08.26.25 Ask An Advisor With Wes Moss

A retired couple’s home renovation plans nearly triggered a massive, hidden cost that no one wants to pay: the Income-Related Monthly Adjustment Amount (IRMA). Fiduciary financial advisor Wes Moss breaks down how a simple plan to pay for a renovation could have led to thousands of dollars in extra Medicare premiums and what you can do to avoid a similar fate. Also, Wes dives into the world of AI and financial planning. He explains why AI is a powerful tool for analysis, but warns against using it as a fortune teller. Find out how you can use AI to your advantage while avoiding the dangerous pitfalls of letting it make your big financial decisions for you. Plus, Christa shares your #AskWes questions and Wes gives his take. All this and more on the August 26, 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

• 0:00Speaker 00

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• 1:04Speaker 02

  Welcome to Ask an Advisor. I'm Krista D. Piaz.

• 1:08Speaker 03

  Wes Moss here.

• 1:09Speaker 02

  Hello, Wes.

• 1:10Speaker 03

  I'm wearing a blazer.

• 1:11Speaker 02

  I love Balada.

• 1:12Speaker 03

  Sharp look. You know, there was a vest and then people would say, wait a minute, how can you be wearing a vest in the middle of the summer? Blazer.

• 1:19Speaker 02

  I wear my same Clarka form, my same shirt.

• 1:22Speaker 03

  Clarka form. I don't know, have you ever seen Clark in a blazer?

• 1:26Speaker 02

  Yes, I've seen Clark in a suit.

• 1:28Speaker 03

  Oh, yeah.

• 1:28Speaker 02

  And you know, he paid very little for the suit.

• 1:30Speaker 03

  I believe that.

• 1:32Speaker 02

  He has a dollar, I don't know if he still has, he had a dollar suit that he got at a thrift store. I'm not sure if he still has that, but I know he pays less than a hundred.

• 1:38Speaker 03

  A $1 suit?

• 1:40Speaker 02

  Mm-hmm.

• 1:41Speaker 03

  That's amazing. Only Clark can do that.

• 1:43Speaker 02

  He has a $99 tuxedo.

• 1:44Speaker 03

  I believe it.

• 1:45Speaker 02

  Yeah.

• 1:46Speaker 03

  I believe it.

• 1:47Speaker 02

  Anywho, on Ask an Advisor, we go deep on all things investing. And today, I know later on, you're going to get to something that we've been getting questions about AI's role in investing. I think that's going to be really interesting. And then you gave me a tease, which I found very compelling. If one couple's renovation can affect their Medicare.

• 2:09Speaker 03

  Their Medicare costs, their IRMA, their income-related monthly adjustment when it comes to how much they're paying for Medicare part B and part D, as in David.

• 2:21Speaker 02

  Okay, and I've got lots of questions for you, so you can send those questions in at clark.com/ask for Clark Howard or for Wes Moss.

• 2:30Speaker 03

  It is funny, IRMA is, it's an interestingly long acronym that nobody wants to really deal with. Income related monthly adjustment amounts.

• 2:42Speaker 02

  Okay.

• 2:42Speaker 03

  It's one of these acronyms that I have just taken for granted. IRMA, it's, that's what Medicare costs, but that's what it stands for. Imagine, and this is me sitting down with a family and they came to me, we'll call them Wit and Jen.

• 2:56Speaker 02

  Okay.

• 2:56Speaker 03

  This is a real life story. First of all, they're in their early seventies. Second of all, let's just say all their assets pretty much are IRA, not Roth, not brokerage. It's all IRA money. What does that mean? It means that whenever they take money out, it becomes income. It impacts what their total income is for the year. So they came to me, they said Wit and Jen said, look, we've got to do a small renovation. Let's call it a small house project. Doesn't matter what it is. It could be landscaping, it could be the kitchen bathroom, you name it. But it was, it was a big number. They needed $125,000 net.

• 3:36Speaker 02

  Wow.

