Gold Hype, Insurance Myths & Tax-Smart Moves for Retirement
On this week’s Money Matters, Scott and Pat tackle some hot financial topics—starting with the gold rush (yes, even Costco’s in on it). They break down what gold can and can’t do for your portfolio. Then it’s life insurance: if you’ve got an old whole life policy, is it still worth it, or should you cash it in and reinvest? They also help listeners navigate tricky tax planning moves, like tracking after-tax IRA contributions and understanding required minimum distributions (RMDs). Later, Victoria Bogner, Allworth’s Head of Wealth Planning, shares how one client used a covered call strategy to generate $90,000 a year—without selling a single share of stock.
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 questions@moneymatters.com.
Automated Voice: 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.
Scott: Welcome to Allworth's "Money Matters," Scott Hanson.
Pat: Pat McClain. Thanks for joining us.
Scott: That's right. Glad you were here with us. Feels like the summer is finally officially on.
Pat: Oh yeah, I got the picture of your daughter.
Scott: Lily graduated high school.
Pat: High school, yeah.
Scott: Ruby's going into eighth grade. It's hilarious. We'll get the financial stuff in the last couple of weeks. My daughter had pretty good grades all through high school, A's and B's. And I'm like, just get A's and B's, and everyone's going to be seeing that, like, whatever. Like, I'm not gonna... Okay, you try, but after a while you realize the kid's going to do what the kid's going to do. And I was a 2.2 GPA in high school. So, just throwing that out there. So, everything looks good. I thought if I got more than a C, I did something wrong. It was a little away to... It was a silent rebellion, I think is what it was.
Pat: Way to push yourself, Mr. Hanson.
Scott: Yeah, I don't know what that was. And I don't want that with my kids. But anyway, so she had A's and B's until this last semester because she was already in college, and she can't believe...
Pat: Oh, she's already been accepted to college, right?
Scott: Yes. She gets two C minuses. And, wow. I'm like, "Lily, you got to pass high school here." I needed to have her speak. I like, "Show me your schedule the last couple of weeks of school," to make sure she...
Pat: I think you have to do that.
Scott: Yeah. "Well, can I still go out tonight?" I'm like, "You make your life choice. I mean, at this point, you're graduating high school. I hope you can figure out how to manage your own life, your time anyway. So, you decide if you should see your boyfriend tonight, or you stay home and study." So, she went out.
Pat: She went out?
Scott: Yeah. I'm not going to follow her into college to make sure she's doing...
Pat: Yeah, I know. So, anyway...
Scott: She'll do fine. She's good.
Pat: That's nice. Oh, yeah.
Scott: Anyway, yeah, so kids are out and all that stuff.
Pat: Yeah. And then, my son's getting married in a couple of weeks.
Scott: Oh, my goodness. Yeah. That's coming up.
Pat: Oh, yeah. I can't wait for it to be over. And I'm not that involved, other than, I'm a major input economically to this wedding, which is, I believe, my sole purpose.
Scott: And I'm sure you don't have much saying that either. Your wife's pretty much involved.
Pat: Oh, I have no... So, anyway, my wife's an accountant by education. She's pretty much on top of it. But I am so tired of hearing about it, I'm gonna tell you. I hope no one's listening. That's one of the wedding. It'll be a beautiful wedding and a lovely couple, but I hope it's over soon.
Scott: I just remember planning my own wedding. We got in a big argument because we wanted to talk about the napkin color. I can care less about the napkin.
Pat: And you didn't care?
Scott: "Maybe you don't care about our wedding about our wedding." And then, you know, you're young and you learn what you should actually state and what you should keep to yourself.
Pat: That's right.
Scott: Anyway, all right, let's go to finance, yeah.
Pat: Now, we're all caught up on each other's personal life.
Scott: Yeah. If you want to... We love taking calls, answering questions you throw our way. So, if you want to join us, you send us an email at questions@moneymatters.com. And we've got some good calls lined up today we'll be talking about. Before we do that, Pat, gold. I want to talk about gold for a bit. We don't talk about that very much on the program.
Pat: No.
Scott: It's the strangest thing.
Pat: Well, I read an article last week or the week before about Costco limiting the number of gold bars you can purchase in the store.
Scott: How big of a gold bar can you actually purchase a Costco?
Pat: I have never been to the gold bar section of the Costco. It's not near the free sample section. So, I've never hit it.
Scott: I mean, if an ounce of gold is 3,300 bucks, you would say.
Pat: It must be by the ounce.
Scott: It's a pretty small bar, one ounce. How many thousands of dollars are we talking about? You come out of Costco with a couple of 100 grand worth of gold.
Pat: I have no idea. I don't know what people are buying. But I thought, this is kind of a strange...
Scott: Do they have their normal markup? Because Costco is like a standard 8% markup or whatever it is, 7%, 8%.
Pat: It's 14% on non-products.
Scott: It's a 14%.
Pat: And 15% on their house brands.
Scott: Thank you, Pat, for remembering that.
Pat: I would just thought it's a fascinating way to actually run a business. So, I don't... I just remember reading this article about Costco. But your point about gold...
Scott: Well, I mean, it seems like whenever gold prices go up, then we start...more gold companies are out there. Seems like every talking head, whether it's a podcast or a radio, they've all... I don't watch TV, but I'm assuming those TV ads, they're promoting gold....
Pat: Promoting gold.
Scott: And it's not that I don't really... I just don't care for TV. It's not like I'm against TV, but I've tried. And it's harder every year because I don't even know where to start. So, I just don't bother.
Pat: I've given up.
Scott: Every once in a while, I watch some series. Anyway, the things they state about gold are not factually correct.
Pat: Yes, that's right.
Scott: Like, it's a hedge against inflation. It's not. It can be. It has been.
Pat: And it has not been, depending on different times.
Scott: That's right. And it doesn't always go up when stocks go down. But the thing about it, two years ago, gold was roughly $2,000 an ounce. Today, it's roughly $3,300 an ounce. If you wanted to own gold, wouldn't have been better to buy it two years ago as opposed to today. And if suddenly you believe it's an important asset today, what has changed in your feelings, other than beliefs?
Pat: Other than that, you saw the price go up and you missed out on it.
Scott: Yeah, it didn't do well when during '22 when we had a market was down.
Pat: Yes. But, Scott, it's look at the end of the day, the price of gold is dependent on the cost of getting it out of the ground, refined, and down to the marketplace over the long term. Over the short term, anyone's guess, no different than in stocks. The price of the stock is based on the earnings of the company over the long term.
Scott: I mean, I was in South Africa a number of years ago, and there was this amusement park that they built on top of a gold mine. And I was talking to someone about that. There's still tons of gold down there. But when gold prices fell, it was no longer profitable for them to mine the gold. So, they had this land, and then, someone decided, "Why don't we build an amusement park?" They built an amusement park on top of the gold mine. But to your point, it's like there's lots of gold still there.
Pat: Oh, yes.
Scott: There's plenty of gold still to be mine.
Pat: Yes. And there's actually new technologies which will actually be able to find gold in different places if you wanna check.
Scott: And if you want to own a couple of percent in gold...
Pat: Go for it.
Scott: ...or feel better about having...
Pat: Go for it.
Scott" ...a few coins in your safe at home. Hopefully, you have a good safe, and one that somebody they can't lift and carry out of the house, if that's what you want to do. But I don't know. I just find it... I don't really consider it an investment.
Pat: Well, it doesn't produce anything.
Scott: It produces nothing. It doesn't pay you interest. Doesn't produce anything.
Pat: It doesn't produce anything.
Scott: So, anyway, all right, we're going to take some calls here. Again, if you want to be part of our program, questions@moneymatters.com, or you can call 833-99-WORTH. Let's head to New York City and talk with Charlie. Charlie, you're with Allworth's "Money Matters."
Charlie: How are you?
Scott: Fantastic. How you doing, Charlie?
Charlie: Good, thanks. My question is that, when I was...some 25-years ago, I needed insurance, so I took out a term insurance that I converted a portion of it, and I converted $350,000 to whole life, $2 million policy, $350,000 whole life, $1.65 is term. I still have the term. I think that's all I need.
Scott: Is the term...is at a level... And so, how old are you today, Charlie?
Charlie: I'm 53.
Pat: And this is on yourself or your spouse?
Charlie: It's on me.
Pat: Okay.
Scott: And the term, does it go up in price every year?
Charlie: No, no. The term, I took out a new term policy maybe 10 years ago.
Pat: Okay, that's what we're looking for. So, you converted part of this, but then you rewrote the term policy 10 years ago. How's your health today?
Charlie: What?
Pat: How is your health today?
Charlie: Fine, fine.
Pat: Okay, so what's your question for us?
Charlie: What to do with the whole life policy. I mean, I stopped. Maybe about 10 years ago, I stopped paying the premiums on it. I'm using the dividends and surrendering addition to maintain it. So, I have about probably $70 or so thousand that I've contributed over the years. I think I have cash value of about one $115,000. And so, my question is, so I just keep doing that?
Pat: How old are you?
Scott: No, I wouldn't tell.
Charlie: I'm 53.
Pat: You're 53. And do you have a need for insurance?
Charlie: What?
Pat: Do you have a need for insurance, or people...? Could you retire today comfortably with no...?
Scott: No, well, then there's if you have a pension.
Pat: if you died today, who's relying upon you for income?
Charlie: My wife, my wife. My wife, and right now, I have two kids who aren't working, yet.
Pat: Okay, all right. You have a need for insurance.
Scott: So, the thing about...there's a place for whole life. My opinion, it's typically for very large estates and you can use it as a way to pay state taxes. It can be pretty interesting in that situation, but extremely, though.
Pat: But then you're saying they use irrevocable trust.
Scott: Extremely. Yes. And it's used for that specific purpose. Other than that, most people don't need life insurance their whole life. They need insurance when they've got kids. They need insurance while they're working. They go in... Maybe the only thing they need is enough money to have a funeral and heads and bury in the ground. So, most people don't need a whole life insurance for their whole life. And which is one of the reasons you don't see it sold as much. And he used to all be sold. The reason people owned it is because it was sold to them. And that was how whole life insurance were sold to them.
