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January 6, 2024 - Money Matters Podcast

A family financial review, a donor-advised fund question, advice on a stock transfer, and assistance on an annuity.

On this week’s Money Matters, Scott and Pat explain why now is a good time for parents to do a financial analysis with adult children. A California man looks for guidance on a donor-advised fund. On Oregon caller with a high net worth asks whether he can minimize taxes on a stock transfer he wants to make to his brother. Finally, a Georgia man with an annuity wants to know why Scott and Pat are so critical of how financial products are sold.

Join Money Matters:  Get your most pressing financial questions answered by Allworth's co-founders Scott Hanson and Pat McClain live on-air! Call 833-99-WORTH. Or ask a question by clicking here.  You can also be on the air by emailing Scott and Pat at

Download and rate our podcast here.


Announcer: Would you like an opinion on a financial matter you're dealing with? Whether it's about retirement, investments, taxes, or 401(k)s, Scott Hanson and Pat McClain would like to help you by answering your call. To join Allworth's "Money Matters," call now at 833-99-WORTH. That's 833-99-W-O-R-T-H. Thank you.

Scott: Welcome to Allworth's "Money Matters." I'm Scott Hanson.

Pat: I'm Pat McClain.

Scott: Glad to have you with us as we talk about financial matters. Kicking off the first Saturday of the year.

Pat: Yes, yes, yes.

Scott: Is that right? Yeah, the first was... Yeah, it is the first Saturday.

Pat: Yes, it is the first.

Scott: We are both financial advisors, certified financial planners and chartered financial consultants. We spend our weekdays helping people like yourself and broadcasting the weekends, being your financial advisor on the air or on the podcast, whatever you're...

Pat: However you listen, however you consume your media.

Scott: Yep. And it's always good first time of year when you're...most people do it.

Pat: I always do. I do. I look at my finances.

Scott: And, yes, it's a good time of year to do it.

Pat: And actually this...

Scott: Make sure you're back on track.

Pat: This year I am meeting... I have four children and I am meeting with each one of them in the next two weeks individually to go over their finances with them. So.

Scott: You reached out to them and said, can I, Dad, help you?

Pat: Over Christmas, we had a conversation, and I said, you know, if you guys want, I'm willing to sit down with each one of you and look at the portfolios and some tax planning.

Scott: I did a little of that with my oldest daughter this week. She reached out on that, though. Wants to figure out how she can start saving more.

Pat: Perfect.

Scott: Actually, saving more. She's disciplined enough to have money set aside. She has to pay quarterly taxes because she's self-employed. So she's disciplined enough to set aside a portion of all her revenue to pay the taxes, but she's...

Pat: So the important thing isn't that...

Scott: As long as our kids are taken care of.

Pat: The important thing is to actually have the conversation with your children, whether you go into in-depth planning...

Scott: Haven't they heard it all? Of the four of your kids, how many are that interested in hearing what you have to say? You don't have to name out which ones, but they're all different, right?

Pat: Yeah, two of them.

Scott: Okay, right.

Pat: About 50%.

Scott: They're going to be fine regardless.

Pat: Yes. No, but the point for the listeners is if you have adult children, it's okay to have conversations regarding money and like discipline around money. Like putting money into your 401(k) and whether you look at the tax bracket, whether you should be doing a Roth 401(k) or...

Scott: Yeah, all that good stuff.

Pat: And I had two children that have changed jobs. And I had the conversation. I said, you know, you've got these monies that your old need to, you need to actually move it into an IRA. And then they're like, "Why? Why would I move it into an IRA? Why don't I just leave it there?" And as I described it, I said, in your career... They're all in their early 20s, ones in the mid-20s.

Scott: They'll have lots of different employers. Odds are.

Pat: Odds are. And I said, you've got to think of your IRA as kind of a holding basket that has much most circumstances, has a much larger menu of investments than your 401(k) does. And as you go through your career, when you leave one job, you roll it into that IRA and you manage that IRA, and you'll start another job. And it's just a quirk of our tax code that your employer is actually responsible for your retirement plan.

Scott: And if people don't roll those over and leave them out there, they tend to be neglected and not allocated properly.

Pat: Or they get moved to a firm where they'll open it up in IRA for you.

Scott: If it's a small balance.

Pat: If it's a small balance. And the charges on those particularly small balances are egregious or can be egregious.

Scott: Well, and also in the beginning of the year, Pat, for those that are still working in the workplace, increases on the 401(k) contributions, sometimes your employer will do those automatically for you, but oftentimes you have to... So if you're contributing the maximum, which I think less than 15% of Americans do, but if you are, you can bump that up again this year.

Pat: And if you're not, see if you can.

Scott: Yeah, bump it up some.

Pat: Yeah, see if you can bump it up by 2% or 3%.

Scott: And I tell you, the markets finished the year on a tear, right?

Pat: Crazy. And the dispersion was not equal. So large-cap growth stocks did phenomenally well. Tech stocks did phenomenally well. Small-cap stocks did relatively poorly, although still positive. And value stocks were clearly out of favor last year. So if you don't rebalance, you end up being overweighted in those areas. And year to date, in 2024, the ones that were the leaders last year have...thus far, anyway.

Scott: Yeah. Well, it's a little early.

Pat: And I'm tired of reading the articles. So January goes the year. You know, like, come on.

Scott: There's so many different predictions of what's going to happen. It's hilarious. I don't even read them. What's the point? I mean, if you think there's any validity to them, look at two years ago or three years ago or last year's January predictions.

Pat: Or look at multiple opinions about the same. Come on.

Scott: Even the general consensus. If you looked at the general consensus a year ago, everybody said there was going to be a recession in '23.

Pat: Yes.

Scott: There will be another recession.

Pat: When?

Scott: I don't know. I have no idea.

Pat: Yeah.

Scott: Well...

Pat: And all the political turmoil throughout the year of 2023, look at the markets. I mean, global.

Scott: Oh, yeah.