• 3:36Speaker 03

  Remember, $125,000 from an IRA is not just 125. If that's the net, you've got to adjust for your taxes and the gross amount can be a lot higher. And they said, but the way our income is right now, we essentially, we don't have Medicare costs because the way Medicare premiums work, part B and D, are that if you're under a certain income range, technically two years ago for this year, so it's always a two-year look back. If your income was $212,000 taxable income, it was under that, and this is a married couple filing jointly, then their Medicare premiums should be zero. And they want to keep it that way.

• 4:19Speaker 03

  But they have income, but they need to take out a big chunk of money, which oh, by the way, that big chunk of money counts towards their income. So it could all of a sudden invite the aunt, Irma, that no one wants to have move in. One aunt, Irma, she is not the aunt that you want to invite into your, your house because it costs money. So going from the zero Irma cost, once you crest above the level, the different levels for, depending on how you're filing your taxes. They would go up to call it 75 bucks a month approximately 74 bucks per month per person plus another 13 or 14 bucks. Call it $90.

• 5:02Speaker 03

  It may not sound like a lot, but wait a minute, 90 times two is 180 times 12. 2100, it's two, over $2,000 a year that just cresting above that level. They didn't want to do, which makes sense. And the question is, how do you do this? How do you pay for the renovation? When you, you really have to take the money out of an IRA unless you do a home equity line, which was a consideration.

• 5:28Speaker 02

  Right, that's what I would think.

• 5:29Speaker 03

  But we decided not to do that because the way their income worked, getting to the number, and I don't know if I should Krista go through the exact numbers here. Let's just call it in order to calculate their income. They have two social securities every month and they've got a pension. So they've got some income coming in, can't control that, you're gonna get it. And Jen has just started her RMD, so she already has to take out some money from her IRA and that counts as income. And taking the gross amount out to really get down to the 125 required something like 150, let's call it gross. And that would put them over their Irma.

• 6:12Speaker 03

  So they said, wait a minute, we can't do the renovation or how do we, how do we do this? Now you can naturally say, well, I said, hey guys, maybe you take out enough right now so that you stay under Irma. So maybe you only take $80,000 out of the IRA. We knew, we knew that would keep them under. But they said, well, now the contractor, they're ready to go like today.

• 6:34Speaker 02

  Yeah, right.

• 6:35Speaker 03

  Yeah, I know.

• 6:37Speaker 03

  That's what they said.

• 6:38Speaker 02

  I mean, it always takes twice as long as you think too.

• 6:41Speaker 03

  But certainly this is something that will be done before the end of the year for them.

• 6:46Speaker 02

  Really?

• 6:47Speaker 03

  Yeah, a lot of this, this particular renovation, a lot of it was landscaping. So it's not.

• 6:51Speaker 02

  Call me cynical, Wes.

• 6:52Speaker 03

  Kitchen, a bath where they're waiting for Krista to pick out the tile.

• 6:56Speaker 02

  I mean, I've done so many renovations. I just, yeah, it always takes like twice as long.

• 7:02Speaker 03

  So a couple of ways to solve for this. You could say, well, wait a minute, this thing is going to span this year and finish up next year. Then you could just pump the brakes, take some out of the IRA today, some out of it next year, calendar year 2026, easily avoid Irma. No, no, no, can't do that. We need to pay for it this year. So what we ultimately after, and I will say that this is a withdrawal strategy question. It is, we talk a lot about in our segments here together, our shows here together about controlling and managing your taxes. It's such a huge part of financial planning. You've commented on like, wow, a lot of this has to do with taxes. Right. Just remember, I'm not a CPA. So you would really want your CPA to run this to get the exact details because that calculation is pretty complicated.

• 7:46Speaker 03

  It's social, how much of the social is taxed? Is it 0%? Is it 50%? Is it 85%? But that also has to do with your other income. If you don't have the IRA withdrawals, it affects it one way. If you have a big IRA withdrawal, it affects it another way. So you've really got to dial in the taxes here. But we worked it out to essentially say, okay, the spreading it out over two years, that could help and probably easily keep them under the IRMA level. Another thing would be to take a home equity line and pay for part of it with a home equity line. And again, reduce the amount of how much they wanted to take out, they needed to take out of their IRA. Whit and Jen didn't like this because their house has been paid off forever. They don't want to re-put a mortgage on the house.

