Pod Insights The Clark Howard Podcast 06.10.25 Ask An Advisor With Wes Moss About this episode Do Retirees Need To Track Stock Earnings? And This Rule Can Help You Retire Early If you're a retail investor or a happy retiree, should you be paying attention to corporate earnings? Fiduciary financial advisor Wes Moss dives into why earnings matter for both individual stock owners and index fund investors. Discover how the overall earnings of the S&P 500 influence market trends and whether you need to obsess over every quarterly report. Also, Wes breaks down the "Rule of 55," a lesser-known strategy that could help you access your retirement money sooner without penalties. Most people know about the Rule of 59 1/2, but Wes reveals the specific qualifications and conditions for utilizing the Rule of 55 with your 401(k). Learn how this rule could accelerate your path to retirement! Plus, Christa shares your #AskWes questions and Wes gives his take. All this and more on the June 10, 2025, Ask an Advisor episode of the Clark Howard podcast. Submit your questions at clark.com/ask. We hope you enjoy our weekly Ask An Advisor episodes, in which Christa and Wes discuss investing and retirement savings in depth. Let us know what you think in the comments! Learn more about Wes: BOOKS BY WES MOSS / Wes Moss, CFP® Learn more about your ad choices: megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices
Transcript 0:04 Speaker 00 Welcome to Ask an Advisor. I'm Krista DeBias here with Team Clark member Wes Moss, fiduciary, financial advisor, extraordinary, podcast host, radio host, author.
0:17 Speaker 01 A lot of stuff, a lot of stuff.
0:19 Speaker 00 You wear a lot of hats, dad of four.
0:22 Speaker 01 Yeah, which by the way, in the summer is really ramps up.
0:26 Speaker 00 Oh, I'm sure it does.
0:27 Speaker 01 Really ramps up when everyone's home.
0:28 Speaker 00 I loved your whole thing about the list of things you're having your boys do this summer.
0:32 Speaker 01 It's actually turned out to be a really fun project.
0:35 Speaker 00 That's awesome.
0:35 Speaker 01 Lot of resistance in the beginning, but a lot of, it's been really fun this summer.
0:39 Speaker 00 Wow, that's great. Today, you're going to talk about, first of all, corporate earnings. How much should we pay attention?
0:45 Speaker 01 Love that topic. Yeah, let's do that.
0:46 Speaker 00 How important are corporate earnings? Should they ruin our day, make our day, or month, or year, whatever?
0:51 Speaker 01 Should we pay attention?
0:52 Speaker 00 Should we pay attention?
0:53 Speaker 01 Who should pay attention? Yeah.
0:54 Speaker 00 And then the rule of 55. You've mentioned it before, but you're going to get into that today.
1:00 Speaker 01 Yeah, it's a, it's a super important rule that doesn't get a lot of press. It kind of flies under the radar. And I was thinking about it and there's a couple of reasons why I under, I think it does, but we'll bring it to light here. I think our audience, we have a very smart audience and I think they, our audience probably knows about it, or at least has heard about it. So we'll, we'll dive into that one a little bit too. But let's start with corporate earnings.
1:22 Speaker 00 Yeah, let's do it. And we'll go to questions as well. And if you have a question, Clark.com/ask.
1:27 Speaker 01 There have been a couple of questions around earnings and I think that's why we wanted to do this topic. Question is, should retail investors, not mutual fund managers, hedge fund managers, should you as a retail investor care about corporate earnings? Should you understand? Should you know? Should you follow corporate earnings? There was a group, there were 300 people at a bar in New York City recently for not a football game, not a baseball game, not a basketball game, but a corporate earnings party for Nvidia. And you start seeing that around, that's the first time I've ever seen a financial news network cover an earnings party.