Pat: Global. I mean, forget about the U.S. political turmoil. Globally.

Scott: The global turmoil.

Pat: Oh, it's crazy.

Scott: But global markets did not do nearly as well, and emerging markets were about flat last year, and of course, China was in...

Pat: I was thinking about that, Scott. I was thinking about that earlier this week a portfolio, how much global do you actually really need, because of the exposure, I mean, that's why we...

Scott: Well, the big companies are all global companies.

Pat: Right?

Scott: The biggest company is Apple. If that's not a global company, I mean, I don't know what is.

Pat: Yes. Yeah, the oil companies.

Scott: I wonder what percentage of Apple's revenue comes from the U.S. A minority. I don't know. I don't really care, frankly, but it's...

Pat: Yeah. Or even...

Scott: If you go around the world, everyone's got iPhones.

Pat: Yeah. You go to... I was telling someone I was in Vietnam last year.

Scott: Of course you were.

Pat: I'm 61. I've worked hard my whole life.

Scott: You're 61 now?

Pat: Yes. And I love to travel. I love to travel. And you're empty nesters now. Yeah, and empty nesters. And it's the time.

Scott: You don't have a grandkid yet that...

Pat: Well, that's right.

Scott: ...where your wife's like, "No, I'm watching the grandkid on Tuesdays and Wednesdays."

Pat: Oh, I can imagine. But the number of 7-Elevens in Southeast Asia was blew my mind. And I thought, there's more...

Scott: To your point.

Pat: Yes. What is a U.S. company versus a global company?

Scott: Anyway. I know our investment team pays attention to those things.

Pat: I know. Actually, I was just thinking that.

Scott: It wouldn't be that hard to figure out from the S&P 500 what percentage revenue comes from overseas.

Pat: That's right. And that's why our investment team does that.

Scott: Yes.

Pat: Maybe they should be hosting this show.

Scott: Well, we do have Andy on periodically. He can spit it out. He knows the answer to everything.

Pat: He does.

Scott: Anyway, if you want to join our program, we love taking calls. And to join us, it's 833-99-WORTH, or you can send us an email at

Pat: I'm sorry. Pietro [SP], can you turn the heat down in here? I'm sweating. Thank you. Not that the listeners care.

Scott: What? Do you think this is the Joe Rogan podcast where you just talk about anything midstream?

Pat: Kind of.

Scott: No. All right. Let's take some calls. We're in California talking with John. John, you're with Allworth's "Money Matters."

John: Hello there. Thanks for taking my call. A two-part question on charitable giving accounts. I believe I understand that you can distribute money from those accounts over several years, over to several different entities, charitable entities, but I'm not clear on, must you take the full amount of your contribution to that account in one tax year, in the same year that you put in that account?

Pat: No.

Scott: Let's clarify. How old are you?

John: Seventy.

Scott: And you're speaking of a donor-advised fund.

John: Yeah.

Scott: Okay. And a lot of the big institutions have them. I think Fidelity was one of the first ones to come out. Fidelity's got a big one. Schwab's got a big one. There's several of them out there. The wonderful thing about a donor-advised fund is it's almost like a private foundation, a family foundation, without all the headaches.

Pat: And visibility.

Scott: And it's private. Because if you have a family foundation, others can see what's in there. They know what you're giving to and you can get hounded nonstop. And the nice thing about these, John, is you can contribute whenever you feel like it. So if you open up an account at one of the major firms that has donor-advice funds or there's other foundations that just have donor-advice funds.

Pat: Community foundations. Lots of community foundations.

Scott: Don't leave anyone out here. So you can transfer appreciated securities there if you'd like. Some of them allow you to transfer an appreciated piece of real estate to them. You can write them a check and you can contribute as often as you'd like. And every time you can contribute, it triggers a potential tax deduction for you. So it creates a taxable deduction for you.

Pat: Community foundations, lots of community foundations. Don't leave. Once it's in that account, it can sit there forever.

Scott: There's no minimum requirements.

Pat: So, I mean, I've named beneficiaries on mine so that if my wife and I pass away, that our children can distribute the money. Not that there's tons of money in there. But what is a good idea is, for tax planning, to decide how to bunch them. So many people will say, I'm not giving...I give to the charities every year, but I'm only giving to my donor-advised fund every three years or four years.

Scott: Because the standard deduction is so high now, and particularly if you' guess is, at age 70, you don't have a mortgage, you don't have a tax deduction on the interest any longer, and we're capped at $10,000 with the SALT deduction. So oftentimes people make...even quite generous people that make significant gifts throughout the year or at the end of the year, aren't able to take an itemized deduction. So donor-advised funds enable somebody to accelerate that.

John: Okay, but I guess the bottom line, though, is I don't quite understand. Am I forced to take the full amount of whatever I donated...or not donated, but whatever I contributed to the fund? Am I forced to take that full amount in one tax year?

Pat: Yes.

Scott: Well, no, because whatever...there's limitations. And if you exceed the limitations, is it 50 or 60%?

Pat: I think it's 50%.

Scott: It was 60% for a while, and then I think it went back to 50%. 50 or 60% of cash, 30% for most appreciated assets. You can carry that forward to future tax years.

Pat: But in most circumstances for the average American, if you put money in the donor-advised fund, you take the deduction in the year and that's gone. I mean, you have given that money away. You get the deduction. The only difference is now you get to direct it to what charities you want over as many years as you want. And I've got to tell you. Once you've done this, you will not give to charities in any other way. You just won't.

Scott: Well, rarely you might. It's the school, your neighbor's kid, it's a $100 donation to high school or something, right?

Pat: Yes, yes. And so as an example, every one of my clients that I have introduced to this, they're like, this is fabulous because you just go online, you type in the tax ID number, it actually pulls up the name of the charity. It takes about two minutes and they issue a check and you can manage the money inside there. You can keep equities, you can keep it in cash, you can actually hire a financial advisor and pay them to manage inside many of these donor-advised funds.