• 8:29Speaker 03

  Whit told me Jen would just doesn't, would never go for that. Never, I don't want to put my house as, I don't want to now have debt on my home. I get it. So here's the third strategy to maybe make this work is withdraw just the net amount and pay no taxes. You still owe the taxes, but if you pay into your taxes 110%, safe harbor of what you did last year. So if you paid 10,000 in taxes last year, you would have to pay 11,000 this year to be in safe harbor, even if you owe a lot more this, for this year. Well, guess what? If you do the safe harbor, you don't have to pay those taxes till April 15th of 2026, the next year.

• 9:14Speaker 03

  So it's another way to spread it out. Take the money out, don't withhold the taxes on it this year. Make sure you're paying in safe harbor, the 110% of what you paid in last year. Then you have a whole nother quarter of a year to then to do another withdrawal to make sure you pay for those taxes. So there's so many different ways to solve for not inviting Aunt Irma into the house because she stays for a long time. Once you click over that level, now you've got new Medicare costs and it's going to be that way for the entire year. In addition to making sure you button this up with a CPA tax advisor, is to just know that we don't even know what the Medicare income limits are going to be are for this year for your Medicare in two years.

• 9:57Speaker 03

  We don't even know. They haven't published it yet. It might be higher than the 112, but we don't know. So all we can go on is what they are for Medicare in 2025, based on two years ago, 2023. So we're just trying to play it safe and glide under the $212,000 income level, which of course, there's a lot of tax calculation there, standard deduction, et cetera, for them. That needs to be calculated with a CPA and there's a couple of ways to solve for keeping your income under these different levels so that your Medicare cost, your Irma, doesn't go up.

• 10:32Speaker 02

  Okay. You ready for questions?

• 10:34Speaker 03

  Yes.

• 10:34Speaker 02

  This is from Jack in Oklahoma. Can Wes explain tokenization? I see Robinhood is fully embracing it and the SEC appears to be ready to allow it. Pros and cons, benefits, will other brokerage firms adopt this?

• 10:48Speaker 03

  That is a cutting edge question. It really is. So tokenization, and I'm not going to pretend to be an expert on this. It's not as though I've done a whole lot of crypto investing. I own some Bitcoin. I have for a long time, but it's not a ton. Tokenization is taking any asset, a house, a stock, a bond, an ETF, even money markets. The US dollar, really stablecoin, is a version of tokenization for the US dollar. It's a digital proxy for an asset that can be divided up into slivers. So that's what, to tokenize an asset is to turn it into its digital form through blockchain technology that would then allow you to divide that asset up into slivers. And that's what tokenization is.

• 11:34Speaker 03

  Robinhood is already doing this for their European customers. It is not, from what I have read about this, it's not really allowed yet just here in the United States. But they are working on a framework and it's got to get approved regulatory wise. And they're pushing for this to get a framework so that they can tokenize almost anything. Sliver of a stock, or instead of buying a stock, buying a token version of a stock and it's backed by the stock potentially. Stablecoin is a token of the US dollar that's supposed to be backed by treasuries. So it's really the question of tokenization really is the foray into digitizing not just our main currency or the US dollar.

• 12:19Speaker 03

  Really digitizing almost any asset that you want and the technology is there to do it. The regulatory framework is not there just yet to do it here in the United States, but it's pretty clear. It's that's the direction we're moving and I, I don't think it's a bad thing at all. I just worry, I think the risk that I, it's in the back of my head is that you really need the government, the SEC to be, to be a fan of this and back it. And right now, the administration is certainly a tailwind for tokenization, digital assets. The question is, has it always stayed that way? Does the regulatory framework stay pro cryptocurrency? Does it stay a tailwind for digital assets?

