patrick in New York, this is always a question about today taxes and your rate versus tomorrow. It's always a question. A lot of Americans, if you're making, if you're single and you're making 200 grand or lower, or you're a couple making 400 grand or lower, you're going to want to do a Roth 401k. In your case, you are in that range, but you're likely right. If you are only going to be spending 40 grand a year in retirement, then you may be able to keep yourself in a low tax bracket unless your IRA accounts are gigantic and your RMDs at age 73 force you to have higher income, which is something that people

• 12:02Speaker 03

  don't think about. You may be in a higher bracket than you might think into the future if everything is in a regular 401k IRA. But in your case, it sounds like a bunch is going to be in this Roth 401k, which you'll end up in a Roth, which you'll end up with tax-free income as well. So if you're at that big of a disparity and you really think, and I do see Clark, a lot of families that do maintain really low taxes in retirement, and they're in the effective rate that's 10%.

• 12:29Speaker 04

  Right.

• 12:30Speaker 03

  Federally. And you could be in a low tax state or a zero tax state where you stay in that rate. And if you're in the 24 while you're working, then in that case, the disparity says that you may not want to do a Roth 401k if it's going to drop that much. But for a lot of Americans, their tax rate stays about the same in retirement. And that's why it's easy to favor the Roth 401k.

• 12:55Speaker 04

  And so there's a number that I keep focusing on, and maybe I'm being myopic.

• 13:03Speaker 04

  But it's the number 40, as in trillion dollars that is our accumulated debt of the United States. And the path we're on is so severe that at some point, we cannot even cut spending enough to deal with this debt. And so what I worry about is we look at tax rates as being static. And right now, tax rates and the brackets are historically low. But I believe there's going to be a point we're going to be forced into that could be five years from now, could be 15 years from now, likely less than 20, that the

• 13:48Speaker 04

  comeuppance is coming because of the enormous cumulative debt we're accumulating in the United States. And we will be forced by financial markets that are so powerful that we're focused right now on the fact that tax rates are crazy. If you're paying them, you're like, are you kidding? You're saying

• 14:12Speaker 03

  They don't feel low, Clark. Are you gonna say they're low?

• 14:15Speaker 04

  They, I mean, compared to historical numbers, I mean, if, if we talked about what federal tax rates used to max out, it was 91%. And in many, many decades, it was 50%. Right now, we're at 37%. And then we have a lot of people, we're talking about people up to, single individuals up to, was it 200,000 a year paying 24% and 400,000 for marriage, 24% or less. And that's, that's

• 14:52Speaker 03

  And then it jumps to the 32.

• 14:53Speaker 04

  Then it jumps.

• 14:54Speaker 03

  Yeah, big.

• 14:54Speaker 04

  But, but the thing is, we are going to have to come up with a way to generate more T A X. Nobody wants to hear the word tax, but we're gonna have to, because we're getting to a scenario where you look out a decade, and we will have crowded out pretty much all government spending by what it's taking.

• 15:18Speaker 03

  Just by interest.

• 15:19Speaker 04

  Right. Just to service the debt. So to look at it is, well, today I'd pay 24. And, you know, two decades from now, I'll be paying 12. I don't know how that happens unless we become Argentina, the old Argentina, and just print money and inflate our way out of it. Nobody wants that. Think about Argentina. Argentina 100 years ago was as wealthy as the United States and today has a GDP of a low third world, per capita income of a low third world country because they never showed financial

• 16:02Speaker 04

  discipline. So I don't want us to be like, well, think what America used to be. So that's why for me.

• 16:10Speaker 03

  So what do you say to Patrick?

• 16:12Speaker 04

  I say to Patrick, you keep doing the Roth because for you to make your financial planning decision on the basis that you're going to be paying 12% because today it's 12% is not realistic in my book. The other thing, and this is where I'm a terrible person. Did you know I'm a sneaky, underhanded, awful person?

• 16:35Speaker 03

  Wait, not really.

• 16:37Speaker 04

  Yes, I am. Okay, here's why.

• 16:39Speaker 03

  Okay.

• 16:39Speaker 04

  Okay, so I have a 401k at work.

• 16:44Speaker 03

  Yeah.