Pat: So, when you think about this, you have a cash value of $115,000, and you actually have insurance of $350,000. So, the difference between those two numbers is $235,000. That's what you're buying insurance for that still. You're still paying on that.
Scott: The way the contract is...
Pat: You could cash out that $115,000, right? And that's how we come up with the number. And that's what.. Basically, the term I use is called pure insurance. So, you're buying $235,000 worth of pure insurance.
Scott: Have you been paying attention to what's happened to that cash value on a year-by-year basis?
Charlie: It's kind of hasn't gone up very much, I think, because I stopped funding the policy.
Pat: Yeah, okay. Well, you've got to... So, what happens is, if that cash value stays the same as you get older, the risk of you dying actually increases, therefore, the cost of the that pure insurance goes up. So, what we know, what will happen based upon the facts you just gave us, is that we'll start to see this cash balance actually drop. So, you've got three options, essentially. One is you can cash...
Scott: Think about this, $115,000, let's assume your earning 4% in the bank, you can get a high yield in money market account, savings account, roughly 4%, maybe a little more than that.
Pat: It's a little over $4,000 a year, which you're using to buy $230,000 worth of insurance, which is really expensive, which is really expensive. So, the cost of the insurance, the pure insurance is really expensive. So, you've got three options. One is, ignore it and keep it like it is. I guess, we have four options. That wasn't one of my options.
Scott: I mean, you could be right.
Pat: And the other option is just cash it in.
Scott: In which case you'll pay some tax.
Pat: Yeah, because you said you put in $70,000, and the cash value is $115,000, so there's going to be a taxable event. The third option is you can roll it over into an annuity without any tax consequences. And you could buy a variable annuity if you wanted with that, make it much more aggressive investments.
Scott: The downside with that is that it'll be taxable at your death if you never spend the dollars.
Pat: And the fourth option is you could just lower the face value of this. And even to the point where you turn it into what's called a modified endowment contract or a MEC, a modified endowment contract. You could lower the face value of this to say, 200 grand.
Scott: What would you do, Pat?
Pat: I would either roll it into an annuity or it actually downsize it to a MEC. I wouldn't cash it in. And part of it, I guess, would be based on what the...
Scott: I don't know.
Pat: What's your overall net worth?
Charlie: Including the house, the mortgage, I think, and the retirement account?
Pat: Yeah.
Charlie: That's somewhere about three and a third.
Pat: I might cash it in.
Scott: I wouldn't leave... See, investments are based upon timelines, right? So, I like fixed, safe assets for money that I need to spend, or I may need to spend in the next couple of years, right? So, I like money in the bank. I like nice security. But for money that I'm not going to spend for years, I want them invested in the long-term assets that are going to appreciate in time.
Pat: Well, by moving it into a variable annuity...
Scott: What I'm just saying, the challenge with this life insurance...
Pat: Is it's a fixed...
Scott: ...it's a fixed asset.
Pat: It's really low-interest rate.
Scott: When you talk, and you're out there, you're not going to die for, who knows...
Pat: Look, I have a policy on myself that I bought years ago, a variable universal life, which is similar to what you own. But it invests all in stocks and mutual funds of what they call sub accounts, but essentially, mutual funds inside of it. And I have quit funding that thing five, six years ago, but it's aggressively invested and it continues to grow.
Scott: I have a similar kind of policy.
Charlie: Yeah, I think mine is tied to the insurance general account.
Pat: That's right. That's right. It's a fixed account because it's whole life. I'd either cash it out. Can't have to get $3 million, 115 grand, pay the tax, move on, make life easy.
Scott: That's what I would do.
Pat: Yeah, I'd cash it out.
Scott: That's what I would do.
Pat: I'd cash it out. I'd cash it.
Scott: And I want to get a physical first.
Pat: Yeah. If you're uninsurable, you know, you could apply for another policy.
Scott: I wouldn't do it until I have my annual physical.
Charlie: Okay, so cash it out, pay the tax.
Scott: That's right.
Pat: Yeah.
Charlie: And then, put...
Scott: I mean, yeah.
Pat: Or what? Put the money where?
Charlie: I put the money on high-yield savings account in case I need it for, I don't know, make a wedding or something.
Pat: Yeah, that's up to you how you want to invest it. The source of the money shouldn't drive the investment. Just because it came from a fixed account doesn't mean it needs to go into a fixed account. The source of the money, as long as it fits in with your overall goals, that's where it should be directed.
Charlie: Okay.
Pat: Yeah. It's... Yeah. And look, these policies, I tell you, they're complicated, right?
Scott: Super complicated.
Pat: Yeah, you can pretend they're not complicated. Most people, the way they're sold us, they're not complicated. They're complicated.
Scott: Yeah, because one option, Pat, is to move this to either a variable whole life policy or a variable universal life policy.
Pat: Re-underwrite it.
Scott: And if you bring the face value way down, it loses some of the tax benefits, then it becomes a modified endowment contract, but the death benefit still remains tax free. But then, you're basically saying, I'm going to take this 155 grand, and I'm planning on never spending it in my entire life, and dying with it.
Pat: Well, I did it with a client recently, but their net worth was over $10 million dollars and they were never going to spend it. And so, that was the right thing to do.
Charlie: Yeah, I think I'd like to spend the money.
Pat: And a lot of the rules changed in...
Scott: If you'd like to spend the money, then I'd cash it out.
Pat: Yeah, I'd cash it out, yeah. And that was... A lot of the rules changed in the 1986 TEFRA.
Scott: Thank you, Pat, for your bringing up the tax law from 50 years ago.
Pat: Holy smokes, it's been a long time, ha?
Scott: It has been. Appreciate the call there, Charlie. Life insurance... Well, first of all, there's not enough life insurance in force today. There are too many young families that don't have life insurance.
Pat: It's not sexy.
Scott: And say what you want about the insurance is, at least, when these good salespeople are out selling policies, people have life insurance in force. Bobby better than nothing, right? And a lot of people have nothing today. Interim insurance is so inexpensive. If you are young and in good health, it's almost...I mean, it's negligible.
Pat: It's not sexy, though. Like, it's not sexy. But you go up to a beautiful house that's just gorgeous, no one ever asked how the foundation was built, right? And that's what insurance is, the foundation of every financial plan, every financial plan, whether you want to talk about it or not...
Scott: Insurance is.
Pat: Homeowners insurance, liability insurance.
Scott: And all that is getting expensive.
Pat: Yeah. Homeowners, liability insurance...
Scott: All of that is going up in price, by the way.
Pat: ...disability, life insurance. It's not sexy, though. I'd much rather no one's ever...
Scott: Right, I don't want to talk about insurance anymore.
Pat: I want to.
Scott: We're done with insurance.
Pat: Okay.
Scott: And let's go other side of the coast, California, talk with Doug. Doug, you're with Allworth's "Money Matters."
Doug: Hello.
Scott: Hi, Doug.
Doug: Good morning. All right.
Scott: Good morning.
Doug: Hey, I've been fighting a situation for since last year. I have, over the years since 1986, I've been doing IRAs. But through the years working, I've had pension. So, those years, obviously, I couldn't contribute or, at least, I couldn't take the pre-tax deduction. What I'm fighting, what I'm trying to figure out now is, and I'm talking since back in '86, over the years, my IRAs have been merged with my pre-tax versus post-tax contributions.
I filed an 8606 form with the IRS back in 2010, which was my last year of working. And I've got about $35,000 in post-tax or after tax contributions to that IRA. And my total is about...
Pat: I'm sorry, say that number again. How much is...?
Scott: $35,000.
Pat: Okay.
Doug: $35,000 out of a total of $368,000. How, or what can I do to avoid paying RMDs, or can I take that money out of that traditional IRA and put it in a Roth? Or how can I remove excess funds? I'm just trying to figure out how to... I've talked to a tax adviser, she couldn't help me. I went to the IRS, the guy was an idiot. I'm sorry to say, but he could not help me. I knew more than he did. And I called one guy, a CPA, and he said, "No, you just need a tax adviser." So, I'm really confused.
Scott: Isn't that a CPA?
Doug: I'm sorry.
Scott: Isn't the CPA tax adviser? They're not all, by the way, some are.
Doug: Well, yeah. But I asked him if I need, you know, a tax preparer, I guess. I don't know. He said I did not need a CPA.
Pat: So, how old are you?
Doug: I'm 73.
Pat: And you're no longer employed. Do you have a 401(k) anywhere?
Doug: No, I pulled them all out when I retired.
Pat: So, the way the rule works, Doug, is every... If you took, let's call it roughly 10% of your IRA balance is after tax money. So, $35,000 of 368. Let's just call it 10%. It's roughly 10%, 35 of 360. So, 10% of your IRAs you've already been taxed on, because you contributed with after-tax dollars. And you have and you've memorialized that every year with your 8606 in your tax return.
Scott: That's right.
Pat: So...
Doug: Okay, now, a question on that, the last year I worked was 2010, am I required to send an 8606 every year since that time? Because I have a...
Scott: I believe.
Pat: I do. I do. I don't know whether you're required or not, but I did every year until I was able to fix the problem. I fix my problem a little bit differently than we're going to tell you to fix your problem. But there's no downside. Scott, I remember asking you this question.
Scott: You still might file the 8606. I have no idea.
Pat: So, the accountant said, he said, "Even if it doesn't require, why wouldn't you?" It only takes... It's the same form every year. Your basis never change.
Scott: Yeah. So, right now, if you took out $10,000, or wait to your requirement of distribution, let's just say you took out $10,000. Of that, $9,000 will be taxable and $1,000 will be tax free, roughly 10%. And I assume that's how you're doing it. You haven't taken much on.
Doug: I haven't done anything yet. That's why I'm calling.
Scott: So, one option is just to say it is what it is. When I take my requirement, minimum distributions, whatever that number is, roughly 10% of it is already taxed. And it's just a pro-rata formula. It's based upon what percentage of your IRA assets have been taxed versus what percentage haven't been. And that portion comes out tax free and the rest becomes taxable. But you need to do the calculations because your IRA provider is not going to have it.
Pat: Yeah, you do the calculation. Now, I'm going to answer a question that's going to come to you after you hung up this phone call, which is, why can't why can't I just take that $35,000 and convert it to a Roth IRA? Because you can't. Because that takes place on a pro-rata basis as well.
