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September 16, 2023 - Money Matters Podcast

Where the key to financial independence lies, plus questions about life insurance, long-term care policies, a Roth 403(b), and state taxes.

On this week’s Money Matters, Scott and Pat start the show by explaining why the key to financial independence is less about your money and more about you. A Las Vegas man in his 40’s wants to know whether he is on the right track toward retirement. You’ll hear why Scott and Pat want a California caller to invest her money in a traditional retirement account instead of a Roth. Finally, why moving for tax reasons isn’t as simple as it looks.

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

Download and rate our podcast here.


Man 1: 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." I'm Scott Hanson.

Pat: I'm Pat McClain. Thanks for joining us.

Scott: Yeah. Grateful you are with us today as we talk about financial matters, both myself and my co-host here, Pat. We're both practicing advisors, have been for a few decades. I guess the reason we state that is we have real-world experience in dealing with people. Yes. And the longer that I'm in this industry, the more I'm convinced that behavioral finance is equally as important as any sort of plan or investment you put together.

Pat: Less than 15 minutes ago, I was on the phone with someone discussing some life changes that they're gonna make. And we were talking about... It wasn't about the portfolio. It was about the behavior that goes into their thinking. Like, what's your hurry? I'm like, "You got these big expenses coming up. What's causing you to wanna retire in the next three months that was different than a year ago that have all of a sudden accelerated?"

Scott: What did the change to this? I have no idea who you're talking about.

Pat: Oh, they just thought that they had enough money. And I said, "You probably do, and the models show you do. But if you're gonna do a home remodel, whatever that price that that contractor quoted you, I promise you..."

Scott: Double it.

Pat: Well, I said...

Scott: Or at least 50%.

Pat: Yes, yes. So, that's behavioral finance. We didn't talk about the portfolio. We were talking about their interaction with their life in regards to how it would affect their long-term retirement. But even if you think about the portfolio stuff, I mean, I'm convinced one of the great values a good financial advisor does is keeping people from making mistakes from which they cannot recover, whether it's buying something because it's the hot stock at the time or a prolonged bear market. People bailing out at the wrong...They can't take it anymore. "I gotta get out."

Scott: It's hard. We've talked about it before. It's hard. It is hard.

Pat: Being an investor?

Scott: Oh yes, yes, yes. Saving's hard too. Accumulating any wealth is hard.

Pat: Yes, it's... Yeah, it's delayed gratification.

Scott: Well, unless the gratification is in having a savings account, having an investment portfolio.

Pat: It was for me.

Scott: Well, me too. It was no question.

Pat: It was for me. It was for me. And I always wonder, is that nature or nurture?

Scott: Oh, I think it's nature.

Pat: Do you?

Scott: Ah, you talked about your kids before. Now, you've got four kids. They must all be a little different when it comes to their finances.

Pat: Yeah. You know, they keep it pretty close to their chest.

Scott: They don't share?

Pat: Not a lot, no. Mm-mm. I have a son that's traveling. He graduated from college and he's traveling in New Zealand. God bless him. He's got a job, which I'm loving this. He works in a small resort with, like, six rooms.

Scott: In New Zealand?

Pat: In New Zealand.

Scott: How did he get a visa?

Pat: He got a work visa to go over there.

Scott: You're kidding.

Pat: No.

Scott: Which one's this?

Pat: Keegan.

Scott: You're kidding.

Pat: Yeah, he graduated when...

Scott: You would think, Pat and I, we learn about each other's lives on the radio.

Pat: Well, most of the time we visit, we're talking about work issues and... So, I asked my...

Scott: Did he save up money to make this happen?

Pat: Well, I don't know. I assume he did. He worked all the way through college, and he worked when he was in high school. And so, I assume he saved up, because I asked my wife.

Scott: Did she buy him the plane ticket or anything?

Pat: She buys the plane... She said she would buy the plane tickets, but he's got a job, which I really enjoyed. He's working in a small, like, six-room. They have these small ski resorts in New Zealand, and he says, "We're about a mile from it, so people come and stay," and they're kind of bunk rooms. I said, "Well, how many people work at the resort?" He said, "Well, there's probably six or seven of us."

I said, "Well, what do you do?" He said, "It's so small. You do everything." And I'm like, "So, let me ask you a question, Keegan. Are you cleaning the rooms?" And he said, "Oh, yeah, dad, I have to clean the rooms." And I thought, "Oh my gosh, this is awesome."

Scott: He was the one who never cleaned his room growing up.

Pat: Anyway, anyway. Nature versus nurture, who knows. But you think it's nature.

Scott: My kids are quite different, quite different.

Pat: But anyway.

Scott: My son, really...I remember as a little kid going to Toys "R" Us when they had Toys "R" Us. He had a gift certificate for Christmas or something. He must have been 4 years old or something. We spent half an hour looking at stuff, not exactly my favorite thing to do, going to any kind of store, particularly. And he felt better about just keeping his gift certificate, just kind of keep that for future time. And so, he didn't want to buy a toy. And he's still that way with this money.