• 13:02Speaker 03

  Or does, there's a change, we just don't know. So I, I think that if I were a betting man, it's here to stay. Tokenization, digital currency, cryptocurrency. But the risk would be that Congress at some point looks upon it and doesn't like it and they change the regulations. So the other reason is companies want this is that moving digital assets around the world is much cheaper than the current system we have today. So imagine a company that is doing 100 million transactions a year and, and most of them, they're paying a credit card company to move money back and forth. If money is digitized and tokenized, if you will, using stablecoins, that cost can go down dramatically.

• 13:45Speaker 03

  So there's a lot of positives for companies that are also pulling for this.

• 13:49Speaker 02

  Okay. Edward in North Carolina has got a very interesting question I've never heard before. He says, "I'm 58 years old and have one grandchild who is eight. My son is 34 and is building a social security foundation. I plan to delay taking social security as long as possible. My plan is to become the legal guardian of my grandchild, but allow my son to continue to raise his child in his home. As we know, we don't know when our time may come. So if that's before my grandchild turns 18, my grandchild would be able to collect my social security as long as legally possible. But my son and grandchild are already in my trust as beneficiaries, and this would be extra income that won't be wasted. What do you think?"

• 14:30Speaker 03

  Whoa, I would say he's trying to be smart about the system. Maybe trying to game the system a little bit.

• 14:36Speaker 02

  Yeah, I would say that.

• 14:37Speaker 03

  But he is, he's thinking, and he's thinking about his grandson. So it's an interesting question. Social Security does not base benefits on legal guardianship alone. It's not enough. At least, again, I'm not, maybe talk to somebody at Social Security about this to confirm this. But my understanding, and again, I could always be wrong here. And Social Security is a complex set of rules, but it's not enough to just be a legal guardian. So the key here is dependency. So unless Ed were to legally adopt his grandson, or provides 50% or more of his support for a year or more,

• 15:18Speaker 03

  and the child lives, has to live with Ed full-time, then that may qualify. But it sounds like just being the legal guardian and doing some paperwork doesn't allow, shouldn't allow, and it would make sense if I really think about this. Every grandparent could just legally become a guardian. They pass away, and then their grandkids get social security until they're 18 or 19, depending on if they say it's called out. So now that I'm talking this through, there's no way that that's, would work. You actually got to be the, not just the legal guardian, but the full-time caregiver. They have to be a full dependent of yours. And it just doesn't sound like that's the case. Now, if Ed's son dies, and then his grandson is still under the age of 18, then yes, he would qualify for his father's, not his grandfather's,

• 16:03Speaker 03

  father's social security dependent, or a portion of his father's, what his benefit would have been. And then that only lasts to 18 or 19, depending on if he's in school. So. I like what you're thinking, Ed, but I don't think it works. It's not that easy.

• 16:20Speaker 02

  David in Tennessee says, should I put the excess money from a rental into the mortgage principal or into an investment account? I currently live in Colorado, but I have a long-term renter in my house in Tennessee. I'm likely moving back in the next two to five years. I currently receive roughly $800 more in rent than the mortgage. The mortgage rate is 4.125%. As best as I can tell, adding the money into the principal does not aid in tax reductions. In terms of savings, my emergency fund is currently at about eight months, including both the mortgage and my current apartment rent.

• 16:54Speaker 03

  Did David say how old he is?

• 16:56Speaker 02

  He did not.

• 16:57Speaker 03

  David from Colorado headed back to Tennessee. David, good problem to have here. You essentially have positive cash flow and it's a classic conundrum question. You just take the money and pay down the debt early to the tune of $800 a month or, which would quote, essentially help guarantee you not paying up 4.125%. So it's almost like a guaranteed rate of return over time, less in interest. So that's the conservative way to do it. And I think if you have plenty of liquidity and other emergency savings, which he did, or he says he does, then that might be a fine strategy. And then you end up mortgage free on that asset sooner than you would have otherwise by paying it down early. And there's great power in that.