Scott: Yes. So, if you said, let's assume you even had the account separate. Let's assume that when you set up those IRAs at the bank, which I'm sure you did back in the '80s, because interest rates are high, you set them at the bank at $2,000 per year. You were not allowed to take a tax deduction. Let's assume that was still an intact account. Even if you took that and converted to a Roth, when it comes time to do your taxes, they're going to say, "No, no, we don't look at it like that. We look at all your IRAs."
Now, if you are still employed and had access to a company 401(k), you could say, "I'm going to transfer 90% of my IRAs to my current employer's 401(k), and leave behind just $35,000 in an IRA, which is the after tax amount. And we're answering this for the rest of the listeners. This doesn't apply to you...
Pat: Because you don't have that...
Scott: ...unless you want to go back into the workforce. By the way, it's murky on whether this is permissible or not. Because I've heard two different tax opinions on it. Because you can put money from IRAs into 401(k)s. It's the whole sort... And I've heard different tax...
Pat: It's the sourcing of it that's questionable. And it doesn't apply to you anyway.
Scott: So, for you, you don't have any choice. You're going to have to pay taxes on its RMD. You can't convert it to a Roth.
Pat: And if you say I'm going to if you say I want to convert $20,000 to a Roth this year, whatever the number is, great. Ninety percent of that is going to be a taxable conversion and 10% will be tax free because of your cost basis in your IRAs.
Scott: Which may actually be the right thing for you to do is to convert it to a Roth.
Pat: Probably not.
Scott: And 368, if this is your retirement...
Pat: How much income do you have?
Doug: I'm sorry.
Pat: How much income do you live on every year?
Doug: Oh, man. Probably close to $100,000.
Pat: Yeah, it's probably not,
Doug: You know, between me and my wife.
Scott: Yeah, yeah. I mean, you requirement of distribution...
Pat: Is pretty low, yeah.
Doug: Well, the requirement of distribution came out to about, not quite, $14,000 for this year.
Scott: That's right. Yep, yep, yep. And of that, roughly $1,400 is going to be tax free, and the rest will be taxable. So, that's the answer to your question.
Doug: Is that something that's on the IRA form to clarify the difference between taxable and post-tax?
Scott: I don't know how the forms work. I don't file my own taxes, but that's the rules.
Doug: Okay.
Scott: That's the rules. Yeah, you don't have to call anyone else.
Doug: Okay, okay. Very frustrating. Trying to find stuff out is very difficult.
Pat: Well, look...
Scott: You just found that out. Life's simple now.
Pat: ...I got to tell you, this drives me crazy. This is drives me crazy under this new proposal for this big, beautiful bill, the big, beautiful bill. You look at all these little things that are like, "Okay, so the first $100,00 in salt, but not after the salt, and income is here. Oh, and then..."
Scott: You mean making the tax code even more complicated?
Pat: You're just thinking, it's complicated in...
Scott: That's why the tax code is so complicated, because every tax bill makes it more complicated and not less so. There's no simplification.
Pat: Correct.
Scott: It just gets more and more complicated.
Pat: Yes, right?
Doug: Yeah, tell me.
Pat: And then there's like and then things come out of the blue, like, oh, you're 520 and what? A couple of years ago, your 529 plan, you can now convert it to a kind of to a Roth...
Scott: All kinds of stuff.
Pat: ...or to an IRA.
Scott: There's all kinds of crazy stuff.
Pat: This applies to what 000.
Scott: Doug.
Pat: Wait, I'm in the middle of a rant here. He's listening. This feels good.
Doug: Talk to you. A computer guy would say my ram is full. I can't take in any more.
Scott: All right, Doug. I appreciate the call. And funny, Pat, as you get to sit around and complain, and I was talking to my oldest daughter the other day. I was complaining about something in the political environment. I was complain about something. And she says, "Dad, I'm a little concerned that you're going to become one of those old men." That's what she says. That blitz out these political opinions at the Thanksgiving table and stuff, and you're going to be all angry because... I'm like, "I don't even watch the news." But I bet it's too late. I am opinionated on something, yes.
Pat: Look, right or left, I just think, you know, if you were a business, you'd actually try to simplify things, if you were a business, right?
Scott: They make it all the more complicated.
Pat: It makes it much more complicated to the point that...
Scott: And look, the people that have a lot of assets like we've got a whole team of accountants. We have CPS that and our CFPs. I mean, tax planning is a major component of wealth planning, right? Like, I mean, it's just silent partner. And a lot of the value a good advisor can bring is in helping you navigate. I mean, a good advisor can more than pay for their whatever fee you're paying by just navigating the tax bill.
Pat: The problem is it's hard to measure because some of it is just because it's a step up in basis, and you're not going to see it until...
Scott: Or this or that. It's just very complicated. It's very, very complicated, yeah. Anyway, that's the real big one.
Pat: But the big, beautiful tax bill is not. I think it's big.
Scott: Yeah. Well, yeah. So, it's crazy. It's at what point are...? We're not going to actually reduce spending until we absolutely have to.
Pat: As a country. Correct.
Scott: So, security is not going to get touched until that's...
Pat: Oh, it's going to get touched. Actually, the amount of time it's going to be touches is accelerating.
Scott: All these things.
Pat: ...because as people lose confidence, it's also security.
Scott: They're taking early.
Pat: I saw that earlier.
Scott: I've seen that people are taking it early, losing confidence and blaming it on Doge.
Pat: Yeah. My wife started.
Scott: Well, she should.
Pat: Yeah, she started.
Scott: Not because she's worried it's... Well, she's worried that you're going to be means tested.
Pat: That's right. Not that it may or may not go away, but who are they going to take it from, is people that... And quite frankly, my wife can afford to retire without social security benefits.
Scott: Well, hey, we're telling you when the portion of our show, we're going to be talking with Victoria Bogner. She's Allworth's Head of Wealth Strategy. She's going to share with us a story about how she helps somebody navigate somewhat complicated situations.
Pat: These are my favorite part of the show.
Scott: You know, it's funny, I was thinking the other day, like, we should do more of these, like, little kind of more narrow. Because our phone calls are... I mean, I enjoy the parts when people call them the show. But sometimes there's these stories that the intricacies are a little more interesting, that they don't pop up in your everyday, but our advisors work with them on a daily basis.
Pat: Which is actually why... I'm from a creative standpoint when I hear these stories, I always think, would I have approached it the same way? So, let's talk with Vicky.
Scott: Yeah. So, Victoria, thanks for joining us.
Victoria: Hi, there. Yeah, I would be interested to hear if you approach it the same way, too.
Pat: Thank you.
Victoria: There's more than one way to get a cat, right?
Scott: Well, that is true. I think one of the benefits about working in a large organization on complicated matters, we are very collaborative and talk with other advisors and get others opinions, and then, have the CPS come in and sign off of them.
Pat: Collaborate.
Scott: Yeah. Anyway, so what...? Tell us about a situation you worked with a client and what they were trying to accomplish and what happened.
Victoria: Yeah, so we recently had a client, she held about 1.2 million in a very popular tech stock, and she had been a long term investor in this position. So, her cost basis was impressively low. And this particular stock didn't really pay much of a dividend. It was like 0.73%, which amounted to about 8 grand per year. She really needed...
Scott: And how much was this of her overall net worth? So, I mean, if she's $10 million, maybe it's not a big deal having a million dollars in stock. If it's a net worth $1.5 million, then it's problematic having $1.2 point two in one stock.
Victoria: Yeah, her overall net worth was about 3 million. So, this was a significant portion of her net worth.
Scott: And how old is she?
Victoria: She was only in her 50s, so pretty young, yeah. So, she needed more income because she had kiddos.
Pat: Pretty young. Is 50s younger?
Victoria: Who doesn't? I think it's young.
Pat: Yeah, like all the...get the younger...
Victoria: Just trying to make you feel good today. But she needed some income to pay for college expenses for her kids. But she didn't want to sell any of the stock shares because, of course, she had to pay some capital gains tax. And also, she had been in this stock a long time. She was emotionally invested in it. She thought they had great long term prospects. So, essentially what we did is we explored a covered call strategy. Oh, go ahead.
Scott: Sorry, I'm interested to hear how you built the strategy. But had you considered just gifting some portion of the stock to the child, and then, having the child sell? And assuming...
Victoria: That was a strategy that we looked at. But out of everything we analyzed, this strategy I'm going to tell you about ended up being the best outcome.
Scott: Good. That's why I'm... To finish down that strategy, because this is the right thing in some situations, right? You can transfer some assets to a child. The child sells them. The child has low income. They're college students. They have no job, let's say. And you avoid capital gain tax, or you pay at a very low rate.
Pat: That's another strategy.
Scott: A lower rate. Yeah, correct. That is a strategy. And you do it over multiple years
Pat:. Yes, that can work sometimes. But that's not what you did.
Victoria: Yep, that can work.
Pat: You did a covered-call strategy.
Victoria: That's not what we did because she didn't want to sell the stock. She wanted to keep it. She had bought this stock, let's say, something like 30 years ago. Like, what is this fruit going to do? And then, lo and behold, she caught on to a huge winner, as we all know today. So, we did a covered-call strategy. Essentially, we used the shares that she already owned to sell options contracts that gave someone else the right to buy the stock from her at a price about 12% higher than it was trading at.
Scott: Okay, so let's just...
Victoria: Those were structured over a rolling four to six months.
Scott: So, let's assume in the stocks priced at 100 bucks a share. And so, she went into these contracts that gave someone the right to buy the stock for $112 dollars a share in the next four to six months. Is that right?
Victoria: Correct. And we added a provision to make sure her stock wasn't actually sold if the price did go up more than 12%.
Pat: So, you put a floor...
Victoria: So, that's the provision that we can add.
Pat: Okay, so you collared it.
Victoria: We didn't collar it. We just did a covered call strategy because she wanted income. So, no floor on it.
Pat: Oh, God.
Victoria: It generated about $90,000 a year in income from those call premiums without having to sell any of the stock.
Pat: Okay, well.
Scott: And let's...
Victoria: So, you know... Go ahead.