2:08 Speaker 01 At a bar and then maybe that's part of the reason why this topic keeps coming up. And the short answer is yes, of course, we should all care about earnings. And here's why earnings are, if you were to go and try to look at all the different metrics of the marketplace and/or companies, you can look at revenue, you can look at net income, you can look at margins, you can look at gross margins, net margins, you can look at wage growth. I mean, there it's almost an endless list. If you're looking at metrics for companies to figure out, hey, how is this company doing financially and should I own it? Should I buy it? Should I sell it? Should I continue to own it? But really it comes down to, and it's for individual companies and for the market as
2:51 Speaker 01 a whole, earnings are almost, they're not the only thing that matters, but they are the paramount metric that any company looks at, whether you're a private company and then particularly a public company. So the short answer is yes, of course, we all need to worry about earnings and care about earnings. The other question would is if I own individual stock, should I be on these earnings calls? Should I look at every single earnings report? Or if you're an index fund investor, I think those are two categories that are somewhat different. You're an index fund investor, you should care about earnings, but if you were owning the S and P 500 or the Russell 2000 and you own hundreds or thousands of
3:34 Speaker 01 stocks, then in any in particular earnings call really doesn't have that big of an impact. But the overall market, and I really like looking at the overall earnings of the S and P 500. And this is very interesting. If you track just a line that is earning. So if you go back to the year 2000, the aggregate earnings of the S and P 500, and then by the way, earnings is expressed as a total number and then per share. So if a company earns a hundred dollars at the end of the year and there's 10 shares and it's $10 per share, or if the company earns a hundred dollars and there's 100 shares, it's a dollar a share. What really matters is that what's coming next is the company going to earn
4:15 Speaker 01 a dollar and five cents or is the company going to earn a dollar and eight cents? So it's earnings and then earnings growth. And that's what the market cares about. Aggregately, go back to 2020 or the year 2000, the total S and P combined per share, this is a number we can also track was about $55 total.
4:36 Speaker 00 Can I ask a quick question? I'm sorry, it's very basic, I'm sure, but when you're talking about earnings per share, is that net earnings? You're always saying about net, right, of expenses?
4:46 Speaker 01 You are.
4:47 Speaker 00 Okay.
4:47 Speaker 01 You're looking at, well, it actually can be expressed in a couple of different ways.
4:51 Speaker 00 Okay.
4:52 Speaker 01 But usually you're getting to the bottom line. What are earnings? So just the net profits of a company. Now, there's another metrics that would be net income.
5:00 Speaker 00 Mm hmm.
5:01 Speaker 01 But the earnings number is what essentially the company is bringing in revenue, paying their main costs, and those are earnings. Now, they can be adjusted, and you can say, well, we're going to go build another factory. We're going to spend some money for that. But what is the business doing? What is just the overall, what's left at the end of the day before I go out and make 10 other purchases with some of those earnings?
5:25 Speaker 00 Got it, sorry.
5:25 Speaker 01 It's a number of financial strength. And if you look at how this has gone for the S and P 500 over the last, call it 25 years, in the year 2010, it was $83 in aggregate. In the year 2015, it was $106. In the year 2020, it was $94. And for 2025, estimates are around 220 bucks, depending on where you're looking. So if you look at a chart of aggregate earnings for the S and P 500 over time, and you plot the actual level of the index, you'll see that they don't follow perfectly, but they look very similar over time. Yes, there's some times when markets dip and earnings stay steady, or earnings will
6:08 Speaker 01 dip and markets are above them, but pretty much those lines eventually converge. So if there is anything to look at for the growth of, let's call it the US equity markets, it really comes down to earnings and the growth of earnings. So if I'm an index fund investor, I care about that a lot. And I think about that, I talk about it on different radio, on our radio show and in the podcast, because ultimately, that's what it comes down to, earnings. And earnings growth. If we lived in a country where this went from $220 in aggregate, down to $100, down to 75, down to 50, we would have a real problem and we would not be in an environment where stocks go up over time. The only reason stocks go up over time is because
6:53 Speaker 01 earnings have gone up over time. And we expect in this country and as investors for that to continue. Now, it's not every company, of course. Some companies will dip in any given year. Some companies go out of business, but the vast majority of companies do a really good job of just slowly ratcheting the business better and better and better. And that's usually expressed in an earnings number. Now, if I'm an individual stock investor, they take on, I would say, a heightened level of importance. So we do want to understand, even if you're a retail investor, relative to a hedge fund manager or a mutual fund manager, the companies that you own over time, and it doesn't have to be perfect symmetry every quarter, and most companies are not like that,
7:37 Speaker 01 but over time, we want to see earnings growth. You do not want a company that has declining earnings over time. That's, that is usually, not always, but usually a real problem. So the earnings matter to retail investors, absolutely. Profits matter. That is the absolute core of markets over time. Do you need to obsess over every single quarter? Usually not, if you're a buy and hold investor, but you do want to understand that earnings over time are going in the right direction.