• 17:41Speaker 03

  A lot of my research over the years, I've looked at the impact of not having a mortgage on your primary home, and I think this is going to be your primary home. Not having a mortgage in your primary home is really powerful psychologically and it really points and leads towards retirement happiness, which is irrespective of the financial part of that question. So you do want to get rid of the mortgage over time, but just getting the mortgage mostly paid off is the happiness inflection point when it comes to mortgage years left on mortgage. I used to say it was five years now. My newer research says, my latest and new research says, as long as your nine years are left less on your primary mortgage, you're almost in the clear and happiness levels rise.

• 18:26Speaker 03

  Then it's they're much lower. They point towards lower levels of happiness if you have a 30 year plus mortgage and even a 10 year to call it 20 year mortgage. So you want to get under 10 years left. You're paying it down somewhat gets you there quicker. I don't think it's a bad thing. On the other side of the coin, it's not crazy either to just invest the $800 a month and do that in let's either a balanced portfolio or equities because it should over time be growing faster than the 4.125% per month or per year. You should be getting seven, eight, nine, 10, 11% depending on where you're investing. So it's a little

• 19:06Speaker 03

  bit of an arbitrage. You take the safe bunny quote, getting rid of a 4.125 is like making 4.125. But if you already have plenty of liquidity, which he said he did, it would not be crazy. And I'd probably be reinvesting that in liquid retirement type assets if I were you.

• 19:24Speaker 02

  Great. All right. Well, we're going to take a quick break and then you're going to talk about AI and its role in investing.

• 19:31Speaker 03

  Yes.

• 19:33Speaker 00

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• 20:03Speaker 04

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• 20:32Speaker 03

  Welcome back to Ask an Advisor. Wes Moss here along with Krista D. Beaz. We're going to go straight into another leading edge, bleeding edge, cutting edge question or topic. And that has to do with artificial intelligence. How often do you use artificial intelligence, Krista? Every day, twice a day, once a week?

• 20:56Speaker 02

  Um, I probably use it. I would just say I only use it because I still do Google searches, but I use the summaries quite often. So probably once every couple of days.

• 21:06Speaker 03

  Because Google now is AI as well. It gives you an AI answer and then you could go further into AI mode. So really, the world has just changed and regular search is essentially gone. And it's changed into AI search. And whether you're utilizing Google and their version or OpenAI's version, or perplexity's version, or X's version, the old Twitter, they're all pretty similar. Now, as you read through, you use different ones. Some have different strengths on coding and tabling and imaging, but they all will help you write. They will give you answers, of course, in a longer form versus links how Google used to. And that's just the reality of the world today.

• 21:49Speaker 03

  And the question into any of the AI platforms, that's just what we're going to do now forever. The old Googling is just, it's no, it's like a flip phone. It's gone. It'll be around, but nobody's going to use it anymore. So the world has moved to leveraging artificial intelligence. And the question is, how do you use it in financial planning and investing? And I think the way I would start this out is that AI, particularly when it comes to financial planning and investing, is your friend, but it is not a fortune teller. And it is a powerful tool that you have to be careful with. I keep thinking of an airplane analogy. It's like AI is the equivalent of...

• 22:35Speaker 03

  Figuring out how to fly an airplane and it can tell you how to do it and give you all the buttons and the mechanics to do it. And you can maybe get in an airplane and just get, here are the steps and next thing you know, you take off. But that's a super dangerous situation and you're going to crash. And that's kind of how I think about AI is that it is so powerful, it can let you almost do anything, but it doesn't mean that it's safe and doesn't mean that it's right. First of all, I haven't tried this on every single platform, but it's not going to tell you, you can't say, give me the next Nvidia to invest my entire retirement in so that I can turn $100,000 into $1 million over the next 10 years. Absolutely, it's not a fortune teller.

