Walter Storholt  00:09

 Flying high above the metropolis, it’s the Roth Guy with holistic wealth advisor Jude Wilson.

Marc Killian  00:15

Hey everybody, welcome into the Roth guy back here with Jude Wilson to talk investing, finance and retirement and Jude pretty simple. This week, got a couple listener questions. I thought it’d be good to just kind of pop those up on the screen and dive in and let you break these things down for folks. Since you are the Roth guy, how you doing? You doing? All right, hey,

Jude Wilson  00:30

I’m doing great. And these are always my favorite episodes, because I love to hear what people are asking and what’s on their

Marc Killian  00:35

mind. All right. Well, let’s get into it. So pretty simple. What’s the five year rule? People keep asking about that. They say, I hear a lot about that. I don’t understand it. So what is it? Give us a breakdown for that.

Jude Wilson  00:46

Yeah, in the actual legislation of the Roth account, there’s a little known provision called the five year rule, and basically what it means is you must wait at least five years after your first Roth contribution or conversion and or be age 59 and a half to withdraw earnings tax free. So let’s, let’s not get confused here. You can always pull out the money that you put into a Roth because you’ve already paid taxes on that. That’s after tax dollars. Okay, any any money that you’ve earned on that contribution has to wait at least five years or 59 and a half. So what we tell clients is, if you had all interested in a Roth, open up one as soon as possible, so you can keep that, start that clock ticking in that five year

Marc Killian  01:38

rule. Yeah, yeah. I mean, basically, you want to just kind of get the, like you said, the clock moving right? So if you open one up, even if you do a small amount, or whatever, and then you’re doing maybe raw thing over time, and you’re converting more money from your traditional IRA, at least, you’ve got it rocking and rolling, and you kind of get that five year window, or, you know, time period, moving. So pretty simple. I guess there’s technically two. They technically break it into two rules, right? There’s the contributions, and then there’s the earnings part of the five year. But it really just kind of all falls together in that same piece. So pretty simple, you know? But if you have those questions, you need some help about how to set one up, or how to do some conversions, or anything like that. Obviously, reach out to Jude and the team with links below. All right? The next question we had that somebody had sent in and says, What about if you make too much to contribute to the Roth IRA, a lot of people out there do, right? So they didn’t make a lot of changes in the secure act 2.0 the last time they did some stuff there. But there are some other things that people can do. So how does that work?

Jude Wilson  02:37

Well, you know what most people think of when they hear Roth, they think of a Roth IRA. They don’t know that the Roth has a cousin. It’s the Roth 401 k. And more and more companies are offering Roth 401 K’s as option in the traditional 401 k. So in a Roth IRA, you’re absolutely right. There are income limits. And if you make too much money, you cannot contribute to a Roth now, I know in its cousin, though, in a Roth 401, K, there are no income limits, so you could be Bill Gates and still contribute to a Roth 401, k,

Marc Killian  03:19

right. And they kind of married the they kind of married the two, right? And that was something that’s, it’s only been around since, I think, like 2006 maybe, so it’s not been around long. So that’s, that’s a great option, but you got to check with your workplace employer on

Jude Wilson  03:31

that absolutely, absolutely. And it’s becoming more and more popular. I remember a few years ago, I rarely ever saw a Roth 401 K, and it’s not a separate 401 K, it’s an additional option inside your current 401 K to make those after tax dollars, a contribution to the Roth portion. And all of the same benefits with the regular Roth IRA pertain to the Roth 401

Marc Killian  03:58

k, right. That’s option one right? So just see if that’s available. Now, if you’ve been contributing to your traditional 401, and you, and you make too much, there’s something called the back door Roth, right, which sounds shady, but it’s totally legal. So what’s the deal

Jude Wilson  04:13

there? Yeah, and in fact, there’s been some talk about, you know, trying to regulate this, but for while it’s still in existence, if you’re contributing to a 401, K, you can contribute to that with pre tax dollars, obviously, and then convert that money over to a Roth because there’s no income limit on the amount of money You convert. So imagine this. You, you, you contributed $50,000 to your 401, K, on a pre tax basis, and then you convert that money over to a Roth. Now you’ve moved money from always taxable in the future to never taxable. So it’s almost like a two step dance instead. Going directly if you don’t have a Roth 401, K, it’s a two step dance to get the same thing accomplished.