John: Okay, so let me clarify. Let me just reiterate to make sure I understand. So if I want to donate an appreciated mutual fund...

Pat: Yep, perfect.

John: ...there is a limitation on how much I can claim as a deduction in one year, and then the rest of it carries forward to the future?

Scott: That is correct. So it's 30% of your adjusted gross income and anything above that gets carried forward to future years.

Pat: Unappreciated securities.

Scott: And cash is either 50% or 60%. I forget the top of my head.

John: And the last part of this question is this fund that I want to donate to, I purchased in the early '90s, and it has changed administrations, companies a couple times. And they say they can only give me a cost basis.

Scott: You don't need a cost. You get to take a deduction of the fair market value.

Pat: This is the perfect security to use.

John: Okay, great.

Pat: It is the perfect security. Because you'll probably never find the cost basis.

Scott: That's right.

Pat: The reality is...

Scott: And if you sold it, you just make some guess.

Pat: And then you guess. And then at the IRS...

Scott: Make a realistic guess.

Pat: So this is the perfect security. You get the deduction, you don't have to worry about the cost basis, you put it in there. If you want to continue to own that security, just replicate it in your portfolio.

Scott: You could. Maybe it might not be the best thing. You probably wouldn't buy it today, whatever it is you own.

Pat: But if you want to continue to own that security, you can buy it back and you reset your cost basis on it.

John: Okay.

Pat: It's perfect.

John: But it's whole market value is what I'll get to...

Scott: That's correct. Limited to 30% of your adjusted gross income, and it's carried forward to future years.

Pat: I'm telling you, once you do it. And look, I gave some money to charity two weeks ago and I went on at 9:00 at night. I went on, my wife and I were talking about it at dinner and I'm like, "I really like this charity." At 9:00 at night after dinner, I just went on my app and boom, boom, boom. And it was done.

John: One last thing I just thought about. This has to be done by December 31st or can you do it up to April 15th of the following year?

Pat: Perfect question.

Scott: It's funny because I saw the question. I thought, well, it's a brand new start of a new year. So whatever we do this year, it's for 2024 taxes, not 2023.

Pat: It's not like an IRA contribution. So it's in the calendar year.

Scott: All right. Thanks, John.

John: Thank you.

Pat: I appreciate it.

Scott: That's why I was a little surprised. Like the first call of the first show of the new year is about charitable gaming when I think a lot of people, it's like... But they're kind of slick. And as far as beneficiaries... Like, I've got our setup where I think it's about 90% go to pre-designated beneficiaries that I have structured over a period of years. And then like 10% goes to where my kids can direct it or something along those lines. I forget exactly how I put it. You can put rules. And you can change it.

Pat: Yeah, and you can change the allocation in it. It's really slick. It's really... And the visibility is something. So it sits in this fund.

Scott: And look, this isn't just for people with tons of money.

Pat: Oh, no. I do it for people that give away $5,000 a year.

Scott: That's right.

Pat: And I do it for two reasons. One, it just makes giving that much easier. And two...

Scott: Well, it's tax efficient.

Pat: It's super tax efficient.

Scott: And if you do it right, it's like the government gives you a match.

Pat: That's right. It's super tax-efficient. Yeah.

Scott: I don't know if I've talked to many people who've regretted giving money to the right charities.

Pat: Well, that's the key, the right charities.

Scott: I can say that now. I was on a board of a community foundation for a few years and I said in one of the board meetings, I said, "I think half of these nonprofits should be killed."

Pat: Okay.

Scott: Didn't go over too well.

Pat: No.

Scott: But my point was, there's a lot of people with big hearts, right? And they're maybe not skilled in a... I have a heart for foster youth. My wife and I adopted two foster kids. I have a heart for foster youth. But for me to suddenly...if I went and started this foster organization of some sort, my guess is I wouldn't do as good a job as someone who had spent their career understanding these issues and... I mean, so there's lots of great organizations where there's great heart, but not very effective.

Pat: Execution.

Scott: But there's some phenomenal organizations out there as well. Enough about that. Let's talk now with Don in Oregon. Don, you're with Allworth's "Money Matters."

Don: Hey.

Scott: Hi, Don.

Don: So, a quick summary of my question is I want to give 1,000 shares of stock to my brother who lives in Texas. The current value of the stock is $500 a share, and the cost basis is $2.70. And I live in Oregon where the capital gains is 10%. So my question is...

Scott: So you paid $2.70 for the stock and it's at $500 a share now?

Don: Yes.

Scott: Wow.

Pat: And how long have you owned it?

Don: It's about...those particular shares, about 15 years now. This is company-given stock, stock grants, stock options.

Pat: And is it publicly traded?

Don: It is.

Pat: Okay.

Don: So my question is, what's the best way to give my brother 1000 shares of this minimizing taxes?

Pat: Is he in a lower marginal tax rate, federal, than you?

Don: Not much, about equivalent.

Scott: Were some of these shares from ISO stock grants or non-qualified stock grants? Stock options?

Don: Some of them were stock options. Yeah, I think those particular shares were stock options.

Scott: Some states have rules on the capital gains where they'll try to capture...regardless of where someone resides when they're sold, they'll try to capture the capital gain that occurred while an employee was residing and working in that particular state. But we're also talking about transferring the shares, and I'm not a tax expert on that area.

Pat: This is pretty...

Scott: Three decades of experience in this space.

Pat: Right.

Scott: So if you give your brother 1,000 shares, your cost basis is going to carry over to him. So his cost basis is your cost basis, and the capital gain is going to be based upon when he chooses to sell any or all of the stock.

Pat: And so what you're looking for is the delta between the tax rates in Oregon versus the tax rates in Texas, correct?

Don: Yes, yeah. That and also because it has such a low-cost basis, does that fall within the $17,000 gift tax exemption?

Pat: Well, that's a great question.

Scott: No.

Pat: The cost basis doesn't matter what it is, it's the fair market value of the stock. But you can use up part of your lifetime exemption.