Scott: So, this strategy, she was comfortable with the risk, assuming the stock price could fall from the situation $150 or whatever, she was comfortable with the downside. She's trying to figure out, how do I get some income? So, essentially, she sold a right for someone to buy the shares at a price 12% higher than the currently worth.
Victoria: Right. And these particular ones we bought it covers the next 120 days. So, the stock goes up more than 12% over the next 120 days. Then she's capped out, basically, at that 12% growth.
Scott: Got it.
Victoria: But in exchange for that, she got money because she sold this option to somebody. And in exchange, they paid her money. And this will end up being about $90,000 a year of income for selling that option.
Pat: And now, what...?
Victoria: Yes, it... Go ahead.
Scott: So, what if the price of the stock went to...? And I know you don't know the number off the top, but if the stock shot up to $140 a share.
Pat: Well, they had a provision in there where she actually still got to carry the stock. There was a cost to it, though.
Victoria: Correct. Yes, so she would basically have to buy that option back at a higher price than she sold it for to close out the option, is what would happen.
Scott: So, I just wanted to bring this because there's never a free lunch, right? There's no such thing as a free lunch.
Victoria: There's no free lunch. Correct, there's no free lunch.
Scott: Yeah, yeah. And she gets $90,000, but some phenomenal report came out, stocks suddenly shut up from $100 to $140, it's going to cost her a big chunk.
Pat: Yeah, it might cost her $150,000 to buy herself out of that position.
Victoria: Well, she would still get the gain of that first 12%.
Scott: The first 12%.
Pat: Got it.
Victoria: She basically wouldn't be participating in the gain above 12% for whatever length of time is left in that options contract, is basically how it works. But that's why we structured these over about a four-month window. So, it's not 12 months if it goes up 12%, it's only four months, right?
Scott: I'm just trying to get some clarity for her listeners here.
Victoria: Sure.
Scott: The stock goes from $100 to $140, it's not costing anything. The only cost is she wasn't able to enjoy the appreciation of the stock above $112.
Victoria: What is costing her is that she capped it. She capped that growth in that four-month period to just 12%. But she's also getting the options premium, right?
Scott: That's right.
Victoria: Which is, ends up being about another 8% of income per year on top of the 12$.
Scott: Which is what she needed.
Victoria: Which is what she needed, yeah. So, she's participating in growth. She's not triggering any capital gains tax. And she didn't want to sell the stock. So, it worked out great. And it's a great example of how we align the strategy with the client's goals. And we didn't fight her preferences, right? We worked with them, that option she is...
Scott: Right, because you...
Pat: And you don't have to do this forever. It's not forever.
Victoria: Correct.
Pat: The kid graduates from college in seven years with a bachelor's. You could quit doing this. You could just let the stock play naked.
Victoria: That's correct. You could... That's right. And now, an obvious question might be, why not just sell $90,000 worth of Microsoft stock to generate that income?
Pat: Because she didn't want to.
Victoria: Because she didn't want to, first of all. But let's say that she was okay with that. Well, we ran the math on that as we do. And because, you know, she still had the underlying stock and it was left intact to grow, basically, you're just skimming some income off the top because of that option premium you're receiving. So, that means you still have that underlying stock that's growing, and you're getting income. So, when you do the math, you're coming out ahead by using this strategy as opposed to just selling tranches of stock as you go.
Pat: But we should point out that there is more risk...
Scott: That's right.
Pat: ..in this than selling a tranche of stock.
Scott: That's right.
Pat: Because you sell a tranche of stock...
Victoria: That's correct.
Pat: ...you know the outcome. The outcome is defined.
Scott: Well, and she could also have used some contracts to give her downside protection.
Pat: Correct.
Scott: She could take some of the...
Victoria: That's correct. She could have, but she was worried about the risk.
Scott: She could take some of the $90,000 she receives from the other contract to use this for a protection. Have a call.
Victoria: Yep. And that's the strategy we use a lot for people that have a huge stock position. They don't want to sell it because of the capital gains. So, what we can do is sell that option, you know, like in this example, to get some premium, and then, take that money to buy the option to sell the stock at a specific price.
Pat: That's right.
Victoria: So, basically, creating a floor, yeah.
Scott: And that strategy can work really well with somebody their net worth's tied up in one particular company, they're getting later. They know they need to diversify. They don't want to diversify in one year because the tax are going to clobber them. They might have a strategy to diversify over the next several years. And they use this as a way to reduce the risk.
Pat: You know what's happening?
Scott: Or eliminate the risk even.
Pat: The family office of services are coming to the middle class. This is exactly what's happening.
Victoria: Yes, they are.
Scott: The technology.
Victoria: Yeah. Exactly.
Scott: It's technology.
Victoria: A lot of these things that used to be exclusive to ultra-high net worth. Now, the regular investor, for lack of a better term, can get behind that velvet rope as well.
Pat: That's right. Middle. And when you say, well, what is the middle class? Maybe it's not. It's upper middle class, but it's not family office. Where a family office, you might need $100 million to actually be in part of a family office. And you get these exclusive services, which, by the way, were quite expensive at one point in time. But because of technology, the cost associated with it is coming down significantly. million
Scott: Yes, some less than a million dollars of a particular stock, even.
Pat: Yeah. Where before you wouldn't employ this unless you had maybe $5 or $10 million in 10 years ago. And so, what happens is...
Victoria: Yeah, that's right.
Pat: ...if you have an advisor... I was a scheme with a friend of mine who had sold his business and he kept giving the money to the same advisor. And I said, you know, "What kind of tax strategy is this guy using on your new money, because it's new money and there's lots of..." And he said, "Well, we just make sure we don't pay a lot in taxes." I said, that's not a strategy. I mean, that's not.
Scott: But there's no excuse anyway.
Pat: That's right.
Victoria: You know, tax planning, that's such a huge lever that you can pull. So, it's imperative that your advisor be talking with you about a tax strategy.
Pat: That's right.
Victoria: If you have anything more than $2 million in net worth, yeah.
Pat: Yes. Well, Victoria, thanks for taking your time.
Scott: Well, as always, thanks for being part of the team.
Victoria: Yes, absolutely. Glad to be here.
Scott: Yeah, it's interesting, Pat.
Pat: How much... I just think, even in the last five years, the technology that, you know, we talk about it on the show, what, of a couple of weeks ago, it's mind boggling. It truly is mind boggling.
Scott: But I write an opinion piece for investment news every few weeks. It's in... None of our listeners will be reading it because it's for the industry. You would be bored quickly because most of it's all about industry stuff. But my article, the premise of it was that the small advisors is going away.
And three years ago, if you would ask me, Scott, do you think the small, independent advisor... And most of these independent advisors started out at some larger firm. They didn't like the conflicts of interest. They started their own little shop, fee only, fiduciary, line interest. All right, there's maybe two people and couple of assistants like us. That's how we started. And two, three years ago, I would have said, "Oh, they'll always be a place for those small advisors.
Pat: I would have said the same thing.
Scott: And I don't believe so anymore. And the reason, technology has made it so that we can do so much more so quicker for so much less money that it's going to be impossible for a small, independent shop to keep up. I mean, you think about...
Pat: There will be companies that fill the void by are trying to actually bring, you know, like almost like franchises, where they actually bring a platform to these companies, the small advisors. There will be companies to try to...
Scott: They are going to have to be part of some other team that provides... I mean, I just think about our own organization, the team on our technology team. I mean, what is technology department anymore? Like, what does that even mean? Because everything's technology. It runs through everything. And they're really business applications, right? When you think about it. But there's so many different business applications that we're looking at. So, much of it is client facing. And you've got to figure out what are the best ones out there today? How do they communicate with everything else? How do we do all this planning? And it takes a team to bolt all these things together. That's why I think, how in the world is a small...?
Pat: Well, but the reality is, if you've had the same advisor for 10, 15 years, and you like he or she or they, you know, don't be afraid to ask for more services. And if there's other ways they can do it, they might have the ability.
Scott: Well, Pat, there are some firms that literally state, they state right on their lips, "We do not provide tax advice," which is crazy. I'm like, "Well, how do you make an investment decision without taking advantage of the taxes?"
Pat: Yeah. But if we all get so good at not paying taxes, won't we all end up paying more taxes?
Scott: We got to stay one step ahead. There's no way to avoid. I don't know. It's funny because you're going to pay taxes. The question is, how do I...
Pat: And that's all part of us. Like, there's some taxes... I realize that I need to contribute to society in some...so that I don't... The concept of paying tax doesn't really bother me. Some of the programs the government does, I obviously wish my money wasn't going there. But, yet, I still want to pay as little as I can.
Pat: And as to almost every client I've ever met.
Scott: And if you don't, then we're probably not a good firm for you. Go ahead and send extra money to the IRS, if you'd like. That is about all the time we have in a program. I want to let everyone know we've got a great, June webinar. And this is legacy planning for high-net worth households. And it's really designed for those that have $2 million or more of investable assets.
And it's going to be presented by a couple of great people within our organization. One is Simone Devenny. She's our Head of Private Wealth Strategies. She was a state planning attorney earlier in her career. And now, does a lot of advanced wealth strategies, obviously a state..
Pat: In tax.
Scott: Big in tax, yeah. She's an expert of that. And then also, with Richard Del Monte, who is Allworth's Partner Advisor in our Walnut Creek Bay Area office. The two of them are going to be presenting. And I know Richard's good, because Richard trained me when I first started in the industry in 1990. He would teach classes at the organization that we were both involved in, and...
Pat: And actually...
Scott: Was an independent advisor, just like we're talking about, and...
Pat: And then, he joined us.
Scott: ...joined us.
Pat: Because he wanted more access to more resources to provide to the clients.
Scott: That's right. And he says, the best thing that's ever happened. That's why...
Pat: But break, break, they're both. So, if you've got $2 million or more, it's for you.
Scott: And it's really some generational wealth transfer strategies. That's a lot of the focus is going to be on. How do you think through that?
Pat: How do you push it down street? What's the most efficient way? And should you push it down street?
Scott: And effectively. That's right. So, this webinars is Wednesday, June 11th, at 10 a.m. Pacific, Thursday, June 12th, at noon Pacific, Saturday, June 14th, at 9 a.m. Pacific time. And so, to register, go to allworthfinancial.com/workshops, allworthfinancial.com/workshops.