8:03 Speaker 00 Okay, we'll go to some questions now. Clint in New York says, I hold seven different stocks in a fidelity non-retirement account and receive secure emails requesting my proxy vote prior to the annual company meeting. I always vote as the board recommends. This seems to be the easy way out. Is this a good practice? There are also detailed and lengthy materials to review. I never do. Who has the time to read through all these documents? Even if I do go over all the materials, I would be even more confused on how to vote. I once heard there needs to be a minimum number of shareholders casting votes or the resolutions cannot pass. Is this true?
8:38 Speaker 01 It's funny, you may get two or three proxy. So proxy vote is really just like a ballot for a shareholder, because you own a slice of the pie. You get a vote, just like being a Citizen here in the United States, you get to vote and proxy is just the term for the piece of paper or electronically, obviously, we can do it now on how we can vote on board nominations, on mergers, acquisitions, anything major that the board has to undertake, they're going to vote for it. But guess what? All the shareholders get to vote too. And if you have seven different stocks, you're going to get maybe seven, maybe 14, maybe 21 different proxies a year. Imagine if you own 100 stocks, you're going to get hundreds of
9:19 Speaker 01 proxies every single year. So the short answer is they do matter, but it is proportional. So if I'm a mutual fund and I own 50 million shares of a company, well, guess who has a bigger say than me as an individual investor owning 100 shares of a company? So a fund is going to have a whole lot of say so when it comes to that vote because they proportionally own a lot more and they have that many more votes. So can you outmatch five mutual funds that own hundreds of millions of shares of company? The answer is not really. It doesn't really move the meter. However, boards do want to hear the voice of the collective
10:01 Speaker 01 ownership group because everyone that owns stock is an owner in that company. So imagine if 1,000 or 10,000 individual owners, even if it's only a couple hundred shares, they want to know what the ownership group is thinking. So I think that if you own 100 shares, does your voice really move the vote? Technically it does, but what is more important, I think, is to give yourself a voice of what you think the company should be doing. I think companies do listen. Now, the board's usually going to get their way because they're lobbying big owners of this, big owners of the stock usually. So I think you should vote, but it's not the end of the world if you don't. You don't need to make a vote
10:44 Speaker 01 on every single proxy, but if you care and you have an opinion about it, by all means.
10:49 Speaker 00 All right. And Doug in Pennsylvania says, what do you think of the 6270 Social Security strategy where the higher earning spouse waits to 70 and the lower earning spouse claims at 62? In my specific situation, I earn about a third more than my wife. We both plan to retire and stop working later this year, me at 67, her at 62. We have enough assets to fund our life if we decide to both wait to 70, but that monthly Social Security deposit would be nice.
11:17 Speaker 01 Would be nice. It is. And it's money today, Doug. I do like the 6270. So what Doug is asking here is, we all know that we can wait and maximize our Social Security if we wait till age 70. So it's, in some circles, it's blasphemy to start early. 62, why would you ever take it so early? You have such a reduced amount. It's a third less than it would be if you wait just to your FRA, your full retirement age. But remember that Social Security, when you decide to claim, you and/or your spouse, it's about optimization for your financial situation, not maximization. So this one, to me, thinking of it this way, where the lower earning spouse takes it 62, and then you wait, you're higher, you're
12:02 Speaker 01 almost splitting the difference. So you're waiting in one respect, and you're taking cash flow today in another. And that, to me, can be an optimization strategy for your plan. The reason I also really like this for couples, particularly the higher earning spouse, is that, and if Doug, you're the man in this situation, and actuarially, your wife will live longer. So there's an argument to be made that if you get to 70, and you have that much higher payment, and I've seen people wait to 70, and their Social Security payments are $4,000, $4,100, $4,200, over $4,000 a month. And even if your spouse has a low Social Security payment,
12:46 Speaker 01 If you pass away, she will then assume what your payment was. So let's say that you've collected social security for many years because of inflation, it's all the way up to $5,000 a month. Hers isn't even close to that because she started early. Something happens to you. It's a little bit of an insurance policy for income for her and she will assume she doesn't get to keep her payment plus yours, but she will assume your higher payment if you pass away. So it's a little bit of income insurance to me. And because we, nobody knows exactly when the clock's going to expire.