Scott: You know, people think about this. And just because you exceed the annual gift limit does not mean you've got a tax you have to pay.

Pat: That's right.

Scott: You use up a...

Pat: And what is the lifetime limit right now? It's $14 million per individual, somewhere around there.

Scott: Yeah.

Pat: And then the annual limit for 2024 is...

Scott: It is $18,000.

Pat: it is $18,000. I should know this. I was going over this with a client two days ago. So if you exceed that, you just use up part of your $14 million. And it may require you to file a gift tax return, but that's not a big deal.

Don: Okay.

Pat: Right. It's not. And by the way, are you married?

Don: No.

Pat: Okay. Is your brother married? Yeah. Okay, well, then you could gift it to both him and his wife.

Scott: Assuming you want to gift it to both of them.

Pat: That's right. Right. Remember, gifted or inherited property is considered separate property. It's not community property to the receiving party. So you could gift it to him and it can just be his money, or you could gift it to both of them.

Don: Ah, right. Okay.

Pat: So, you know, that might require some introspection of how you feel about their marriage, but I'm not going to go there.

Don: Well, they're doing pretty good, I think.

Pat: Yeah. So you might want to do it to both of them, but that's obviously your call, but it's a good idea. I don't know if I would check... I think you should probably check with an Oregon tax preparer to see.

Scott: Because Oregon has its own estate taxes and gift taxes. Usually, most of the time... I would double-check before I did it.

Pat: I would. I would. I would. I wouldn't call too...

Scott: I'm not an expert in Oregon tax law.

Pat: I wouldn't call two guys on the radio from California because we could talk about how to really tax things.

Don: Well, gee, I thought you guys would do better. I guess another question, sort of long shot, is there a way to structure that as a loan of shares so that I could loan him these shares and then say that he was going to pay me back at 5% per year rather than paying the huge tax?

Pat: Well, what would be the purpose of that?

Scott: So he can make the gifts over a number of years.

Don: Yeah, well, that would avoid... Well, maybe I don't understand the way this works, but if it was just cash, I could loan him a bunch of cash.

Pat: And then forgive it every year.

Don: And he could promise to pay it back at 6% over the...

Scott: And he'd have to make payments. I mean, it has to be a bond.

Pat: Or you...

Scott: But what's the ballpark value of your estate?

Don: Well, about $24 million.

Pat: Okay. All right. You have heirs?

Don: Not direct heirs. I've got essentially my nieces and nephews.

Scott: And how old are you, Don?

Don: Sixty-two.

Scott: Okay, so your biggest issue your state of estate planning.

Pat: You have a very, very large estate planning issue. It's a big issue.

Scott: Yeah, it's a better issue than trying to figure out how you're going to make your monthly income needs.

Pat: Yes, yes. You need to sit down with...

Scott: This is just one potential tool.

Pat: This isn't where I'd start. This is not where I'd start.

Scott: I mean this might be this might be the right thing to do in conjunction with some other things.

Pat: In conjunction with some other things.

Don: Right. This is actually an issue of necessity. My brother needs the cash.

Pat: Okay.

Scott: Okay.

Don: So I'm trying to figure out a way to get him some of this without...

Pat: Okay, well then do that. And what's the idea of doing the loan then?

Scott: If he's not making the payment, then it would be questioned if this is an actual loan or if this was trying to skirt the rules.

Pat: But then every year you could forgive a portion of that. But what's the point of that?

Don: Well, I guess that's just to avoid the taxes. It's just upsetting that the government takes like 30%. If I want to give him some of my wealth, the government's going to take 30% of it.

Scott: Well, no, only when you pass. And actually, the state of Oregon takes them as well. And I'm not an expert in Oregon. But so if you pass away today, the exclusion amount is about $14 million. So the first $14 million is free of estate taxes. Anything above that, let's say you gave to a charity, is not subject to any estate taxes. If you have no children, most people at your size of estate would have some chunk go to charity in addition to extended family.

Don: Right. If you have a charitable account like you just talked about.

Pat: Yeah, but you can do... So the idea is to get the money out of the estate to allow it to grow in someone else's name.

Scott: Yes.

Don: I see.

Pat: Right?

Scott: Because this 24 might be 34...

Pat: Yes, right?

Scott: 7 or 8 years from now. Then 44.

Pat: So I assume that you're not living on 5% or 6% or even 10% of this asset a year. You're not spending $2 million a year to support yourself, right?

Don: No, no.

Pat: My guess is you're not flying around in private jets and staying at The Ritz-Carlton. Fair statement?

Don: No, I'm still trying to deal with the fact that I have this much money. It just sort of crept up on me.

Pat: But you do. But you do.

Don: I still go to the store and say, "Oh, well $5 dollars for a box of cereal is..."

Scott: I get you. I still do...

Pat: You show me someone that doesn't care about money and I'll show you someone that doesn't have any.

Scott: I teach my kids the same thing. Look, when you're going to go eat tomato sauce, tomato sauce, tomato sauce. Like, look at the price difference. Yeah.

Pat: So you need to start at ground zero and say, I've got $24 million. How much money do I think you're going to spend in your lifetime? And you want to get a large portion of this out of your estate. Right. You want to, and you can do it.

Scott: If you structure this correctly, depending on how much you want to give to individuals... Because you can give $14 million to family members, anything above that, if you gave to charity, there's no estate taxes.

Pat: You could give it to them.

Scott: Under current...

Pat: And by the way, this stuff expires...

Scott: End of 2025.

Pat: '25.

Scott: End of '25.

Don: What do you mean?

Pat: It means that $14 million will go up in 2025 again based on inflation or down. But then after that, it sunsets, which means that your elected leaders are going to decide how much you get to pass without taxation to your heirs. And by the way, this is the largest number it's been in the 30 years that I've been in the industry.

Scott: It was 600,000 at one point in time. For a long time.