So, also, this is all the time we've got, but also want to remind you, if you like this, make sure you follow us on Apple or Spotify or wherever you get your podcasts.
Pat: And rate, if you wish.
Scott: Yes, we'd appreciate that. So, enjoy the rest of your weekend. We'll see you next week.
Automated Voice: 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 a state-planning attorney to conduct your own due diligence.
Scott: Welcome to Allworth's "Money Matters," Scott Hanson.
Pat: Pat McClain. Thanks for joining us.
Scott: That's right. Glad you were here with us. Feels like the summer is finally officially on.
Pat: Oh yeah, I got the picture of your daughter.
Scott: Lily graduated high school.
Pat: High school, yeah.
Scott: Ruby's going into eighth grade. It's hilarious. We'll get the financial stuff in the last couple of weeks. My daughter had pretty good grades all through high school, A's and B's. And I'm like, just get A's and B's, and everyone's going to be seeing that, like, whatever. Like, I'm not gonna... Okay, you try, but after a while you realize the kid's going to do what the kid's going to do. And I was a 2.2 GPA in high school. So, just throwing that out there. So, everything looks good. I thought if I got more than a C, I did something wrong. It was a little away to... It was a silent rebellion, I think is what it was.
Pat: Way to push yourself, Mr. Hanson.
Scott: Yeah, I don't know what that was. And I don't want that with my kids. But anyway, so she had A's and B's until this last semester because she was already in college, and she can't believe...
Pat: Oh, she's already been accepted to college, right?
Scott: Yes. She gets two C minuses. And, wow. I'm like, "Lily, you got to pass high school here." I needed to have her speak. I like, "Show me your schedule the last couple of weeks of school," to make sure she...
Pat: I think you have to do that.
Scott: Yeah. "Well, can I still go out tonight?" I'm like, "You make your life choice. I mean, at this point, you're graduating high school. I hope you can figure out how to manage your own life, your time anyway. So, you decide if you should see your boyfriend tonight, or you stay home and study." So, she went out.
Pat: She went out?
Scott: Yeah. I'm not going to follow her into college to make sure she's doing...
Pat: Yeah, I know. So, anyway...
Scott: She'll do fine. She's good.
Pat: That's nice. Oh, yeah.
Scott: Anyway, yeah, so kids are out and all that stuff.
Pat: Yeah. And then, my son's getting married in a couple of weeks.
Scott: Oh, my goodness. Yeah. That's coming up.
Pat: Oh, yeah. I can't wait for it to be over. And I'm not that involved, other than, I'm a major input economically to this wedding, which is, I believe, my sole purpose.
Scott: And I'm sure you don't have much saying that either. Your wife's pretty much involved.
Pat: Oh, I have no... So, anyway, my wife's an accountant by education. She's pretty much on top of it. But I am so tired of hearing about it, I'm gonna tell you. I hope no one's listening. That's one of the wedding. It'll be a beautiful wedding and a lovely couple, but I hope it's over soon.
Scott: I just remember planning my own wedding. We got in a big argument because we wanted to talk about the napkin color. I can care less about the napkin.
Pat: And you didn't care?
Scott: "Maybe you don't care about our wedding about our wedding." And then, you know, you're young and you learn what you should actually state and what you should keep to yourself.
Pat: That's right.
Scott: Anyway, all right, let's go to finance, yeah.
Pat: Now, we're all caught up on each other's personal life.
Scott: Yeah. If you want to... We love taking calls, answering questions you throw our way. So, if you want to join us, you send us an email at questions@moneymatters.com. And we've got some good calls lined up today we'll be talking about. Before we do that, Pat, gold. I want to talk about gold for a bit. We don't talk about that very much on the program.
Pat: No.
Scott: It's the strangest thing.
Pat: Well, I read an article last week or the week before about Costco limiting the number of gold bars you can purchase in the store.
Scott: How big of a gold bar can you actually purchase a Costco?
Pat: I have never been to the gold bar section of the Costco. It's not near the free sample section. So, I've never hit it.
Scott: I mean, if an ounce of gold is 3,300 bucks, you would say.
Pat: It must be by the ounce.
Scott: It's a pretty small bar, one ounce. How many thousands of dollars are we talking about? You come out of Costco with a couple of 100 grand worth of gold.
Pat: I have no idea. I don't know what people are buying. But I thought, this is kind of a strange...
Scott: Do they have their normal markup? Because Costco is like a standard 8% markup or whatever it is, 7%, 8%.
Pat: It's 14% on non-products.
Scott: It's a 14%.
Pat: And 15% on their house brands.
Scott: Thank you, Pat, for remembering that.
Pat: I would just thought it's a fascinating way to actually run a business. So, I don't... I just remember reading this article about Costco. But your point about gold...
Scott: Well, I mean, it seems like whenever gold prices go up, then we start...more gold companies are out there. Seems like every talking head, whether it's a podcast or a radio, they've all... I don't watch TV, but I'm assuming those TV ads, they're promoting gold....
Pat: Promoting gold.
Scott: And it's not that I don't really... I just don't care for TV. It's not like I'm against TV, but I've tried. And it's harder every year because I don't even know where to start. So, I just don't bother.
Pat: I've given up.
Scott: Every once in a while, I watch some series. Anyway, the things they state about gold are not factually correct.
Pat: Yes, that's right.
Scott: Like, it's a hedge against inflation. It's not. It can be. It has been.
Pat: And it has not been, depending on different times.
Scott: That's right. And it doesn't always go up when stocks go down. But the thing about it, two years ago, gold was roughly $2,000 an ounce. Today, it's roughly $3,300 an ounce. If you wanted to own gold, wouldn't have been better to buy it two years ago as opposed to today. And if suddenly you believe it's an important asset today, what has changed in your feelings, other than beliefs?
Pat: Other than that, you saw the price go up and you missed out on it.
Scott: Yeah, it didn't do well when during '22 when we had a market was down.
Pat: Yes. But, Scott, it's look at the end of the day, the price of gold is dependent on the cost of getting it out of the ground, refined, and down to the marketplace over the long term. Over the short term, anyone's guess, no different than in stocks. The price of the stock is based on the earnings of the company over the long term.
Scott: I mean, I was in South Africa a number of years ago, and there was this amusement park that they built on top of a gold mine. And I was talking to someone about that. There's still tons of gold down there. But when gold prices fell, it was no longer profitable for them to mine the gold. So, they had this land, and then, someone decided, "Why don't we build an amusement park?" They built an amusement park on top of the gold mine. But to your point, it's like there's lots of gold still there.
Pat: Oh, yes.
Scott: There's plenty of gold still to be mine.
Pat: Yes. And there's actually new technologies which will actually be able to find gold in different places if you wanna check.
Scott: And if you want to own a couple of percent in gold...
Pat: Go for it.
Scott: ...or feel better about having...
Pat: Go for it.
Scott" ...a few coins in your safe at home. Hopefully, you have a good safe, and one that somebody they can't lift and carry out of the house, if that's what you want to do. But I don't know. I just find it... I don't really consider it an investment.
Pat: Well, it doesn't produce anything.
Scott: It produces nothing. It doesn't pay you interest. Doesn't produce anything.
Pat: It doesn't produce anything.
Scott: So, anyway, all right, we're going to take some calls here. Again, if you want to be part of our program, questions@moneymatters.com, or you can call 833-99-WORTH. Let's head to New York City and talk with Charlie. Charlie, you're with Allworth's "Money Matters."
Charlie: How are you?
Scott: Fantastic. How you doing, Charlie?
Charlie: Good, thanks. My question is that, when I was...some 25-years ago, I needed insurance, so I took out a term insurance that I converted a portion of it, and I converted $350,000 to whole life, $2 million policy, $350,000 whole life, $1.65 is term. I still have the term. I think that's all I need.
Scott: Is the term...is at a level... And so, how old are you today, Charlie?
Charlie: I'm 53.
Pat: And this is on yourself or your spouse?
Charlie: It's on me.
Pat: Okay.
Scott: And the term, does it go up in price every year?
Charlie: No, no. The term, I took out a new term policy maybe 10 years ago.
Pat: Okay, that's what we're looking for. So, you converted part of this, but then you rewrote the term policy 10 years ago. How's your health today?
Charlie: What?
Pat: How is your health today?
Charlie: Fine, fine.
Pat: Okay, so what's your question for us?
Charlie: What to do with the whole life policy. I mean, I stopped. Maybe about 10 years ago, I stopped paying the premiums on it. I'm using the dividends and surrendering addition to maintain it. So, I have about probably $70 or so thousand that I've contributed over the years. I think I have cash value of about one $115,000. And so, my question is, so I just keep doing that?
Pat: How old are you?
Scott: No, I wouldn't tell.
Charlie: I'm 53.
Pat: You're 53. And do you have a need for insurance?
Charlie: What?
Pat: Do you have a need for insurance, or people...? Could you retire today comfortably with no...?
Scott: No, well, then there's if you have a pension.
Pat: if you died today, who's relying upon you for income?
Charlie: My wife, my wife. My wife, and right now, I have two kids who aren't working, yet.
Pat: Okay, all right. You have a need for insurance.
Scott: So, the thing about...there's a place for whole life. My opinion, it's typically for very large estates and you can use it as a way to pay state taxes. It can be pretty interesting in that situation, but extremely, though.
Pat: But then you're saying they use irrevocable trust.
Scott: Extremely. Yes. And it's used for that specific purpose. Other than that, most people don't need life insurance their whole life. They need insurance when they've got kids. They need insurance while they're working. They go in... Maybe the only thing they need is enough money to have a funeral and heads and bury in the ground. So, most people don't need a whole life insurance for their whole life. And which is one of the reasons you don't see it sold as much. And he used to all be sold. The reason people owned it is because it was sold to them. And that was how whole life insurance were sold to them.
Pat: So, when you think about this, you have a cash value of $115,000, and you actually have insurance of $350,000. So, the difference between those two numbers is $235,000. That's what you're buying insurance for that still. You're still paying on that.
Scott: The way the contract is...
Pat: You could cash out that $115,000, right? And that's how we come up with the number. And that's what.. Basically, the term I use is called pure insurance. So, you're buying $235,000 worth of pure insurance.