• 23:18Speaker 03

  It can't do that for you. It knows that it really can't do that for you. So from an investing standpoint, it's very careful. At least every time I've prompted it for something like this, it's not going to tell you the next stock that's going to go up 1,000%. It knows it can't and it'll even tell you that. So I think that's to some extent, good. But it's very good for analysis. So again, not a crystal ball, but very good if you know what you want to analyze. So I think of it as really good for building out a cash flow model. If we're talking about stocks, but also within financial planning. So if you're analyzing investments, we'll start there. It could help you with, let's say, what are, give me 10 companies with this kind of free

• 24:03Speaker 03

  cash flow and give me 10 companies that also have this amount of net debt relative to their earnings or their EBITDA. Or give me companies that have grown their dividends for the X number of years and aren't paying out, they're paying out less than 50% of their earnings back into dividends. So it's really good for analysis, but think about what that all is. That's the analysis that you are asking it to just help you with. You're coming up with the analysis. You need to know what you're looking for and then it can help you screen for that. So from an investing standpoint, think of it as a really good research analyst that can help you and sit by your side, but it's not going to tell you the next perfect stock to

• 24:47Speaker 03

  put your retirement in. And again, even most AI would answer it that way and say, well, you can't do that. You should be invested with diversification and broadly, et cetera. So here's some other areas I think it really helps. You can build out your own cash flow and retirement plan model using AI. So you can say, here's my budget. Here are my assets and you give it the math problem to extrapolate over time. I'd like to assume a 5% rate of return. I'd like to assume a 2.5% inflation. My spending, I'd like to be able to spend $10,000 a month in the year 2035. And AI, like a great analyst, sitting by your side, will be able to do that for you. You could do that on your own in Excel, but a lot of

• 25:32Speaker 03

  people can't do that. So AI is a tool to leverage what you're and help you understand what you're thinking and what you're asking. So that's another use of it. You can still use, there's lots of great financial planning software, but I think that if you know how to utilize AI, it can be really helpful for that as well. Here's the next part of this. Estate planning, you can ask it to figure out what would be a good overall estate planning map would be. You can help it analyze, you can upload your stock positions, be careful about uploading actual sensitive information, but if you uploaded your stock positions with cost bases, it could maybe guide you on how to do some tax loss selling harvest

• 26:17Speaker 03

  or tax harvesting. The other area that again, is a little bit like going back to my airplane analogy, it's powerful. So you're going to be really careful with it is planning and understanding your income and your tax situation. There is no substitute for a CPA and a tax advisor that that has done planning for a decade or three decades to really know the nuances of the rules. But as an example, earlier, we talked about trying to stay under IRMA. That's a really complicated question. It's really Definitely. It's really complicated because you got to take into account your income, your RMDs, then you have to look at your standard deduction, and then you have to look at the impact of what taking money out of the IRA that is in a hypothetical world that you're still trying

• 27:02Speaker 03

  to figure out. So I noticed in trying to Figure out the exact taxes here and using the tool for that, using artificial intelligence, the way the questioning went ended up being very wrong because it assumed that it kind of stacked that this was this couple's income when it comes to social security and here's the state of deduction. And then when we were adding in, well, if we take out a hundred thousand or 130,000 from the IRA, what does that do to the income? Well, it just does this and it just calculated what those taxes would be, but it didn't look at the whole conversation. So it was wrong. So you have to understand that it was wrong

• 27:45Speaker 03

  and say, wait a minute, I don't think that's right because I think it's just stacking. So then you have to go back to the beginning and say, okay, well, here's the whole new scenario. Just to start giving you an idea about how those taxes might work. Again, it can tell you how to fly the plane, but if you don't have the knowledge on really how to use it, the plane is not going to stay in the air and it's going to be a disaster. So I would just say that it's very useful, particularly when you have a really strong grasp of a subject and you really know what to ask it and you know when it's answering you wrong or something doesn't add up, you gotta go back and adjust. So I think it's a really powerful tool. It's a friend. It's an analyst that sits by your side, but it's

• 28:29Speaker 03

  not a fortune teller. And you gotta be really careful putting big decisions in the hands of it. Still need real life people that have flown the plane for a couple of decades in order to feel safe.

• 28:44Speaker 02

  All right. We'll go to questions. This one's from John in Georgia. Are REITS, R-E-I-T-S, a good investment? What are the downsides of investing in one?

• 28:54Speaker 03

  It depends, John. Some can be good, some can be-

• 28:57Speaker 02

  REIT is a real estate investment trust, right?