Pat: So if you were sitting in my office, I'd say, okay, let's just stop everything. Let's just start at ground zero. You've got $24 million. What is the objective with this? And you can set it up mentioned your nieces. You can set up an irrevocable trust where it moves out of your estate but doesn't go to them necessarily immediately. It could go to them in chunks of time. It can go to them when they're 40. It could go to generation-skipping trusts. It can do all sorts of things.

Scott: And it's whatever you want to do. If you want to be one of those kind of eccentric people that nobody knows they have any money and they pass away and they leave the local library $24 million, you can do that. But my experience with people is there can be some joy too in making some transfers while you're still alive.

Pat: But you just called us and asked us to what kind of window should I put on a house that's not built yet?

Scott: But if this is prompted because your brother has a financial need, you want to help them, give it to him.

Don: Right.

Pat: Give them the shares, right away. And then go through the process.

Don: Through the process of?

Pat and Scott: Estate planning.

Don: Estate planning. Okay.

Pat: Estate planning. And it's advanced estate planning. And you're going to scratch a check to an attorney for $25,000, $30,000 and financial.

Scott: Maybe not. If his goal is... Does that answer your question, Don?

Don: Yeah, it does.

Pat: Wait, Scott, wait a second here.

Scott: I was going to continue the conversation after. So my point is this, the exemption is $14 million currently today. And the majority of older americans are married. If one passes away, you can preserve that, so it's roughly $28 million dollars. There's a lot of people with estates larger than that that say, "I don't want to leave my kids more than $28 million." So their estate plan is not necessarily that complicated where they're writing a check for $25 million. If somebody...on the other hand, let's say someone has a business, family business that's worth $100 million dollars. iI's second generation, they want to keep it for third and fourth generation, then it can become very complex and the check might be much larger than $25,000 to an attorney.

Pat: I stand corrected, Mr. Hanson.

Scott: Well, thank you.

Pat: My point being is he's the gentleman that just said that he goes to the grocery store and says I'm not going to pay $5 for that.

Scott: You're warning him.

Pat: I'm warning him.

Scott: Then you'll get what you pay for.

Pat: And you want to go through the process and don't look for the cheapest attorney.

Scott: Because you could save, the right kind of planning. And there might be... Don, you might have a piece of asset, something today that has a large gain. This is easy, any type of security because it doesn't bug you at all. But you might have a piece of property or a rental or something that's been kind of a pain and might be an opportunity with a charitable remainder trust or something like that in conjunction with a variety of other things.

Pat: I do have a question for you. Of your net worth, how much is comprised of this individual stock?

Don: Yeah, well, there's the problem. It's about $20 million.

Pat: Okay, so there is a solution for you with a good financial advisor, which is a pooled stock fund.

Don: Pooled stock fund.

Scott: Yep.

Pat: Right. You transfer it in. And it's a collection of stocks that other people just like you have the same problem. And so you transfer it into this pooled stock and you get diversification around that particular holding because it's pooled with all these other different types of stocks.

Don: Pooled, okay.

Pat: It's a pooled, P-O-O-L-E-D. And it goes by a number of different names. And we use it for wealthy clients. You know, I kind of describe our firm as kind of like the Marriott of financial advisors. We work with clients that have $250,000 and we work with clients that have...

Scott: The Marriott has The Ritz-Carlton and they have...I don't know.

Pat: Courtyard by Marriott, right? And that's kind of...I mean, we have these across the board. And so if you were to come into our office, we'd give you the most, and a good firm would, anyone that had any sort of size, the most experienced advisors and working with people with your net worth and all the solutions.

Scott: This now became problem number one for me, not the estate planning.

Pat: It did. It did. I suspected that's where most of the net worth was tied up. So you've got all kinds of...

Scott: And you don't just want to just say, "Well, I want to diversify, so I'm going to sell $15 million of the stock and take the capital gain."

Pat: Yeah, there's so many different ways you could do it. And I'd start with the pooled stocks. So you need...

Scott: And it might be a combination of pooled stock, might be some sale, and it might be some to a charitable remainder trust or something like that.

Pat: That's right. That's right. You've got some work to do. Are you retired?

Don: I just retired in July.

Pat: You got something to do now. Congratulations, by the way.

Don: I was planning to go like surfing or the Caribbean.

Scott: You can stick your head... Look, you've got $20 million in there. My guess is $4 million outside of that is enough to maintain your lifestyle. You could just be an ostrich, stick your head in the sand, and ignore it. But you have an opportunity. Obviously, it's work for you, but you have an opportunity to do a lot of good with this.

Pat: That's right. And Dawn, do you fly first class when you fly?

Don: I do now.

Pat: Thank you.

Scott: Okay, good. Thank you.

Pat: Do you stay in the nicest hotels when you travel?

Don: Sometimes, yeah.

Pat: You should always.

Scott: I don't always stay in the nicest hotel. Well, I'm not, I'm not...but...

Pat: Anyway, okay. You get my point.

Don: Yeah.

Pat: All right, you've got some work to do.

Don: I do. I guess one final question that is most of this stock is in a Schwab account. And, you know, with that much, they offer like premium advisors. Is that the type of person I should talk to or should I talk to...

Scott: So here's what Schwab will do. So they have a list of advisors that have signed up with Schwab that will help with clients, and then they'll pay Schwab a fee for it.

Pat: So what that means, explain, like go dig into it. Yeah.

Scott: So Schwab says, look, Don is a client. He's going to be a good client. I'm not going to say what Schwab's great at or not great at, but typically at large accounts, when it gets complex, they'll refer to independent advisory firms.

Pat: Like ourselves.

Scott: Like ourselves. Okay. And when that happens, the independent advisory firm has to pay Schwab a fee. So a portion of the fee that you pay the advisor, a portion of that goes to Schwab. It's quite lucrative for Schwab.

Pat: And we're not saying it's good or bad.

Scott: But at this size of estate, if you found somebody on your own, you could probably negotiate a better rate.

Pat: Well, not probably.

Scott: You can negotiate a better rate than an advisor who has to pay Schwab on that.

Pat: A referral fee.

Don: Yeah, that makes sense. Yep.