Scott: Have you been paying attention to what's happened to that cash value on a year-by-year basis?
Charlie: It's kind of hasn't gone up very much, I think, because I stopped funding the policy.
Pat: Yeah, okay. Well, you've got to... So, what happens is, if that cash value stays the same as you get older, the risk of you dying actually increases, therefore, the cost of the that pure insurance goes up. So, what we know, what will happen based upon the facts you just gave us, is that we'll start to see this cash balance actually drop. So, you've got three options, essentially. One is you can cash...
Scott: Think about this, $115,000, let's assume your earning 4% in the bank, you can get a high yield in money market account, savings account, roughly 4%, maybe a little more than that.
Pat: It's a little over $4,000 a year, which you're using to buy $230,000 worth of insurance, which is really expensive, which is really expensive. So, the cost of the insurance, the pure insurance is really expensive. So, you've got three options. One is, ignore it and keep it like it is. I guess, we have four options. That wasn't one of my options.
Scott: I mean, you could be right.
Pat: And the other option is just cash it in.
Scott: In which case you'll pay some tax.
Pat: Yeah, because you said you put in $70,000, and the cash value is $115,000, so there's going to be a taxable event. The third option is you can roll it over into an annuity without any tax consequences. And you could buy a variable annuity if you wanted with that, make it much more aggressive investments.
Scott: The downside with that is that it'll be taxable at your death if you never spend the dollars.
Pat: And the fourth option is you could just lower the face value of this. And even to the point where you turn it into what's called a modified endowment contract or a MEC, a modified endowment contract. You could lower the face value of this to say, 200 grand.
Scott: What would you do, Pat?
Pat: I would either roll it into an annuity or it actually downsize it to a MEC. I wouldn't cash it in. And part of it, I guess, would be based on what the...
Scott: I don't know.
Pat: What's your overall net worth?
Charlie: Including the house, the mortgage, I think, and the retirement account?
Pat: Yeah.
Charlie: That's somewhere about three and a third.
Pat: I might cash it in.
Scott: I wouldn't leave... See, investments are based upon timelines, right? So, I like fixed, safe assets for money that I need to spend, or I may need to spend in the next couple of years, right? So, I like money in the bank. I like nice security. But for money that I'm not going to spend for years, I want them invested in the long-term assets that are going to appreciate in time.
Pat: Well, by moving it into a variable annuity...
Scott: What I'm just saying, the challenge with this life insurance...
Pat: Is it's a fixed...
Scott: ...it's a fixed asset.
Pat: It's really low-interest rate.
Scott: When you talk, and you're out there, you're not going to die for, who knows...
Pat: Look, I have a policy on myself that I bought years ago, a variable universal life, which is similar to what you own. But it invests all in stocks and mutual funds of what they call sub accounts, but essentially, mutual funds inside of it. And I have quit funding that thing five, six years ago, but it's aggressively invested and it continues to grow.
Scott: I have a similar kind of policy.
Charlie: Yeah, I think mine is tied to the insurance general account.
Pat: That's right. That's right. It's a fixed account because it's whole life. I'd either cash it out. Can't have to get $3 million, 115 grand, pay the tax, move on, make life easy.
Scott: That's what I would do.
Pat: Yeah, I'd cash it out.
Scott: That's what I would do.
Pat: I'd cash it out. I'd cash it.
Scott: And I want to get a physical first.
Pat: Yeah. If you're uninsurable, you know, you could apply for another policy.
Scott: I wouldn't do it until I have my annual physical.
Charlie: Okay, so cash it out, pay the tax.
Scott: That's right.
Pat: Yeah.
Charlie: And then, put...
Scott: I mean, yeah.
Pat: Or what? Put the money where?
Charlie: I put the money on high-yield savings account in case I need it for, I don't know, make a wedding or something.
Pat: Yeah, that's up to you how you want to invest it. The source of the money shouldn't drive the investment. Just because it came from a fixed account doesn't mean it needs to go into a fixed account. The source of the money, as long as it fits in with your overall goals, that's where it should be directed.
Charlie: Okay.
Pat: Yeah. It's... Yeah. And look, these policies, I tell you, they're complicated, right?
Scott: Super complicated.
Pat: Yeah, you can pretend they're not complicated. Most people, the way they're sold us, they're not complicated. They're complicated.
Scott: Yeah, because one option, Pat, is to move this to either a variable whole life policy or a variable universal life policy.
Pat: Re-underwrite it.
Scott: And if you bring the face value way down, it loses some of the tax benefits, then it becomes a modified endowment contract, but the death benefit still remains tax free. But then, you're basically saying, I'm going to take this 155 grand, and I'm planning on never spending it in my entire life, and dying with it.
Pat: Well, I did it with a client recently, but their net worth was over $10 million dollars and they were never going to spend it. And so, that was the right thing to do.
Charlie: Yeah, I think I'd like to spend the money.
Pat: And a lot of the rules changed in...
Scott: If you'd like to spend the money, then I'd cash it out.
Pat: Yeah, I'd cash it out, yeah. And that was... A lot of the rules changed in the 1986 TEFRA.
Scott: Thank you, Pat, for your bringing up the tax law from 50 years ago.
Pat: Holy smokes, it's been a long time, ha?
Scott: It has been. Appreciate the call there, Charlie. Life insurance... Well, first of all, there's not enough life insurance in force today. There are too many young families that don't have life insurance.
Pat: It's not sexy.
Scott: And say what you want about the insurance is, at least, when these good salespeople are out selling policies, people have life insurance in force. Bobby better than nothing, right? And a lot of people have nothing today. Interim insurance is so inexpensive. If you are young and in good health, it's almost...I mean, it's negligible.
Pat: It's not sexy, though. Like, it's not sexy. But you go up to a beautiful house that's just gorgeous, no one ever asked how the foundation was built, right? And that's what insurance is, the foundation of every financial plan, every financial plan, whether you want to talk about it or not...
Scott: Insurance is.
Pat: Homeowners insurance, liability insurance.
Scott: And all that is getting expensive.
Pat: Yeah. Homeowners, liability insurance...
Scott: All of that is going up in price, by the way.
Pat: ...disability, life insurance. It's not sexy, though. I'd much rather no one's ever...
Scott: Right, I don't want to talk about insurance anymore.
Pat: I want to.
Scott: We're done with insurance.
Pat: Okay.
Scott: And let's go other side of the coast, California, talk with Doug. Doug, you're with Allworth's "Money Matters."
Doug: Hello.
Scott: Hi, Doug.
Doug: Good morning. All right.
Scott: Good morning.
Doug: Hey, I've been fighting a situation for since last year. I have, over the years since 1986, I've been doing IRAs. But through the years working, I've had pension. So, those years, obviously, I couldn't contribute or, at least, I couldn't take the pre-tax deduction. What I'm fighting, what I'm trying to figure out now is, and I'm talking since back in '86, over the years, my IRAs have been merged with my pre-tax versus post-tax contributions.
I filed an 8606 form with the IRS back in 2010, which was my last year of working. And I've got about $35,000 in post-tax or after tax contributions to that IRA. And my total is about...
Pat: I'm sorry, say that number again. How much is...?
Scott: $35,000.
Pat: Okay.
Doug: $35,000 out of a total of $368,000. How, or what can I do to avoid paying RMDs, or can I take that money out of that traditional IRA and put it in a Roth? Or how can I remove excess funds? I'm just trying to figure out how to... I've talked to a tax adviser, she couldn't help me. I went to the IRS, the guy was an idiot. I'm sorry to say, but he could not help me. I knew more than he did. And I called one guy, a CPA, and he said, "No, you just need a tax adviser." So, I'm really confused.
Scott: Isn't that a CPA?
Doug: I'm sorry.
Scott: Isn't the CPA tax adviser? They're not all, by the way, some are.
Doug: Well, yeah. But I asked him if I need, you know, a tax preparer, I guess. I don't know. He said I did not need a CPA.
Pat: So, how old are you?
Doug: I'm 73.
Pat: And you're no longer employed. Do you have a 401(k) anywhere?
Doug: No, I pulled them all out when I retired.
Pat: So, the way the rule works, Doug, is every... If you took, let's call it roughly 10% of your IRA balance is after tax money. So, $35,000 of 368. Let's just call it 10%. It's roughly 10%, 35 of 360. So, 10% of your IRAs you've already been taxed on, because you contributed with after-tax dollars. And you have and you've memorialized that every year with your 8606 in your tax return.
Scott: That's right.
Pat: So...
Doug: Okay, now, a question on that, the last year I worked was 2010, am I required to send an 8606 every year since that time? Because I have a...
Scott: I believe.
Pat: I do. I do. I don't know whether you're required or not, but I did every year until I was able to fix the problem. I fix my problem a little bit differently than we're going to tell you to fix your problem. But there's no downside. Scott, I remember asking you this question.
Scott: You still might file the 8606. I have no idea.
Pat: So, the accountant said, he said, "Even if it doesn't require, why wouldn't you?" It only takes... It's the same form every year. Your basis never change.
Scott: Yeah. So, right now, if you took out $10,000, or wait to your requirement of distribution, let's just say you took out $10,000. Of that, $9,000 will be taxable and $1,000 will be tax free, roughly 10%. And I assume that's how you're doing it. You haven't taken much on.
Doug: I haven't done anything yet. That's why I'm calling.
Scott: So, one option is just to say it is what it is. When I take my requirement, minimum distributions, whatever that number is, roughly 10% of it is already taxed. And it's just a pro-rata formula. It's based upon what percentage of your IRA assets have been taxed versus what percentage haven't been. And that portion comes out tax free and the rest becomes taxable. But you need to do the calculations because your IRA provider is not going to have it.
Pat: Yeah, you do the calculation. Now, I'm going to answer a question that's going to come to you after you hung up this phone call, which is, why can't why can't I just take that $35,000 and convert it to a Roth IRA? Because you can't. Because that takes place on a pro-rata basis as well.
Scott: Yes. So, if you said, let's assume you even had the account separate. Let's assume that when you set up those IRAs at the bank, which I'm sure you did back in the '80s, because interest rates are high, you set them at the bank at $2,000 per year. You were not allowed to take a tax deduction. Let's assume that was still an intact account. Even if you took that and converted to a Roth, when it comes time to do your taxes, they're going to say, "No, no, we don't look at it like that. We look at all your IRAs."