• 28:59Speaker 03

  It stands for Real Estate Investment Trust. So I'd say some are good, some are bad.

• 29:05Speaker 02

  Okay.

• 29:06Speaker 03

  John, the short answer is I've invested in REITS for a long time. Let's talk about the structure for a second. Real Estate Investment Trust means that a real estate oriented company will put together a variety of different real estate assets in a structure that can be publicly traded. And some of the metrics to qualify as a REIT, Real Estate Investment Trust, that company publicly traded, a stock you can buy, has to pay out 90% Of its earnings, of its taxable earnings to you. And the reason the structure came into fold is, well, why would a company want to pay out 90%? How's that good? Well, the reason the structure exists is that so it doesn't get double taxed. So it's so that company doesn't get taxed on its earnings and then it pays it out to shareholders

• 29:50Speaker 03

  and then you get taxed. You still get taxed and dividends or cash flow you receive from REITs is still, for the most part, ordinary income to you. So you get taxed on it. But if the company is in fact in the REIT structure, they don't. They get a tax break because of that. Now, why would they still want to pay out 90% of their earnings? And it's really their taxable income is because they, as a publicly traded company, get to access the capital markets. They get to issue stock, they get to borrow more money. So now they can become a larger, scalable company that can own big expensive real estate assets. But there are a lot of different kinds. So there's apartment REITs, there's housing REITs, there are office, commercial office

• 30:33Speaker 03

  REITs, and there are hospital REITs, there are industrial REITs, there are data center REITs. So REITs are a structure and then depending on the company, they're going to be specializing in all those different areas of, different sectors of the economy. And again, going back to my initial response here is that some of those are good, some of those are bad. For example, healthcare REITs have done really well over the last couple of years. The data center oriented REITs have done pretty well. But all sorts of other REIT categories have really struggled. So you've got to be careful about what real estate is owned by the REIT. And I'm just talking about publicly traded REITs. There's private REITs. There are mortgage REITs, which are investing in mortgages that are backing big companies.

• 31:17Speaker 03

  But the way I typically will do this is own a basket of REITs and there's several indexes that will do that. And that's how I'm comfortable using it for a small portion because it's part, in my opinion, REITs really are a part of multi-asset class income investing, which is a style I really believe in. And the yields are higher. So the S and P 500 right now only yields about 1.2, 1.3% in dividend yield. REITs are going to be in the 4% dividend range. So they pay out a lot more income than the, than the average stock does. And that's another reason to take a look at them.

• 31:53Speaker 02

  Okay. All right. Here's a question from Todd in Florida. "We put some money in on IPO a few years ago that turned out to do quite well. Currently, we're just under the income cap to pull out without capital gains, but my wife is going back to working full-time again in another month or so, and in 2026, will earn enough to qualify for the capital gains tax. Should we sell what we have this year and pull it into a more conservative vehicle, like a CD, to avoid the tax, or just sit on it and take the hit later?"

• 32:25Speaker 03

  Todd, pull over the car. This is a more complicated question than you might think it is.

• 32:31Speaker 02

  Okay.

• 32:32Speaker 03

  I think, if I'm just reading between what I'm hearing, reading between the lines here, if you're married filing jointly, and I don't have the tax tables in front of me, but it's something like $97,600 in 2025.

• 32:48Speaker 02

  Mm-hmm.

• 32:49Speaker 03

  Up to that, before you get to that level, you're in the 0% capital gain category. Pretty awesome.

• 32:56Speaker 02

  Mm-hmm.

• 32:57Speaker 03

  Capital gains are progressive, just like our normal tax brackets, but they're different and they're lower. There's 0% bracket, the 15% bracket, and then the 20% bracket. And I'm not even talking about the additional net interest income that can get tacked onto that, so we're just talking capital gain brackets here. And I'm not a CPA.

• 33:16Speaker 02

  Mm-hmm.

• 33:16Speaker 03

  Or a tax advisor. Talk to your tax advisor about this.

• 33:19Speaker 02

  We need one if you're doing something like this, right?