Pat: Yep. You've got some work to do. Congrats.

Scott: It's a good problem to have.

Pat: Yes, yes. And the rest of the listeners are like, is this a problem? It is. It is.

Don: I'm sorry for being such a... It's hard to tell people that I've got that much money. Almost nobody knows that.

Scott: So the company was probably a smaller company when you started there. Is that right?

Don: It was...well...

Scott: No. Okay.

Don: It was fairly big, but it's way bigger now.

Pat: Got it. Got it. Got it. Got it. Got it. Yeah. You've got, yeah, you've got some work to do and look, you know, it is what it is. Right. And all the problems in the world, I think this would be one of the best ones. But it doesn't mean you can ignore it.

Don: Right. Okay.

Scott: All right. Yep. I appreciate the call.

Don: Yeah, thanks a lot.

Scott: Just on a side note, on the importance of like finding quality advice. You brought up an estate attorney that someone had... As your estate gets larger or more complex... And the reason why Don's has become complex is because he's highly concentrated on one particular company, which at this, and no company stays at the top forever. We all know that. Diversification is wise as we get older and accumulate assets. And there's so many different tools available to him, but they all take the right kind of planning. And, but I remember, Pat, years ago... Our office is headquartered in Folsom, California, outside of Sacramento which Johnny Cash made famous, Folsom. We have the Johnny Cash bridge. Everything's Johnny Cash around Folsom. It's our one claim to fame. He made a stop through for 24 hours. Anyway, so... This was years ago, Pat. So Intel has a large...or they did have a large office in Folsom.

Pat: Very large.

Scott: Like in the late '80s, they decided to move out of the Bay Area and into the Sacramento region, which is what was happening at the time. Now all these companies are just leaving California entirely. It's like, "If we're going to move, we're out of the state." And that's why they're all leaving California. But Intel employed a bunch of people. And I remember meeting with an individual. He was one of the newer employees at Intel. And he had Intel stock about the same as this last caller. This was twenty-something years ago. And he came in. He wanted a consultation. We talked about a variety of things. He talked with our CPA that was in the office, talked with him about a variety of things, and never chose to hire either one of us. He called like four years later. He had moved to Nevada. And sold some of his Intel stock. He probably just sold willy-nilly without talking to an advisor, my guess, because he was trying to be frugal with his finances. And what had happened is he had, when he had sold some stock, the state of California, even though he was in Nevada, said, "Hey, you owe us some capital gain because this was a stock option that accumulated in value while you were working." It was a deferred comp, however California structured it. And California wanted not only the tax, but a fee, a penalty, an interest for not paying the tax when he should. So he calls me, tells me this, and says, "Hey, do you remember us having a conversation about this? Did we ever talk about it? Are there any notes from our meeting?" And I'm like, well, there's not a lot you can. Like, you never engaged with us, right? There's no one... And had he engaged with...whether it was our firm, CPA firm, another firm, he could have said, look, I engaged in professional advice. I didn't get this advice from this professional. Therefore, I shouldn't have to pay the penalties.

Pat: I'll have to pay the tax, but not the penalties. It was an honest mistake.

Scott: Correct.

Pat: And it was guided...the decision was guided by professional advice.

Scott: Correct. Penny wise, pound foolish on that. And I'm bringing that up just because...

Pat: But think what would have happened to that Intel stock if he had held onto it since then compared to today.

Scott: What do you mean? I don't know. I forget when he sold it. Intel hasn't...I don't think it's done terribly well in the last...

Pat: That's my point.

Scott: Yeah, correct. Right?

Pat: The best decision may have been to put it into a pooled asset fund.

Scott: I mean, last time I looked at Intel, it was doing really poorly. I have no idea. I don't follow Intel. I'm not an... But that was just my whole point on that is, look, if you've got a few assets saved, it makes sense to work with somebody. Or at least have a conversation and talk about potential opportunities you have.

Pat: Yeah, you don't know what you don't know.

Scott: You don't know what you don't know. And that's what happened to this guy years ago. So anyway. Let's talk to Jeff in Georgia. Jeff, you're with Allworth's "Money Matters."

Jeff: Hey, guys. How are you all?

Scott: Wonderful. How are you doing, Jeff?

Jeff: Good. So I have two questions. One is, okay, so you guys often talk about annuities and say, you know, don't do annuities and all that. And I have a small annuity. It has like $120,000 in it. But I'm just curious.

Scott: For many people, that wouldn't be a small annuity, by the way, but okay.

Jeff: Okay, yeah. I have an annuity with $120,000 in it. What is it that is so negative that you guys don't like?

Pat: So does this annuity sit inside of a 403(b) or a 401(k) or an IRA account or is it outside?

Jeff: No.

Pat: So it's called a non-qualified annuity.

Scott: Is it a fixed annuity, a variable, or an equity index annuity?

Jeff: Oh, goodness. See, I didn't read enough to remember that part.

Scott: So how does it work for you? Put in money and then where's the money go?

Jeff: So I put in money in the beginning and I don't add anything to it. And I am guaranteed the upside of the market, but the downside has a floor.

Scott: That's right. Okay. So you're in what's called an equity index annuity.

Pat: Which is pegged to an underlying index of some sort.

Scott: And if you leave, how long do you have to leave your money before there's no surrender charges?

Jeff: I think it was five years, if I remember right. Probably been in there too. Maybe it was 10 years. I'm not sure.

Scott: Okay. Yeah, my guess is probably 10 because usually there's 7 to 10.

Pat: Seven to 10 years.

Scott: Fifteen-something years.

Pat: So here's the idea behind this. The reason you purchased this annuity was you like that feature of, "Oh, I get to participate in the upside of the market. Oh, and by the way, there's no downside in the market." That's what the pitch, the sales pitch was, correct?

Jeff: Yes, you can sell it. That's exactly what they said.

Pat: Sounds good. All right. So here's the problem with this. Most of these indexes don't participate in any dividends in...