Now, if you are still employed and had access to a company 401(k), you could say, "I'm going to transfer 90% of my IRAs to my current employer's 401(k), and leave behind just $35,000 in an IRA, which is the after tax amount. And we're answering this for the rest of the listeners. This doesn't apply to you...
Pat: Because you don't have that...
Scott: ...unless you want to go back into the workforce. By the way, it's murky on whether this is permissible or not. Because I've heard two different tax opinions on it. Because you can put money from IRAs into 401(k)s. It's the whole sort... And I've heard different tax...
Pat: It's the sourcing of it that's questionable. And it doesn't apply to you anyway.
Scott: So, for you, you don't have any choice. You're going to have to pay taxes on its RMD. You can't convert it to a Roth.
Pat: And if you say I'm going to if you say I want to convert $20,000 to a Roth this year, whatever the number is, great. Ninety percent of that is going to be a taxable conversion and 10% will be tax free because of your cost basis in your IRAs.
Scott: Which may actually be the right thing for you to do is to convert it to a Roth.
Pat: Probably not.
Scott: And 368, if this is your retirement...
Pat: How much income do you have?
Doug: I'm sorry.
Pat: How much income do you live on every year?
Doug: Oh, man. Probably close to $100,000.
Pat: Yeah, it's probably not,
Doug: You know, between me and my wife.
Scott: Yeah, yeah. I mean, you requirement of distribution...
Pat: Is pretty low, yeah.
Doug: Well, the requirement of distribution came out to about, not quite, $14,000 for this year.
Scott: That's right. Yep, yep, yep. And of that, roughly $1,400 is going to be tax free, and the rest will be taxable. So, that's the answer to your question.
Doug: Is that something that's on the IRA form to clarify the difference between taxable and post-tax?
Scott: I don't know how the forms work. I don't file my own taxes, but that's the rules.
Doug: Okay.
Scott: That's the rules. Yeah, you don't have to call anyone else.
Doug: Okay, okay. Very frustrating. Trying to find stuff out is very difficult.
Pat: Well, look...
Scott: You just found that out. Life's simple now.
Pat: ...I got to tell you, this drives me crazy. This is drives me crazy under this new proposal for this big, beautiful bill, the big, beautiful bill. You look at all these little things that are like, "Okay, so the first $100,00 in salt, but not after the salt, and income is here. Oh, and then..."
Scott: You mean making the tax code even more complicated?
Pat: You're just thinking, it's complicated in...
Scott: That's why the tax code is so complicated, because every tax bill makes it more complicated and not less so. There's no simplification.
Pat: Correct.
Scott: It just gets more and more complicated.
Pat: Yes, right?
Doug: Yeah, tell me.
Pat: And then there's like and then things come out of the blue, like, oh, you're 520 and what? A couple of years ago, your 529 plan, you can now convert it to a kind of to a Roth...
Scott: All kinds of stuff.
Pat: ...or to an IRA.
Scott: There's all kinds of crazy stuff.
Pat: This applies to what 000.
Scott: Doug.
Pat: Wait, I'm in the middle of a rant here. He's listening. This feels good.
Doug: Talk to you. A computer guy would say my ram is full. I can't take in any more.
Scott: All right, Doug. I appreciate the call. And funny, Pat, as you get to sit around and complain, and I was talking to my oldest daughter the other day. I was complaining about something in the political environment. I was complain about something. And she says, "Dad, I'm a little concerned that you're going to become one of those old men." That's what she says. That blitz out these political opinions at the Thanksgiving table and stuff, and you're going to be all angry because... I'm like, "I don't even watch the news." But I bet it's too late. I am opinionated on something, yes.
Pat: Look, right or left, I just think, you know, if you were a business, you'd actually try to simplify things, if you were a business, right?
Scott: They make it all the more complicated.
Pat: It makes it much more complicated to the point that...
Scott: And look, the people that have a lot of assets like we've got a whole team of accountants. We have CPS that and our CFPs. I mean, tax planning is a major component of wealth planning, right? Like, I mean, it's just silent partner. And a lot of the value a good advisor can bring is in helping you navigate. I mean, a good advisor can more than pay for their whatever fee you're paying by just navigating the tax bill.
Pat: The problem is it's hard to measure because some of it is just because it's a step up in basis, and you're not going to see it until...
Scott: Or this or that. It's just very complicated. It's very, very complicated, yeah. Anyway, that's the real big one.
Pat: But the big, beautiful tax bill is not. I think it's big.
Scott: Yeah. Well, yeah. So, it's crazy. It's at what point are...? We're not going to actually reduce spending until we absolutely have to.
Pat: As a country. Correct.
Scott: So, security is not going to get touched until that's...
Pat: Oh, it's going to get touched. Actually, the amount of time it's going to be touches is accelerating.
Scott: All these things.
Pat: ...because as people lose confidence, it's also security.
Scott: They're taking early.
Pat: I saw that earlier.
Scott: I've seen that people are taking it early, losing confidence and blaming it on Doge.
Pat: Yeah. My wife started.
Scott: Well, she should.
Pat: Yeah, she started.
Scott: Not because she's worried it's... Well, she's worried that you're going to be means tested.
Pat: That's right. Not that it may or may not go away, but who are they going to take it from, is people that... And quite frankly, my wife can afford to retire without social security benefits.
Scott: Well, hey, we're telling you when the portion of our show, we're going to be talking with Victoria Bogner. She's Allworth's Head of Wealth Strategy. She's going to share with us a story about how she helps somebody navigate somewhat complicated situations.
Pat: These are my favorite part of the show.
Scott: You know, it's funny, I was thinking the other day, like, we should do more of these, like, little kind of more narrow. Because our phone calls are... I mean, I enjoy the parts when people call them the show. But sometimes there's these stories that the intricacies are a little more interesting, that they don't pop up in your everyday, but our advisors work with them on a daily basis.
Pat: Which is actually why... I'm from a creative standpoint when I hear these stories, I always think, would I have approached it the same way? So, let's talk with Vicky.
Scott: Yeah. So, Victoria, thanks for joining us.
Victoria: Hi, there. Yeah, I would be interested to hear if you approach it the same way, too.
Pat: Thank you.
Victoria: There's more than one way to get a cat, right?
Scott: Well, that is true. I think one of the benefits about working in a large organization on complicated matters, we are very collaborative and talk with other advisors and get others opinions, and then, have the CPS come in and sign off of them.
Pat: Collaborate.
Scott: Yeah. Anyway, so what...? Tell us about a situation you worked with a client and what they were trying to accomplish and what happened.
Victoria: Yeah, so we recently had a client, she held about 1.2 million in a very popular tech stock, and she had been a long term investor in this position. So, her cost basis was impressively low. And this particular stock didn't really pay much of a dividend. It was like 0.73%, which amounted to about 8 grand per year. She really needed...
Scott: And how much was this of her overall net worth? So, I mean, if she's $10 million, maybe it's not a big deal having a million dollars in stock. If it's a net worth $1.5 million, then it's problematic having $1.2 point two in one stock.
Victoria: Yeah, her overall net worth was about 3 million. So, this was a significant portion of her net worth.
Scott: And how old is she?
Victoria: She was only in her 50s, so pretty young, yeah. So, she needed more income because she had kiddos.
Pat: Pretty young. Is 50s younger?
Victoria: Who doesn't? I think it's young.
Pat: Yeah, like all the...get the younger...
Victoria: Just trying to make you feel good today. But she needed some income to pay for college expenses for her kids. But she didn't want to sell any of the stock shares because, of course, she had to pay some capital gains tax. And also, she had been in this stock a long time. She was emotionally invested in it. She thought they had great long term prospects. So, essentially what we did is we explored a covered call strategy. Oh, go ahead.
Scott: Sorry, I'm interested to hear how you built the strategy. But had you considered just gifting some portion of the stock to the child, and then, having the child sell? And assuming...
Victoria: That was a strategy that we looked at. But out of everything we analyzed, this strategy I'm going to tell you about ended up being the best outcome.
Scott: Good. That's why I'm... To finish down that strategy, because this is the right thing in some situations, right? You can transfer some assets to a child. The child sells them. The child has low income. They're college students. They have no job, let's say. And you avoid capital gain tax, or you pay at a very low rate.
Pat: That's another strategy.
Scott: A lower rate. Yeah, correct. That is a strategy. And you do it over multiple years
Pat:. Yes, that can work sometimes. But that's not what you did.
Victoria: Yep, that can work.
Pat: You did a covered-call strategy.
Victoria: That's not what we did because she didn't want to sell the stock. She wanted to keep it. She had bought this stock, let's say, something like 30 years ago. Like, what is this fruit going to do? And then, lo and behold, she caught on to a huge winner, as we all know today. So, we did a covered-call strategy. Essentially, we used the shares that she already owned to sell options contracts that gave someone else the right to buy the stock from her at a price about 12% higher than it was trading at.
Scott: Okay, so let's just...
Victoria: Those were structured over a rolling four to six months.
Scott: So, let's assume in the stocks priced at 100 bucks a share. And so, she went into these contracts that gave someone the right to buy the stock for $112 dollars a share in the next four to six months. Is that right?
Victoria: Correct. And we added a provision to make sure her stock wasn't actually sold if the price did go up more than 12%.
Pat: So, you put a floor...
Victoria: So, that's the provision that we can add.
Pat: Okay, so you collared it.
Victoria: We didn't collar it. We just did a covered call strategy because she wanted income. So, no floor on it.
Pat: Oh, God.
Victoria: It generated about $90,000 a year in income from those call premiums without having to sell any of the stock.
Pat: Okay, well.
Scott: And let's...
Victoria: So, you know... Go ahead.
Scott: So, this strategy, she was comfortable with the risk, assuming the stock price could fall from the situation $150 or whatever, she was comfortable with the downside. She's trying to figure out, how do I get some income? So, essentially, she sold a right for someone to buy the shares at a price 12% higher than the currently worth.
Victoria: Right. And these particular ones we bought it covers the next 120 days. So, the stock goes up more than 12% over the next 120 days. Then she's capped out, basically, at that 12% growth.
Scott: Got it.