• 33:22Speaker 03

  But here is the kicker. The amount of capital gain you realize, Todd, also counts towards your income. So there's this thought that, well, if I stay, let's say my income's 90 grand, and the cap to stay in the 0% bracket is 97.6, I'm good. And you sell your IPO, and you have a $50,000 capital gain. You're no longer good.

• 33:49Speaker 02

  Mm-hmm.

• 33:50Speaker 03

  Because that $50,000 goes on top of the $90,000 you have in income. And you said you're just under the cap. So what I'm thinking here is you probably already have income that gets you close to it, and the income alone doesn't lock you into that 0% category. So whatever you're selling in stock or whatever the realized gain is, it stacks on top of that. So just be aware of that.

• 34:15Speaker 02

  Here are the rates, by the way, if you want them.

• 34:17Speaker 03

  Right. So that well, the 0% rate for married, family jointly is 97.6. Then from 97.6, you're getting and then up to about 600,000 to then be in the 20% capital gain bracket. So most people are in that that middle range, 97. The 600 is a huge range and all of that is in the 15% bracket. But here's what I would say, Todd, is that just because you clip a dollar over into the next bracket, doesn't mean that all of your stock is taxed at the 15% rate. So let's say your income is in fact, we're like $50,000.

• 34:56Speaker 03

  Then you really do have another $47,000 in capital gain that would all stay under, likely stay in the 0% bracket. But let's say it is $100,000 in capital gain and your ordinary, your income to start with is 50. Now you're at 150 total.

• 35:16Speaker 03

  What will happen is that a portion of that capital gain likely will be in the 0% bracket. And then a portion will be in the 15% bracket. So it's really blended. It's not as though it's not a cliff. It's just however much income pushes above those thresholds. It will be in the 15 bracket, but you'll also likely get some in the 0 bracket. So you're doing really smart income tax planning here in relation to capital gains. And I like that. You know, your income is going to be higher next year. Sounds like you'll be able to take advantage of at least some of the 0 bracket this year and probably none next year. And if the stock itself, you feel as there doesn't have a whole lot of upside, then maybe this is the year to sell it.

• 35:59Speaker 03

  Take advantage of at least some of the 0% bracket. It sounds like next year you won't have any that'll be in that 0 category. Again, pretty complicated. We're talking about real income planning in relation to different tax rates. Consult your CPA, tax advisor.

• 36:17Speaker 03

  And be careful about using AI when it comes to this because you've really got to understand how it works.

• 36:22Speaker 02

  I never realized, I mean, I know you said I say this a lot, but it really is true, like how complicated all of the tax issues can be. Like you think about getting an investment advisor potentially, but really you have to worry so much about the taxes.

• 36:36Speaker 03

  I just think about the last five meetings I've had with families that I work with or other advisors at our firm that I work with and help solve scenarios for them. It's so much more to financial advice and being an advisor than just the investments. I mean, the investments are what create all the emotion and that's what we want to grow. And that's a, it is a huge part of it, but there's so many other variables around that withdrawal strategy, really understanding your tax strategy, Medicare, Medicare plan, all of that goes into the comprehensive system of having a really good financial plan. And

• 37:17Speaker 03

  that's why planning in itself is so important. That cash flow plan, whether you do it with cash flow software, or you use artificial intelligence to map things out for you, that roadmap helps you catch these issues before they come up so you can solve them and you don't have to, because you can't Monday morning quarterback a lot of times. You got to solve them. We want to solve these things beforehand and that's why planning is so important, so powerful. And I'm glad we're getting to do some of it right here on the show.

• 37:45Speaker 02

  I know. I love it. Well, that does it for this week's episode of Ask an Advisor, our last episode in the month of August.

• 37:53Speaker 03

  Exciting. I'm excited for the fall. Excited for college football season, NFL, and cooler weather.

• 37:59Speaker 02

  All right. Well, hope the rest of your day is awesome. Thank you for listening or watching and please share with a friend if you enjoyed this episode. We'll see you tomorrow with Clark.