• 16:45Speaker 04

  And somebody cons me into going from traditional 401k to Roth 401k. And I've been contributing, let's say, let's just take 8%.

• 16:56Speaker 03

  Is this a real story or you're just making this up?

• 16:59Speaker 04

  I'm making this up. But this is real life.

• 17:01Speaker 03

  Yeah.

• 17:01Speaker 04

  So I convinced somebody to go from traditional to Roth.

• 17:06Speaker 03

  Yeah.

• 17:06Speaker 04

  And they've been saving 8% of their pay in the traditional. What do they do when they convert to the Roth? They stay at the same percent.

• 17:14Speaker 03

  Yeah.

• 17:15Speaker 04

  They don't cut back. So now they have effectively boosted the amount of money they're saving for retirement.

• 17:22Speaker 03

  Because it's not pre-tax.

• 17:24Speaker 04

  Right.

• 17:24Speaker 03

  Yeah.

• 17:25Speaker 04

  They go from pre-tax to tax after tax. So it makes a huge difference in impact and how much effective money I've conned them into saving for retirement.

• 17:38Speaker 03

  You know, the other area here, if you're split on this, Patrick, it's not the end of the world to do some of both. That's the other way to look at it. I mean, again, in

• 17:48Speaker 04

  What office are you running for? But that's exactly right. You just, you don't go one or the other if you're, if you can't make a decision.

• 17:57Speaker 03

  Yeah.

• 17:57Speaker 04

  You do the political answer. You just.

• 18:00Speaker 03

  No politics here, Clark.

• 18:01Speaker 04

  Well, you know what I mean. It's just like you do half and half.

• 18:04Speaker 02

  Okay, another quick one about the Roth and taxes from Pete in Massachusetts. Clark keeps going on and on about the Roth IRA, which is a great thing. But what he never seems to mention is for those of us in states like Massachusetts, where there's a 5% income tax, putting money into a Roth if we're planning to retire to a state without an income tax may be paying this tax unnecessarily. We do both, but for those who can't pre-tax may actually be a better option, especially if they plan to retire elsewhere. More money invested means more gain.

• 18:35Speaker 03

  Same thing. Tax today versus tax tomorrow.

• 18:38Speaker 04

  Yeah, but you also could move to New Hampshire and avoid the taxes you have in Massachusetts. Think how many people have done that who were in their peak earning years in Massachusetts? And they're like, forget this. I'm going across the border to New Hampshire and avoiding those taxes.

• 18:55Speaker 03

  Let me ask you this. Do you know the state? Because we just had a question. The only reason I realize this is that this just came up. Do you know the state with the highest property tax? Yes.

• 19:06Speaker 04

  Texas.

• 19:07Speaker 03

  No, I think they're pretty average. Think Chicago.

• 19:11Speaker 04

  Oh.

• 19:12Speaker 03

  Illinois has a 2% property tax. Alabama has a 0.4% property tax, something like that. It's like half a percent in a lot of states. Georgia's were kind of more like 1% on average. But Illinois has a 2% property tax for most people. But the point is-

• 19:29Speaker 02

  Wait, what's the lowest property tax?

• 19:31Speaker 03

  Lowest property tax state is-

• 19:33Speaker 02

  What do you think it is?

• 19:34Speaker 04

  Lowest property tax, I would guess Alaska.

• 19:38Speaker 03

  So I think it's Hawaii. Hawaii and Alabama are at the low end. But Hawaii gets you all these other ways. You know that. So, but here's what I would say. This is still, we very often, we don't talk about state taxes. But if you're in the 32% tax bracket federally and your state is 6%, then you're really paying 38%. That's true. So you've got to think about what will your rate be? Not just your federal rate, but to your point, Pete, in Massachusetts, you've got to be doing the math on your state tax as well because that matters. And if you think you're, if today you're in the 32 bracket. So if you're married filing jointly and you're over for about 400, you're paying 32 on every dollar above that.

• 20:23Speaker 03

  You're paying another 5% in state taxes. You're saying 37. Let's say you move to Texas or Tennessee or a low tax state when you retire and your state tax goes to zero and you're, you end up being able to be in the 12 to 15% range, then yeah.