Victoria: But in exchange for that, she got money because she sold this option to somebody. And in exchange, they paid her money. And this will end up being about $90,000 a year of income for selling that option.
Pat: And now, what...?
Victoria: Yes, it... Go ahead.
Scott: So, what if the price of the stock went to...? And I know you don't know the number off the top, but if the stock shot up to $140 a share.
Pat: Well, they had a provision in there where she actually still got to carry the stock. There was a cost to it, though.
Victoria: Correct. Yes, so she would basically have to buy that option back at a higher price than she sold it for to close out the option, is what would happen.
Scott: So, I just wanted to bring this because there's never a free lunch, right? There's no such thing as a free lunch.
Victoria: There's no free lunch. Correct, there's no free lunch.
Scott: Yeah, yeah. And she gets $90,000, but some phenomenal report came out, stocks suddenly shut up from $100 to $140, it's going to cost her a big chunk.
Pat: Yeah, it might cost her $150,000 to buy herself out of that position.
Victoria: Well, she would still get the gain of that first 12%.
Scott: The first 12%.
Pat: Got it.
Victoria: She basically wouldn't be participating in the gain above 12% for whatever length of time is left in that options contract, is basically how it works. But that's why we structured these over about a four-month window. So, it's not 12 months if it goes up 12%, it's only four months, right?
Scott: I'm just trying to get some clarity for her listeners here.
Victoria: Sure.
Scott: The stock goes from $100 to $140, it's not costing anything. The only cost is she wasn't able to enjoy the appreciation of the stock above $112.
Victoria: What is costing her is that she capped it. She capped that growth in that four-month period to just 12%. But she's also getting the options premium, right?
Scott: That's right.
Victoria: Which is, ends up being about another 8% of income per year on top of the 12$.
Scott: Which is what she needed.
Victoria: Which is what she needed, yeah. So, she's participating in growth. She's not triggering any capital gains tax. And she didn't want to sell the stock. So, it worked out great. And it's a great example of how we align the strategy with the client's goals. And we didn't fight her preferences, right? We worked with them, that option she is...
Scott: Right, because you...
Pat: And you don't have to do this forever. It's not forever.
Victoria: Correct.
Pat: The kid graduates from college in seven years with a bachelor's. You could quit doing this. You could just let the stock play naked.
Victoria: That's correct. You could... That's right. And now, an obvious question might be, why not just sell $90,000 worth of Microsoft stock to generate that income?
Pat: Because she didn't want to.
Victoria: Because she didn't want to, first of all. But let's say that she was okay with that. Well, we ran the math on that as we do. And because, you know, she still had the underlying stock and it was left intact to grow, basically, you're just skimming some income off the top because of that option premium you're receiving. So, that means you still have that underlying stock that's growing, and you're getting income. So, when you do the math, you're coming out ahead by using this strategy as opposed to just selling tranches of stock as you go.
Pat: But we should point out that there is more risk...
Scott: That's right.
Pat: ..in this than selling a tranche of stock.
Scott: That's right.
Pat: Because you sell a tranche of stock...
Victoria: That's correct.
Pat: ...you know the outcome. The outcome is defined.
Scott: Well, and she could also have used some contracts to give her downside protection.
Pat: Correct.
Scott: She could take some of the...
Victoria: That's correct. She could have, but she was worried about the risk.
Scott: She could take some of the $90,000 she receives from the other contract to use this for a protection. Have a call.
Victoria: Yep. And that's the strategy we use a lot for people that have a huge stock position. They don't want to sell it because of the capital gains. So, what we can do is sell that option, you know, like in this example, to get some premium, and then, take that money to buy the option to sell the stock at a specific price.
Pat: That's right.
Victoria: So, basically, creating a floor, yeah.
Scott: And that strategy can work really well with somebody their net worth's tied up in one particular company, they're getting later. They know they need to diversify. They don't want to diversify in one year because the tax are going to clobber them. They might have a strategy to diversify over the next several years. And they use this as a way to reduce the risk.
Pat: You know what's happening?
Scott: Or eliminate the risk even.
Pat: The family office of services are coming to the middle class. This is exactly what's happening.
Victoria: Yes, they are.
Scott: The technology.
Victoria: Yeah. Exactly.
Scott: It's technology.
Victoria: A lot of these things that used to be exclusive to ultra-high net worth. Now, the regular investor, for lack of a better term, can get behind that velvet rope as well.
Pat: That's right. Middle. And when you say, well, what is the middle class? Maybe it's not. It's upper middle class, but it's not family office. Where a family office, you might need $100 million to actually be in part of a family office. And you get these exclusive services, which, by the way, were quite expensive at one point in time. But because of technology, the cost associated with it is coming down significantly. million
Scott: Yes, some less than a million dollars of a particular stock, even.
Pat: Yeah. Where before you wouldn't employ this unless you had maybe $5 or $10 million in 10 years ago. And so, what happens is...
Victoria: Yeah, that's right.
Pat: ...if you have an advisor... I was a scheme with a friend of mine who had sold his business and he kept giving the money to the same advisor. And I said, you know, "What kind of tax strategy is this guy using on your new money, because it's new money and there's lots of..." And he said, "Well, we just make sure we don't pay a lot in taxes." I said, that's not a strategy. I mean, that's not.
Scott: But there's no excuse anyway.
Pat: That's right.
Victoria: You know, tax planning, that's such a huge lever that you can pull. So, it's imperative that your advisor be talking with you about a tax strategy.
Pat: That's right.
Victoria: If you have anything more than $2 million in net worth, yeah.
Pat: Yes. Well, Victoria, thanks for taking your time.
Scott: Well, as always, thanks for being part of the team.
Victoria: Yes, absolutely. Glad to be here.
Scott: Yeah, it's interesting, Pat.
Pat: How much... I just think, even in the last five years, the technology that, you know, we talk about it on the show, what, of a couple of weeks ago, it's mind boggling. It truly is mind boggling.
Scott: But I write an opinion piece for investment news every few weeks. It's in... None of our listeners will be reading it because it's for the industry. You would be bored quickly because most of it's all about industry stuff. But my article, the premise of it was that the small advisors is going away.
And three years ago, if you would ask me, Scott, do you think the small, independent advisor... And most of these independent advisors started out at some larger firm. They didn't like the conflicts of interest. They started their own little shop, fee only, fiduciary, line interest. All right, there's maybe two people and couple of assistants like us. That's how we started. And two, three years ago, I would have said, "Oh, they'll always be a place for those small advisors.
Pat: I would have said the same thing.
Scott: And I don't believe so anymore. And the reason, technology has made it so that we can do so much more so quicker for so much less money that it's going to be impossible for a small, independent shop to keep up. I mean, you think about...
Pat: There will be companies that fill the void by are trying to actually bring, you know, like almost like franchises, where they actually bring a platform to these companies, the small advisors. There will be companies to try to...
Scott: They are going to have to be part of some other team that provides... I mean, I just think about our own organization, the team on our technology team. I mean, what is technology department anymore? Like, what does that even mean? Because everything's technology. It runs through everything. And they're really business applications, right? When you think about it. But there's so many different business applications that we're looking at. So, much of it is client facing. And you've got to figure out what are the best ones out there today? How do they communicate with everything else? How do we do all this planning? And it takes a team to bolt all these things together. That's why I think, how in the world is a small...?
Pat: Well, but the reality is, if you've had the same advisor for 10, 15 years, and you like he or she or they, you know, don't be afraid to ask for more services. And if there's other ways they can do it, they might have the ability.
Scott: Well, Pat, there are some firms that literally state, they state right on their lips, "We do not provide tax advice," which is crazy. I'm like, "Well, how do you make an investment decision without taking advantage of the taxes?"
Pat: Yeah. But if we all get so good at not paying taxes, won't we all end up paying more taxes?
Scott: We got to stay one step ahead. There's no way to avoid. I don't know. It's funny because you're going to pay taxes. The question is, how do I...
Pat: And that's all part of us. Like, there's some taxes... I realize that I need to contribute to society in some...so that I don't... The concept of paying tax doesn't really bother me. Some of the programs the government does, I obviously wish my money wasn't going there. But, yet, I still want to pay as little as I can.
Pat: And as to almost every client I've ever met.
Scott: And if you don't, then we're probably not a good firm for you. Go ahead and send extra money to the IRS, if you'd like. That is about all the time we have in a program. I want to let everyone know we've got a great, June webinar. And this is legacy planning for high-net worth households. And it's really designed for those that have $2 million or more of investable assets.
And it's going to be presented by a couple of great people within our organization. One is Simone Devenny. She's our Head of Private Wealth Strategies. She was a state planning attorney earlier in her career. And now, does a lot of advanced wealth strategies, obviously a state..
Pat: In tax.
Scott: Big in tax, yeah. She's an expert of that. And then also, with Richard Del Monte, who is Allworth's Partner Advisor in our Walnut Creek Bay Area office. The two of them are going to be presenting. And I know Richard's good, because Richard trained me when I first started in the industry in 1990. He would teach classes at the organization that we were both involved in, and...
Pat: And actually...
Scott: Was an independent advisor, just like we're talking about, and...
Pat: And then, he joined us.
Scott: ...joined us.
Pat: Because he wanted more access to more resources to provide to the clients.
Scott: That's right. And he says, the best thing that's ever happened. That's why...
Pat: But break, break, they're both. So, if you've got $2 million or more, it's for you.
Scott: And it's really some generational wealth transfer strategies. That's a lot of the focus is going to be on. How do you think through that?
Pat: How do you push it down street? What's the most efficient way? And should you push it down street?
Scott: And effectively. That's right. So, this webinars is Wednesday, June 11th, at 10 a.m. Pacific, Thursday, June 12th, at noon Pacific, Saturday, June 14th, at 9 a.m. Pacific time. And so, to register, go to allworthfinancial.com/workshops, allworthfinancial.com/workshops.
So, also, this is all the time we've got, but also want to remind you, if you like this, make sure you follow us on Apple or Spotify or wherever you get your podcasts.
Pat: And rate, if you wish.
Scott: Yes, we'd appreciate that. So, enjoy the rest of your weekend. We'll see you next week.
Automated Voice: 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 a state-planning attorney to conduct your own due diligence.