13:18 Speaker 00 Right.
13:19 Speaker 01 One of our questions, I don't know, a couple of weeks ago said, I want to try to figure out what it takes to social security, but there's one caveat. I don't know when I'm going to die.
13:25 Speaker 00 Right.
13:27 Speaker 01 Just one caveat. Of course you'll know what we, of course we don't know when we're going to die. And that's a good thing.
13:31 Speaker 00 Yeah.
13:32 Speaker 01 So I like, this is a splitting strategy. You're kind of splitting the difference between taking a low payment and waiting and taking a much higher payment. It's an optimization strategy, Doug, and it sounds like in your situation, it can make a lot of sense.
13:45 Speaker 00 Sounds great. All right. Now, when we come back, we're going to talk about the rule of 55.
13:52 Speaker 01 Welcome back to Ask an Advisor here on the Clark Howard Show. Wes Moss, along with Krista DeBias, here in, I don't know if we, do we call this a studio?
14:01 Speaker 00 It's our studio. Yeah, absolutely.
14:03 Speaker 01 I'm so used to radio studios that have all the different things. Well, we do have some acoustic paneling on the wall, acoustic paneling. So we're not echoing.
14:11 Speaker 00 This actually, this set, how much do you think it cost us to build this whole thing behind you?
14:17 Speaker 01 This thing is really a monitor. So that's got to be at least 50 bucks. Those little plants were probably free, I would say, all in $72.50 here on the Clark Howard Show.
14:30 Speaker 00 How much would it really cost to build out this whole thing on the wall?
14:34 Speaker 01 Usually it'd be a thousand, I mean, it'll over a thousand dollars because of all this paneling.
14:38 Speaker 00 Oh, yeah. It'd be multiple thousand dollars, I would think. It wasn't.
14:42 Speaker 01 It was. Okay.
14:44 Speaker 00 We bought this behind us on Amazon and had someone kind of put it together. We covered these panels with fabric because, so that way for the sound.
14:51 Speaker 01 Self upholstery?
14:52 Speaker 00 Yep. I don't remember how much the monitor was. Yeah. I mean, Clark doesn't even know how much it cost.
14:56 Speaker 01 Well, so what's the answer? How much did it cost?
14:58 Speaker 00 The total in, I think, was like $1,200.
15:01 Speaker 01 Yeah, it could be several. I would think.
15:03 Speaker 00 And that includes somebody working on it.
15:05 Speaker 01 I tried to reupholster a chair once. I would think I was like two years out of college and I'm still shocked by furniture prices. I it's hard for me to buy furniture. Furniture and curtains are like a dagger with for me when it comes to spending, even though it's great to have curtains. I'm always so shocked at the prices and a chair. So, and I think this is a year or two out of college. I got an old chair and a friend of mine, one of my roommate's mom was an art teacher. So she was crafty about reupholstering and we reupholstered this chair. And the mistake I made was that it was a non breathable faux leather. Oh, so it was almost like a covering the chair in a balloon.
15:49 Speaker 00 Oh, my gosh.
15:49 Speaker 01 So as we put it together, it had no give. Yeah. So it almost like it popped.
15:54 Speaker 00 Oh, wow.
15:54 Speaker 01 You sat on it and it was a total disaster. I'm not going to reupholster anything.
15:58 Speaker 00 No.
15:59 Speaker 01 After that.
16:00 Speaker 00 Leave that to the professionals. I've reupholstered chairs, like cushions, like just like on a dining room chair, but even that I feel like I didn't do the best job.