Scott: There's a number of different restrictions. They're all different. But you never get 100% of the upside.

Pat: They're capped or you get a percentage of the upside.

Scott: Right. So here's kind of... If you're going to tie your money up for 10 years, the statistical probability of having a loss in the broad stock market over 10 years is astronomically small. And so time, right? All us advisors talk about time. Like the longer you have, the more fluctuations you could have.

Pat: So our reasoning behind this is, first of all, most people don't understand what they're buying. And by the way, if you wanted this technique, you could replicate it outside of an annuity. They use financial instruments that are available to everyone else in the world to actually do what they do. Right? They use options. They take invested CDs.

Scott: You can buy CDs that have these structured, CDs that'll do the similar kind of concepts.

Pat: So the point being is, if you want that sort of thing, why are you doing it inside of an annuity? But that isn't the point. The point is, look, if I'm able to ride a 10-year market cycle, why am I paying for insurance that is going to actually limit how much money I can make? Why don't I just live with the risk itself or build a portfolio that's 60% or 70% equities and 30% bonds that is much less expensive and, by the way, much more tax efficient? Because capital gains rates are lower than ordinary income tax rates. Any annuity comes paid out at ordinary income tax. So that delta alone...

Scott: And you can't transfer it to a family member in a lower tax bracket.

Pat: You lose all that. You can't gift it...I guess you could gift it. Someone would take it. But it loses a lot of the tax benefits. Putting it inside of this structure, you lose a lot of the tax benefits of capital gains and how they're recognized.

Scott: And step-up basis at death.

Pat: And step-up basis at death, right? So if you did a Ben Franklin pros and cons next to each other and you looked at it, and then you looked at the cost, you'd say, okay, well, why am I doing this? Well, I'm doing it mostly because it makes me feel better about the risk that I'm taking with my dollars.

Jeff: Okay. All right. That answers my first question thoroughly. I understand now.

Scott: And there are times when annuities make sense. We're not big fans of what this sort of annuity is. It's an equity index annuity. And some of these, 20 years ago, there was a lot of annuity products that were frankly mispriced. The actuaries didn't do a decent job. There's some older annuities that were pretty good.

Pat: Jeff, if you had talked to us 20 years ago, they had these guaranteed minimum income benefit writers on these things that guaranteed like 6% growth per year. We used them. I mean, I'm not ashamed to admit that, but they don't exist anymore.

Scott: You know, insurance companies all got slapped particularly through the financial crisis.

Pat: Yeah, the ones I used, the insurance companies are trying to buy them back at more than face value for my clients.

Scott: That's right. Oh, yeah, yeah.

Pat: They're saying, "Oh, if this thing's worth $200,000, we'll give you $240,000 if you surrender it."

Scott: That's right. Wow. Right?

Pat: But they were mispriced.

Scott: So we're not like annuities always are bad. There are places for them. We're not a big fan of this particular kind.

Pat: So next question for us.

Jeff: All right, so a couple weeks ago, somebody called in, and they said that they were able to put money contributions into their 401(k), and that Fidelity would convert them into a Roth.

Scott: Yep.

Jeff: And so I have that exact same situation. Whenever I'm trying to help anybody understand, like it doesn't work in my company, there's three questions. Does your company allow post-tax deductions into your 401(k)? Does your company have a Roth 401(k)? And do they allow in-plan conversions? And if all three of those things are true, and Fidelity does...I don't know if they do it for everybody, but.

Scott: Every plan is different. And the fourth thing, if they don't do an in-plan conversion, do they allow for... What do they exactly call those things?

Pat: Partial rollover?

Scott: Yeah, partial withdrawal. An in-service distribution.

Pat: An in-service distribution.

Scott: Where someone can then move it to their own Roth IRA.

Jeff: So what changed in the last couple of years was I used to call them like every month and say, "Hey, can you convert all of my stuff from my traditional 401(k) to my Roth, my post-tax stuff? And something along the way changed and they said, "Hey, we can just automate this. It'll do it every time that we see money in the account. It'll just get rolled over into your Roth. So there'll be no growth. So you'll pay no tax." That's a much better deal.

Scott: Of course.

Pat: Yes, yes.

Jeff: So I just want to make sure that I'm not missing anything in this because it seems too good to be true.

Scott: It's hilarious. It's one of these things where the Congress, in their wisdom, they put all these laws in place. And, you know, and someone just looks at them to say, wait a minute, we want to go from A to B. You're not allowed to go to A to B. But if you go from A to Z to Q to P, then you can go to B. And that's all legal, which is what this is.

Jeff: Okay, because it seems to me like I can... These are post-tax deductions, so my tax rate has already been applied to whatever money is going in there. If I take it out from my paycheck and give it to my broker and he grows it however he grows it, I'm going to get taxed on...

Pat: That's right.

Scott: Oh, yeah.

Pat: 100%. It's brilliant. And by the way, you hit those three things and Scott added the fourth. People are listening to this and they're going to go back to their employer and they're going to go, "Nah, not allowed." Most employers don't allow it. Most employers don't allow it. And your coworkers are lucky to have you there to actually be an advocate.

Jeff: Okay. I'm not kidding, I tell everybody I know.

Scott: Well, but here's the... You know what Jeff, like the majority of Americans aren't even at the maximum anyway. And the fact that you can save, right? And just might have a colleague that their income level is not necessarily at a point where they can sub roughly $70,000 into the retirement account, but they might have other assets and it might make sense for them to take their pay, you know, have those contributions very large for a few years and live off some other dollars.

Pat: Which is very hard for people to understand.

Scott: But it's just like taking a chunk of cash that you've got with your broker, let's say, and sticking it into the Roth.

Pat: By spending down other assets outside of the plan.

Scott: Quite powerful.

Jeff: Every time I explain this at work, I get two objections. The first one is, "I make too much money for a Roth." And I'm like, no, so we have to work through that, that this is in the 401(k). And then the second one is, they think they can only put the $21,000 or whatever in the 401(k). And I'm like, no, both of those are missed.