• 20:40Speaker 04

  Absolutely do traditional. I mean, you know, when we were talking earlier about, you know, splitting it, you know,

• 20:46Speaker 03

  Yeah, half of the political answer.

• 20:48Speaker 04

  So when you get to higher and higher incomes, then the answer changes to traditional. And so you throw in state income tax as an additional sweetener on making the decision. So what's your federal rate? Your federal rate is, you know, 32, 35, 37. Are those the three?

• 21:11Speaker 03

  Yeah.

• 21:11Speaker 04

  32, 35, 37. You get up there, then yeah, you want to be doing traditional. And then you bring the state tax into it and you're expecting you're going to retire in an income tax free state, then yeah. The man from Roth says, the man from Roth says, do traditional.

• 21:33Speaker 02

  Okay, let's take a quick break. We'll come back and I have a couple more questions for you guys to answer.

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• 23:55Speaker 03

  Welcome back to Ask an Advisor. I'm Wes Moss, along with the Clark Howard and Krista D.B. As in a sportscaster. I was gonna say glasses, but headset, sideline reporting, asking us questions from the audience that we love.

• 24:09Speaker 02

  They're coming around the bend.

• 24:10Speaker 03

  What you... Now we're at a horse race.

• 24:13Speaker 04

  Did you used to go to horse races, growing up?

• 24:16Speaker 02

  I went up to Saratoga Springs a few times, I did.

• 24:19Speaker 03

  Oh, Saratoga's fun. That's fun.

• 24:21Speaker 04

  I never really got the horse racing thing, you know? They run around the track for... Well, that I don't get either. But they run around the track for two minutes, and then you wait 45 minutes for more horses to run around the track for two minutes.

• 24:35Speaker 03

  There's something fun about it. I think it's when people are drinking mint juleps is what makes it fun. And betting.

• 24:41Speaker 04

  Is that what you were doing as a teenager? You were drinking mint juleps between the races?

• 24:47Speaker 04

  The statute of limitations has run out, Kristi. You can admit you were drinking under.

• 24:51Speaker 02

  I was not. Okay.

• 24:52Speaker 04

  Okay.

• 24:53Speaker 02

  Here are some questions for you. Phil in Connecticut wrote this one.

• 24:56Speaker 03

  Bill.

• 24:57Speaker 02

  My wife and I have been saving in HSAs and not spending the money for our current medical expenses, but we've been logging our expenses in saving receipts. We have about a hundred thousand dollars saved. We're now semi-retired, working part-time in low-wage but very satisfying jobs. My wife is now starting Medicare. I'm paying a thousand dollars a month for health insurance. I still plan on contributing to an HSA as an individual for another four years. We're both in fairly good health. Is there an optimal time to start withdrawing money against our past or current expenses? I'm guessing I should leave it for another decade, but maybe I'm just being greedy. And now that we're retired, maybe we should use the withdrawals as tax-free income.

• 25:41Speaker 03

  What do you think?

• 25:42Speaker 04

  Well, I love HSAs.

• 25:44Speaker 03

  Yeah.

• 25:44Speaker 04

  And this, this strategy is exactly what you should do is you accumulate over the years. You invest the money. It grows tax-free. It may have gone in pre-tax. You get to spend it tax-free. And the more years you accumulate investment return on that money tax-free, the better. But now in retirement, that's always been the strategy is that you build it up during your income-earning years. You hit retirement, your medical expenses go up significantly in your seventies, exponentially in your eighties. So, early retirement, if you can afford to pay the out-of-pockets,

• 26:28Speaker 04

  you continue to pay the out-of-pockets. And then, as you move into your seventies, that's when you really start pulling that money out. You can do the reimbursements that you have smartly accumulated your receipts all through the years. That would be my strategy. But you spend so much more time on HSAs, you may have a different idea.

• 26:50Speaker 03

  I love HSAs. They are, they're like, they're almost like super Roths for retirement. And Phil, what you're doing, I think is kind of, I think of it as shoeboxing, because you're saving all your receipts. And the cool thing about an HSA, as long as you have an HSA and you're having reimbursable receipts for your medical care or medical costs.