Marc Killian  05:07

All right, so does Jude, does that help with the income limits and the contribution limits?

Jude Wilson  05:11

Then? Oh, absolutely. But like we tell everybody on every episode, there are nuances, and you should absolutely before doing anything willy nilly, speak to a tax professional about doing the backdoor Roth and what nuances may affect you.

Marc Killian  05:29

Okay, I’m gonna throw one bonus one at you that you might not have been expecting, but I think you can handle it’s pretty easy. We get this one quite often too, that’ll pop up and it says, Should I just convert my entire IRA to a Roth at once, and we’ve been seeing that earlier half of this year because we didn’t know if they were going to extend the tcja. We’ve talked about this the last couple of weeks. They have now since extended that. So rothing over time is back on the table as an option. But is it a good idea to convert it all at one time?

Jude Wilson  05:56

Well, I’ve got a three word answer for that. Do the math, okay, you can rip the band aid off all at once and and if you are young enough, and you have a long life expectancy, that may not be a bad option,

Marc Killian  06:17

you need some of this right to do. Yes, it’s

Jude Wilson  06:20

going to be painful, because you’re going to be pay taxes as income on all of that money. So if you have a half a million dollar IRA, and you make $100,000 a year, well, now guess what? You’re going to pay taxes on all of that accumulation, minus whatever deductions you have just, you know standard to understand that that money is going to be taxed. Now, what we do when we’re helping clients is we look to see at what point in your life do you cross that where the tax, where the benefit outweighs the taxes that you paid. And so for most people, if you have a long life, and if you’re young enough, yeah, at some point in the future, that really would make mathematical sense. But again, you have to do the math. And typically, what we see people doing is rothing over time, and we’ve used that term on several occasions in other podcasts, is doing a little bit of a Roth up to a certain tax bracket where you can afford to pay the taxes, and it doesn’t kick you into the next highest tax bracket where you’re paying even more taxes on the income.

Marc Killian  07:31

Yeah, you’re maximizing those steps. So if you need some help with that, and you probably do, make sure you don’t just do this on your own, reach out to qualified professionals like Jude and his team. You can find links in the show description below to visit his main website, or the tax bomb.com where you could go take the tax bomb calculator there and see how that might affect you, right? So we did an episode a couple weeks back. You can check that out if you’d like as well, but just go do it for yourself. Fill out the information on the tax bomb calculator. You’ll get a little email report, kind of showing you the breakdown, and then if you want further help understanding how that works, then reach out, schedule some time with Jude and his team, and get onto the calendar. We’ll see you next time here on the Roth guide. Don’t forget to subscribe to us on Apple Spotify, and, of course, YouTube, thumbs up. Subscribe and notification bell supports the channel, helps us out and lets us know that we’re helping folks out out there. So we’ll see you next time, Jude, thanks for hanging for hanging out, my friend, and tune in for more. Roth guy with Julius

Jude Wilson  08:26

rock and roll. Thank you, my friend.

Walter Storholt  08:32

Financial Planning and advisory services are offered through prosperity Capital Advisors, PCA, an SEC, registered investment advisor with its principal place of business in the state of Ohio, centrist financial strategies and PCA are separate non affiliated entities. PCA does not provide tax or legal advice. Insurance and tax services offered through centrist financial strategies are not affiliated with PCA. Information received from this podcast should not be viewed as individual investment advice, product discussions and illustrations are hypothetical in nature and will vary based on many factors, including, but not limited to age, health product insurance carrier and product design. You should consult the insurance carrier website and policy for detailed information, for information pertaining to the registration status of PCA, please contact the firm, or refer to the Investment Advisor public disclosure website, www.advisorinfo.sec.gov for additional information about PCA, including fees and services, send for our disclosure statement as set forth on Form ADV from PCA using the contact information herein, please read the disclosure statement carefully before you invest or send money.

09:42

You.