Scott: There was an article this week. I think it might have been "The Wall Street Journal." I think it might have been "The Wall Street Journal" on this very thing. Yeah. If you Google, I think...I don't know if it was on Friday's paper or Thursday's paper, but I saw an article this week on it. And I hadn't seen one in the general public. It was a broad publication. It might have been the journal or something.

Jeff: Okay, excellent. So I'll look for that article in the journal. I'll look in "The Wall Street Journal" and see if it's there. It would just be interesting to see another take on what's happening.

Scott: Yeah, then you can show your friends they're idiots.

Jeff: This time last year, I was all concerned because Congress was identifying this as something they wanted to close the loop on. But it didn't happen, thankfully. And so everyone gets to still enjoy it for as long as it lasts.

Scott: Right. That's right. I mean, they just passed this Retirement 2.0 Act with increasing the age for required minimum distributions, there's still a ton of questions out there that Congress needs to provide some more clarity, and the IRS needs to provide some more clarity. Yes.

Jeff: Yeah, for sure.

Scott: Anyway, this probably won't last forever, because the only ones who benefit from this, according to...

Pat: Are rich people... Well, that's true. It is true. Of course, it's true. Rich people benefit. Did you have any other questions for us, sir?

Scott: Whether they're rich just because they just...somehow it was manna from heaven, or they applied themselves are two different things.

Pat: Okay. Well, that's a different show.

Jeff: Well, I feel like I'm taking a ton of time.

Pat: Oh, no, no. If you have any other questions, we got...we're OK.

Jeff: OK, required minimum distributions. I know that I'm only 50. That's way off in the distance for me. I know that there's...Roth doesn't require that. And I am clearly contributing to both traditional and Roth. What do I need to plan for in regards to that? Like, how is that going to affect me when I'm 72?

Pat: Okay, so it's actually when you actually quit working. Between the ages of required minimum distribution and your last paycheck from work is where most of that planning takes place, whether you should be doing more Roth conversions or not. But that's where most of it will take place. And there's not much you can do now.

Jeff: Well, then I will not worry about it right now.

Pat: Yeah, I wouldn't worry. But when you're doing planning, don't plan on Social Security being there for you, by the way. You're 50?

Jeff: Urgh, I know.

Pat: You're 50? There was a great article either in "The New York Times" or Wall Street Journal. Oh, no, it was in one of the financial publications. How more and more advisors with clients under the age of 55 are not even working into financial plans, Social Security being paid out for anyone of any substantial net worth at all, or medium net worth.

Scott: And look, I've been doing this a long time. I remember people would say, "I don't want to plan on it." I'd say, "Well, I think it's going to..." Years ago, "I think it'll be there for you. Well, let's make sure that you're fine without it. But I think it'll be there for you." I don't say that today.

Pat: Yes. Yeah. So just.

Jeff: Every change that they've made has not helped, you know...

Scott: The people who contribute the most to it.

Jeff: Yes, exactly.

Pat: It's almost like it's a tax.

Scott: It is, of course. All righty. Appreciate the call. Keep up the good work.

Pat: You know, Scott, I want to spend a minute. You were talking about tax code. You do this, you do that, you do this. So my daughter was a schoolteacher, and the school district she worked for paid into a pension. And so she quit her job after three years to go to law school. And so I said to her, "You know you have a pension, money set aside for you for your retirement that the school district has put money into." And she said, "Well, where is it?" I said, "Well, we'll go to the website, and we will be able to find it." And it took us a few minutes to actually find the current value of it today. So we go to the website. We're all over the place. And she's like, "Where would it be?" I said, "I know it's in here somewhere." I said, "It's the cash value of your pension. So it's called a deferred vested pension." So we find it, it's $14,000. And she says, "Well, what do we do now?" And I said, "Well, now we're going to convert it to a Roth IRA." And she said, "Well, I already have a Roth IRA. I'm just going to move it over to the Roth IRA." And I said, "Oh, it doesn't really work like that."

Scott: Again, you can't go to A to B, but if you're going A to Z to Q to P, then you can go to B.

Pat: And she's like, "Well, why not?" And I said, well, I don't know why. And she's like, "Well, why don't you, Dad? Isn't it what you do?" And I'm like, "Yes, but we're going to open up an IRA, and then once it's in the IRA, we're going to convert it to a Roth IRA the next day." And she's like, "Well, this is just kind of silly, isn't it?"

Scott: Yes, a lot of these things are. Hey, we appreciate everyone being with us today. We've got a couple of things. One, I think, Pat, you'd mentioned a review of our podcast, which we'd greatly appreciate it. But secondly, we've got some time set aside just to be in the studio to take calls. So if you've got a question for us on Monday, January 15th, which is MLK Day, we are going to be in the studio from 3:00 to 5:00 p.m. Pacific time taking questions. So 3:00 to 5:00 p.m. Pacific time. You can call 833-99-WORTH. Or if you want to schedule a time ahead of time, just send us an email at, We'll schedule time. Again, Monday, February 15th, we'll take your call.

Pat: And by the way, this podcast, there were some pretty sophisticated questions asked that went in pretty in-depth. If you're new to this podcast, that's not all our questions. So that is not all our questions. So if you have a question about, should I pay down my mortgage? Or, should I buy life insurance? Or even the most basic.

Scott: Right? I think we had three calls. Two were, how do I give away? My estate's so large, how do I maximize from a...

Pat: Yeah, and then we have a 50-year-old that is like a super saver.

Scott: Yeah, How do I save more and teach my friends to save more?

Pat: If you're an average American and just want to know how to allocate your 401(k) or whether you should make a Roth contribution, make the call. We live on both sides of the spectrum.

Scott: We'll see you next time.

Announcer: This program has been brought to you by Allworth Financial, a registered investment advisory firm. Any ideas presented during this program are not intended to provide specific financial advice. You should consult your own financial advisor, tax consultant, or estate planning attorney to conduct your own due diligence.