• 27:12Speaker 03

  That are pretty wide and diverse too. Then you don't have to get reimbursed today. So the money can keep growing, keep growing. Now, this is a, an exercise in real diligence because you're saving your receipts and you're shoeboxing them to some extent. You're saving, you're probably doing it on your, on your smartphone and not in an actual shoebox. But if you have the receipts, then in future years, this money gets to compound and compound and compound. And maybe when you're in your mid seventies and now your tax bracket's higher because you're taking your RMDs, those tax free withdrawals are even more valuable into the future. And as long as you've kept receipts, you can start taking those withdrawals at a later

• 27:55Speaker 03

  date when they're, again, technically even more valuable if you're in a higher tax bracket. So it's a good way to do it.

• 28:01Speaker 04

  So we agree, we agree on seventies because medical expenses, current medical expenses could get larger and you need the money. And you also have had the additional decade of growth of the money.

• 28:14Speaker 03

  Exactly. So I think it's a good start. I don't think you're being greedy. I think you're being a smart fellow.

• 28:18Speaker 02

  All right. This one came in from Scott in Florida. Hi Clark, I've been a dedicated listener for three years now, usually catching your podcast on my daily dog walks. I only wish I'd found your podcast sooner. I'm 55 and categorized as a highly compensated employee, HCE, which limits my standard 401k contributions. Taking your advice to heart regarding Roth accounts, I recently completed a backdoor Roth IRA. Since I have no existing traditional IRAs, only my 401k and an executive deferral plan, I opened both a traditional and a Roth IRA. I made an $8,000 nondeductible contribution for 2025 and converted it to the Roth the same day. I filed Form 8606 with my tax return for 2025.

• 29:02Speaker 02

  I'm hoping I executed this correctly without triggering unexpected tax implications. I'm holding off on my 2026 contribution until I hear your thoughts. Thank you for all you and Wes do.

• 29:13Speaker 04

  Wes, you want to take that?

• 29:14Speaker 03

  So Scott, you're an HCE, highly compensated employee. You've already done the backdoor Roth.

• 29:22Speaker 04

  He wants to know if he should do the backdoor Roth again, because he did it for 25.

• 29:27Speaker 03

  Did he do the mega? Did he say he did the mega or just the regular?

• 29:30Speaker 04

  Just regular.

• 29:31Speaker 03

  Yeah, I think that it sounds like he did it right to me. You did it all in one day, so you didn't have to worry about any sort of gains. You get a same day conversion from a regular to a Roth backdoor. I would think absolutely. It sounds right to me. I would think about, and again, there may be a nuance on the HC, on the highly compensated employee, but if your 401k allows for after tax contributions, you could maybe do a mega backdoor Roth as well in the 401k. So yeah, I think it sounds good to me, but I would look into the mega.

• 30:06Speaker 04

  So I wanted to ask you about that. How often do employers have the option of what, and maybe you should define for people who've not heard of it, the mega backdoor Roth, because I know somebody who does it and it's like they need a wheelbarrow to wheel all their money into their mega backdoor.

• 30:27Speaker 03

  Yeah. So I, not that many people do it. I think I read about it a lot, but it's, it's a lot of savings. So.

• 30:35Speaker 04

  What do I mean about employers? How many employers even permit it?

• 30:38Speaker 03

  I think that it's not a very hard thing for employers to do. The thing is this, I don't think it's a very big deal for employers to do because it's, they're just allowing up to the IRS full contribution limit, which is something like 71, $72,000. Most people are only saving the max in their 401k, which is 31.5 or with the catch up, it's more than that.

• 30:59Speaker 04

  Only the percent that do that is like a fraction of 1%, right?

• 31:03Speaker 03

  And that's why not that many people really are going to take advantage of the mega backdoor Roth. Cause now you're saying, okay, you max out your 401k and then above that, the limited, the ceiling for the IRS is something like 72. So now you're saving another 30 or 40 grand to get to that limit and, and you're saving it after tax in your 401k, then that gets converted.

• 31:29Speaker 04

  All right. Let's clarify this though. All right. So a highly compensated employee and they do a haircut on what you can contribute to the 401k. How are you then able to do the mega, even though you've been limited is a highly compensated employee?

• 31:48Speaker 03

  And again, you're going to have to ask the plan this, but the contribution limits are. I don't know if, if the full $72,000 applies to HCA. I'd have to, it's a pretty rare person to do that. So I'd have to, we'd have to.