16:09 Speaker 01 All right. So we're going to run into what a great segue into talking about the rule of 55 and upholstering chairs. The, this is a topic that I think it's overlooked. I think our audience is super smart and I, and part of the reason I wanted to cover this is that we, we've gotten a couple of questions about the rule of 55. I think some, one of our listeners or viewers said, Kate, can you cover this a little bit more in depth? So I took that as a cue to do that. So first of all, let's start it this way. Getting to retirement sooner is just better. And that's my opinion, but it's also based on, well, it's based on real life, seeing people being able to retire a year or two sooner or three and what that does to their life. It also goes back to some of my more recent research. And I don't know if I even,
16:54 Speaker 01 I didn't ask this question, but I'm always looking at kind of state of happiness and where people, how are they're feeling in their life? And I usually measure it in five different. Buckets and what was one thing that came back because you're able to tell in this research who's not retired and who is retired and retirement is defined as a state where you no longer have to work if you don't want to. What was interesting is that there was a statistically significant and large jump for the the population that was going from not retired to retired, meaning that retirement in itself increases the propensity for us to be living better lives. And I guess I've known that mostly, but to see it with a
17:39 Speaker 01 large national survey and statistically significant, I think it just puts more wind in my sails of just say, look, this is a goal we want to get to. And it helps with our overall sense of well being and our happiness. So that's why, to me, I'm just an advocate for this. If we can get to retirement a little bit sooner, it's just better. And this is a rule that does that. The rule of 55 allows you to access your money at 55 without penalty versus the normal rule that I think most people know, which is age 59 and a half. Now, I think everybody understands and most people know that rule, the 59 and a half rule from an IRA. Well, I can start tapping my retirement money on a 59 and a
18:22 Speaker 01 half without penalty. And I think the reason is that it's just a black and white rule for the most part. And it's also a penalty. It's associated with, well, I get a 10% penalty if I do it before that. And we don't like penalties. We don't like tickets. Who likes a speeding ticket? Who likes a fine? And that's kind of what happens. If you're 58 and you want to tap money from your IRA, and you pull out a big chunk of money, unless you're using another new, very nuanced rule, which is the rule 72T, which we're not going to cover today, you're going to get dinged by 10%. If that same money were in a 401k,
19:02 Speaker 01 then there's a very good possibility that you're able to access it at 55 plus, which is almost five years sooner. Five years sooner to retirement sounds really good to me. And the reason it's a little more under the radar in the IRS code, and I think in being spoken about is because there are a couple more layers to the rule of 55. So the good news here is if you qualify for it, you can start tapping your retirement money at 55 without the 10% penalty. Great. But one, your plan has to allow for it. Now, even though it's in the IRS code that this is allowed, not every single retirement plan, 401K, 403B, et cetera, adheres to this.
19:42 Speaker 01 There are some statistics, I've looked this up, some, I think Vanguard or someone did a study that said 85% of plans allow for this. So even though it's in the IRS code, not every plan allows for it, but the vast majority of plans do. So that's a good, it's one wrinkle. The other wrinkle is that you have to have left your job at age 55 or later. And you have to leave behind that 401K at that previous job, and that's the only one that qualifies. It's not you turn 55 and all 401Ks you've ever had in your past history automatically qualify. It's only the one for the job where you made it to the age of 55 and then left at 55 or older.
20:24 Speaker 01 So there's another little wrinkle. So this is why there's some layers to this, a little, this is some financial terremoto here. And this is why it's a little less well-known. The other caveat is that I get this question, well, I, I just left my job. Do I qualify? Well, I was laid off from my job. Do I qualify? It doesn't matter. It's if you leave that job for any reason, you choose it, the company pushes you out. As long as you're age 55, in the calendar year you leave, and it's that same 401K, then that is very much could be eligible for this early withdrawal, age 55, not 59 and a half, without the 10% penalty. There's a couple of stories around this. Let's call him Jim in Rome.
21:08 Speaker 01 Left his job at age 55, had $250,000 in a 401K, but he had a lot of money in other IRAs. Well, there's also something that we can look at called a reverse rollover. Now, one thing you can't do to access his role is leave your job. And then all of a sudden roll money into a 401k so you can access it. So it's gotta be there. The money from a reverse rollover, which would be taking IRA money and rolling it into a 401k.
21:37 Speaker 00 I didn't know you could even do that, honestly.