• 32:03Speaker 04

  But at the very least, doing the Roth is exactly what you should be doing. You think about, if you're going to work another 10 years, you're going to end up with before earnings on that money, you're going to end up with close to a hundred grand that you've been able to put aside into the Roth. And then that's going to be tax-free money you're going to have doing the backdoor Roth. And I don't know if anybody needs an explanation of what a backdoor Roth is. So I'm going to give a really quick one and then you can read more about it. But people become income ineligible to contribute to a Roth IRA. And

• 32:41Speaker 04

  when they do, they can do this weirdo bizarre thing called a nondeductible IRA, which is actually a lousy thing, but it's a very effective vehicle that who knows why there's this loophole that Congress allowed. You contribute to the nondeductible and in a blink, like the same day, you then transition that money into the Roth version. And even though you weren't income eligible, you still were able to do it, which is, shows you how crazy, silly, complicated the tax code is.

• 33:19Speaker 03

  Yeah. And it makes it easy. It sounds like Scott, it makes it easy because everything else he has is in the 401k. So it uncomplicates this backdoor Roth.

• 33:30Speaker 02

  That's it.

• 33:30Speaker 04

  That's the last?

• 33:31Speaker 02

  That's the last one for now.

• 33:33Speaker 04

  Can't you, let's have one more.

• 33:35Speaker 02

  I don't have any more.

• 33:37Speaker 03

  Well, then we need more questions from our listeners, our audience.

• 33:40Speaker 02

  I know.

• 33:41Speaker 03

  Keep sending them in.

• 33:41Speaker 02

  I'm sorry. I didn't really.

• 33:43Speaker 04

  So I do have one question for you. When you have an obsession like I do.

• 33:48Speaker 03

  Which one?

• 33:49Speaker 04

  The Roth. I mean, I'm, I'm, I might as well have been Senator Roth from Delaware. I'm so into the Roth. So then you get blinders on and you, you don't see the downsides.

• 34:03Speaker 04

  When is it clear that you have a client who is obsessing with doing Roth 401k, Roth IRA?

• 34:13Speaker 03

  Roth conversions.

• 34:16Speaker 04

  And when they should not be doing those things?

• 34:19Speaker 03

  Here's what I will tell you, this is, here's real life. Is that people listen to Clark Howard and they feel like they're crazy if they haven't converted into Roth. They feel nuts. I know I should have converted. I'm sorry, Wes, can we just go ahead and get the conversion? Can we do the conversion? Okay, let's do the conversion. Clark Howard says we'll do the conversion. Okay. And I'll say, and I'll say, okay, let's, we're gonna, how much do we want to convert? Well, let's do the tax bucket. So you're in the 24 bracket and you're okay to be, fill up the 24 bracket and pay 24% on the next, maybe it's $50,000 or $60,000 worth of conversion. And they say, okay, okay.

• 35:04Speaker 03

  Well, in real life, remember, when somebody's in the 24 bracket, they're really not paying 24% in taxes. They're paying their effective rate, which is probably more like 16 or 18%. So when you do the Roth conversion, because you're filling up these buckets, you are really truly paying the full 24% to convert. And you can go over the math and you can say, well, here, here's what it's going to cost to do the Roth conversion. It's going to cost you, you want to convert 100,000, let's, as in, let's just say 50, but it's 24% of that. What's the number on that? 50,000 times 24%?

• 35:43Speaker 04

  12,000.

• 35:44Speaker 03

  Yep. It's 12 grand. When the tax bill comes due, three months later, six months later, a year later, people forget all the glory of Clark Howard talking about the Roth. And you know what they remember? $12,000 tax bill. Wes, why did we do the Roth conversion? Whoa, whoa, whoa, whoa. You really wanted to do the Roth conversion? We talked about the Roth conversion. We even went over the tax. People hate the tax bill that comes with it. Whether it makes financial sense or not, they hate it because they're already paying taxes and they're paying more taxes.

• 36:20Speaker 04

  Sure.

• 36:21Speaker 03

  And that I would just want to tell you, that is the real life story that happens 90% of the time when somebody does a Roth conversion.

• 36:30Speaker 04

  So then I would throw, I would throw in an annex. And that is

• 36:35Speaker 03

  I'm going to have people just call you.