21:40 Speaker 01 Absolutely. You can consolidate. Again, if it makes sense for your situation, you're doing the analysis and the comparison of the funds and the fees over here, funds and the fees over here, if it makes sense for you. And this is one of these situations where it might make some sense. You can then, almost as a, as a safety measure, to get extra cushion is the way I look at it. Jim in Rome could, let's say at 56, he's still working, he's worried about his job going away and he may get laid off and he might need to access that money. He needs $40,000 a year and there's only 200 in the 401k. Well, he could before, while the sky is blue, things are still good. He could always take, he could choose to
22:23 Speaker 01 roll some of his IRA money into his 401k. And then if he gets laid off, or he chooses to leave, he's, let's call it 56, 57, that money's in a 401k and that very likely could be eligible for withdrawals without the 10% penalty. If he's got to pull $40,000 out a year, doing that from an IRA, it's a 10% penalty. So that could save him 4,000 bucks a year and early access to a big pool of money if you plan it right.
22:52 Speaker 00 All right. Well, that is very cool.
22:54 Speaker 01 It is cool. It is kind of a cool role.
22:57 Speaker 00 If you can swing it, right?
22:58 Speaker 01 If you can swing it.
22:59 Speaker 00 All right. We have questions here. This one's from Scott in New York. I'm looking to get Wes's thoughts on rules-based funds and ETFs like Dimensional or Adventis. Are these funds and ETFs still considered passively managed? Expense ratios are typically three times the amount of Vanguard. What do you think Jack Bogle would think of these funds since their costs are considerably more than traditional index funds and ETFs? I think of Bogle's cost matter hypothesis versus the efficient markets hypothesis. Do lower costs always win?
23:31 Speaker 01 I can just tell you, John Jack Bogle would have a conniption fit, may he rest in peace, if he were asked this question.
23:40 Speaker 00 So would Clark Howard.
23:41 Speaker 01 And so would Clark Howard. What?
23:45 Speaker 01 Three times the fee, three times. Yes, costs matter. You really can't argue with that. They do matter. They do matter. Here's what Scott said, is that you can own a passive S and P 500 fund or total market index fund and the costs have gotten to be, mutual funds used to be 1%, not index funds, but, and now index funds have gotten below 0.1 of a percent. A lot of these are 0.02. So they're borderline free. There's almost no cost in some of these. So why would you pay 20 basis points versus 0.2? 0.2 is actually 10 times more.
24:31 Speaker 01 It's not just three times, Scott. It's 10 times more. Why would you do that? Why are there so many of these? And why are there hundreds of billions of dollars in these? Well, there's a couple of reasons. One, when you're in a totally passive index, it's just, it is just that. There are no rules. The only rule for most market cap weighted ETFs is that they just follow whatever's in the index as closely as they can. And that's why there's really not a lot of management to do. It's just whatever's in the index is going to be in the fund of the ETF. So there's virtually, it can never be zero cost in it, but there's very little cost. But you are then totally exposed to whatever that index is. And there's always, there's some concern, particularly in the last couple of years,
25:13 Speaker 01 that there's some drawbacks to that, too. There's concentration risk. We know that the top 10 companies in the S and P 500, 10 out of 500 make up 30% of the total index because of their size or cap, based on the size of these companies. So if you're an investor that wants to do something, anything different than that, you're going to have to find an ETF that has some rules around it. And I would call a lot of these ETFs semi passive or factor ETFs, because they have factors that they say, here are the three factors that we're going to screen for. For a stock to make it into our ETF. So again, doesn't take a research team of 500 people flying all over the world, visiting
25:56 Speaker 01 companies, but it does take a team to make sure that there's screening for companies that could be, again, pretty much any variable we want to look at. Earnings growth, ROE, EPS growth, EPS stability, beta, momentum. There's so many different metrics, but fundamental value, dividend growth is one. Companies can't be in our ETF unless they've grown the dividend for five years, or 10 years, or 20 years. So I do like these semi passive, rules based, or factor oriented ETFs, because they give us some more options beyond just, just the index. I think just the index is great for a lot of people, or a big percentage of their money.