• 36:36Speaker 04

  And that is the Irma.

• 36:38Speaker 03

  That's the other thing.

• 36:39Speaker 04

  That at the other end.

• 36:40Speaker 03

  And my Medicare went up, but we planned for that too. But you can't exactly plan for Irma because they're two years behind on what your income is going to be. You can only guess.

• 36:49Speaker 04

  So just so you know, when you have money in traditional accounts and you have done a great job saving money in those traditional accounts. When you hit right now, age 73 and you're like, well, why do I care? I'm 40 years old. You eventually got to be 73. You were taxed on your Medicare with a huge punitive tax that you have to pay every month. If you start having to pull out money that you didn't want to pull out, but you pull it out, it creates income.

• 37:26Speaker 03

  Because of the RMD.

• 37:27Speaker 04

  Right. Required minimum distribution. And then you got to pay all this tax. So I'm always focusing on what things are gonna be down the road. And maybe that is another thing where I've got the blinders on that I worry too much. Maybe this is a future anxiety disorder I have. Tax future anxiety.

• 37:53Speaker 04

  But I just wanted to ask you, you know, because there are so many listeners and viewers that cross over between the two of us.

• 38:01Speaker 03

  Yeah.

• 38:01Speaker 04

  And they hear me, Roth, Roth, Roth, Roth. And then they hear you say, well, you know, traditional is better, that it's not all one or the other.

• 38:11Speaker 03

  It really isn't.

• 38:11Speaker 04

  You have to look at your own personal income and tax situation.

• 38:17Speaker 03

  And that brings up the point that I think is so critical, that doesn't get talked about a lot, but is so important for retirement, when you're in retirement. We're 50 years of accumulation and we're hopefully 30 to 40 years of decumulation or distribution. It really helps to have lots of different tax buckets to pull from. After-tax, regular, traditional, pre-tax, and free tax, which is the Roth. And if you have all three of them, then you can really start to manage your income in retirement.

• 38:48Speaker 04

  I think that's a good point to quit right there. What do you think, Krista?

• 38:52Speaker 02

  I like it. All right, guys, I am gonna get us another stool and microphone in case we ever do this again, so I don't have to wear this headset.

• 39:00Speaker 04

  I wanna wear the headset. I mean, all right, we're at the end of the podcast, if you still wanna watch.

• 39:07Speaker 02

  Or listen.

• 39:08Speaker 04

  This is a Krista stinks.

• 39:10Speaker 02

  Oh.

• 39:11Speaker 04

  Krista yanked off my Sportscaster headset that I love.

• 39:15Speaker 02

  I didn't physically do that.

• 39:16Speaker 04

  And makes me use a stationary mic. And the way my body works, I'm always moving. You know, little kids in elementary school that are always jumping around and they can't sit still. Okay, I'm that kid as an adult. And so the Sportscaster headset just follows me around. And now here I am, having to sit here as a prisoner of this mic.

• 39:44Speaker 02

  You know, it is called the Clark Howard Show, and you are my boss, so if you really wanna use this, you can.

• 39:50Speaker 04

  You ask anybody who works for either of our companies, who the boss is, and I guarantee you 100% will say, you're the boss.

• 40:01Speaker 02

  No way.

• 40:02Speaker 03

  That's, oh, yeah, they will. I thought she was. I thought she was the boss.

• 40:05Speaker 04

  I think, okay, let's vote. Who thinks Krista's the boss?

• 40:10Speaker 02

  All right. Well, thank you both for doing this. I think this was really fun.

• 40:15Speaker 04

  Thank you guys.

• 40:15Speaker 02

  Hopefully you enjoyed this episode. I certainly enjoyed listening to you guys. And I hope we do it again sometime soon. If you have a question for either of these guys, you can go to clark.com/ask and indicate who the question is for. And if you want to ask a question that will be, I'll ask both of them on a future episode, you can indicate that, but you might be waiting a little while because you guys usually aren't here on the same day.

• 40:38Speaker 04

  Well, once in a while.

• 40:39Speaker 02

  Once in a while. So have a great day. We really appreciate your subscribing to this podcast wherever you listen, or if you watch on YouTube.

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