26:41 Speaker 01 But it's not perfect for everyone all the time, or for their, for 100%. So I would try to find the factor ETFs that are based on variables that you believe in, give you some comfort, and make sure those costs are as low as humanly possible, but they're going to be a little bit more than a plain passive ETF or index fund, a cap weighted index fund. I wouldn't fully discount them. Maybe Clark does, maybe Jack Bogle does, but I use some of these factor rules based ETFs, and it gives me great comfort knowing that I'm investing the way I would like to invest for a portion of my assets.
27:19 Speaker 00 Okay. Danielle in Virginia says, I started a new job recently and have two questions. I currently have an IRA with about $200,000 that's from a previous employer, 401k rollovers, and a little bit of direct contributions I made in previous years. My new company uses Fidelity for their 401k. Can I roll my existing IRA into the new 401k? I'm very close to the Roth income limits and would like to do a backdoor Roth once I'm over the limit, if possible. Additionally, I had an HSA at my previous employer through April. My new company doesn't have a high deductible option. Can I go back and max out my HSA on my own? I'm also Planning to max out the FSA. I'll be able to use it up this year with medical vision and dental
28:05 Speaker 00 and cover the over the counter purchases.
28:07 Speaker 01 Well, this one's easy because all we're talking about here is the IRA, the 401k, the HSA, the FSA, and the proration of the FSA in relation to her 401k at a backdoor Roth rollover. That's all it is. So Danielle, there's a lot, there's a lot to this one. So let's start, I think the easier, well, the bigger bite of the apple here would be that if you're looking to do those backdoor Roth conversions, it would make it a lot simpler to not have a regular IRA, because when you have a regular IRA standing out there and you're doing one of these backdoor Roth conversions, then you run into this proration rule of what's already in the IRA versus what you're contributing.
28:47 Speaker 01 So it could make it a lot less messy to take the IRA, if that's your primary goal, is to just have all 401k money. And this goes back to, we were talking about this on reverse rollovers. You can, you have the option usually to take retirement money from an individual retirement account and roll it into a company retirement plan, 401k, 403B. So I think that would make the Roth conversion potential a lot neater. And that's an easy move to do if you like your 401k plan. So that's one. Two, from what I could hear on the HSA, the Health Savings Account, which you need to be in a high deductible plan. We have one of these where I work. We have a high deductible plan and we were able to contribute to the HSA.
29:31 Speaker 01 But because you were only in one or covered by a high deductible plan for, it sounded like till April. So that means that she's only got about four months of coverage. It may mean that you can only contribute a prorated amount. So four months out of 12 is a third of the total, which is about 4,300. So it may be that you can only contribute 1,200 bucks, whatever the math is on that. 4,300 times point 33.
30:01 Speaker 01 Yeah, $1,400 approximately. Now, I don't know if you go then back in a new employer to another high to difficult savings plan, I would think that would allow you to increase those contributions as well, but that starts to get a little messier.
30:16 Speaker 00 But they don't have a plan anyway at her new employer.
30:19 Speaker 01 Oh, they don't have a plan.
30:20 Speaker 00 Right.
30:20 Speaker 01 Okay, so right, so the HSA would then only likely be that prorated amount from what I can tell. And then the FSA, the flexible spending account, that is one of those user to lose it. So if you put money in, if you have $1,000 in an FSA, at the end of the year, it's not used, you do lose it. I actually have never used an FSA just because of that worry and that issue of losing out on the spending. So I would focus your attention and energy on the HSA versus the FSA.
30:49 Speaker 00 And if she's already maxed out the HSA, and she's saying she will use all the money in the in the FSA this year, and I would say if you think you you really think you can, you know, you're going to have these expenses, and if she has to prorate the HSA, and she's already contributed her max with the old employer, maybe go ahead and just do the FSA this year if you know you'll be able to use it all.
31:08 Speaker 01 Well, yeah, if you know you're going to use it, absolutely.
31:11 Speaker 00 Yeah.
31:11 Speaker 01 Particularly if she's limited on the HSA contributions.
31:16 Speaker 00 Okay, great.
31:17 Speaker 01 One-two punch for healthcare.
31:18 Speaker 00 Yep. Well, that does it for us today on Ask an Advisor. Thank you so much, everyone, for tuning in. We really appreciate you and hope the rest of your day is fantastic. Thank you, Wes.
31:28 Speaker 01 Thank you.
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