Pat: And I can't help but think about Toys "R" Us when I was a kid doing the same thing. And you said, "When there used to be a Toys "R" Us."

Scott: Are they having them again?

Pat: No, they're gone. Right? But I'm sure the same number of toys or more are actually being sold in America.

Scott: Not from Toys "R" Us.

Pat: They're just not coming out of Toys "R" Us. So, it just reminded me...

Scott: What if that was the company that your grandfather said, "Never sell this stock. This is the best stock. I'm gonna leave this to you, but you gotta promise me you'll never sell this stock."

Pat: Exactly. That's exactly what I was thinking. It's because you said...

Scott: Market leaders change all the time.

Pat: All the time.

Scott: I mean, even, you look at what's going on with Apple right now and you wonder, you know. That's a pretty big deal with China.

Pat: Oh my gosh, with China. Yes, you wonder. You wonder, right? It's retaliatory, no question.

Scott: Well, China is another story in and of itself. I mean...

Pat: Yeah. But you wonder what it's gonna do to China's stock, you think about, over the long term.

Scott: With Apple?

Pat: Yes. Oh, I'm sorry, not with China, doing to Apple's stock over the long term.

Scott: Well, whatever free capital market they had a decade ago, it no longer exists.

Pat: It doesn't.

Scott: It is highly controlled, state controlled.

Pat: And you look at some of these companies that exited Russia too. Holy smokes, they were selling McDonald's franchises for a couple of thousand dollars. Like, "We have to leave. Here, take it." And they opened up Vkusno or some Russian version that looks just like McDonald's. And I'm pretty sure it probably went to the oligarchs.

Scott: Your point on that is...

Pat: I had none. I was just thinking out loud. No point. No point.

Scott: I think the point is that things change. Environments change. I think what's so interesting, I find so interesting about... And for those of you who haven't read, China is restricting some usage of Apple phones for government employees, which is a start. They have the power to do anything they want.

Pat: That's right.

Scott: We saw that during COVID. They can lock everyone in their homes for months.

Pat: But that's the start. It will go from there. By the way, our producer, Pietro, just handed me a note. "Toys "R" Us is back in business."

Scott: Oh, please forgive us.

Pat: Yes, Jeffrey, may you live a long and prosperous life.

Scott: Who's Jeffrey?

Pat: He was the mascot, the giraffe.

Scott: I didn't know he had a name.

Pat: What kind of Dad were you?

Scott: I told you I didn't like going to Toy "R" Us.

Pat: All right, let's go. Do you want to take some calls?

Scott: Yeah. And to be part of our program, I'd love to take your guys' calls. If you could just send your question at, we'll find a time to get you on. Or you can call 833-99-WORTH. We are in Las Vegas talking with Matt. Hi, Matt, you're with Allworth's "Money Matters."

Matt: Hi, Scott and Pat. Thanks for taking my call.

Scott: Yeah, thanks for calling.

Matt: Yeah. Hey, you know what? First, I gotta say, I love your show.

Scott: Thank you.

Matt: You guys really got me into financial planning and got me interested in it four years ago when I started listening to your show.

Scott: Oh, well done.

Matt: [crosstalk 00:08:29]

Pat: Well, I think you probably had a propensity...

Scott: I think so.

Pat: begin with or you wouldn't actually sit through it.

Scott: I have a feeling when he gives us his financial situation, it's gonna be in pretty good shape. That's just my guess.

Pat: Yeah.

Scott: So, what's your question for us?

Matt: That's why I called, guys.

Scott: Okay. You don't have $82,000 in credit card debt and you're trying to figure out how to get more cash so you and your wife can go to a fancy vacation in Greece. I'm guessing that's not why you're calling.

Matt: You're right. Yes. So, I guess, just wanted your honest opinion. My wife and I...I'm 43. My wife is 40 and we both kind of got into, you know, financial savings a little bit late. We always had a 401(k), obviously, and did that. But, just basically, listening to your show, I started to kind of get looking into setting up IRA and, you know, Roth, obviously, putting money away that way. So, I guess...I'll maybe just give you the breakdown. You're probably gonna ask me anyway.

Scott: Well, you've heard the show. You know we do, so...

Matt: I know how it works. So, our combined income is 185k a year. We have a mortgage. No other debt, but our mortgage is...kind of outstanding balance on our mortgage is 135k. We have...

Scott: What's the home worth?

Matt: The home is worth...well, it varies, obviously, but I think it's around 460k, 450k, something like that. Pretty modest home here in Vegas.

Scott: And when did you buy that home?

Matt: This one, we bought in 2019.

Scott: And you sold another home and rolled over the equity from that one?

Matt: Yeah, we got lucky. We ended up buying our first home back in 2009. So, we got a smoking deal on that one.

Scott: And I assume your interest rate's in the 3s on your mortgage?

Pat: Uh, 2.7.

Matt: It's 2.7 something.

Scott: Okay.

Matt: Yeah. So, we don't want to lose bat. The cash we have...I just moved that into a high-yield savings account based on kind of your guys' recommendation. So, that's earning better interest.

Scott: How much cash do you have?

Matt: One-hundred twenty-five.

Scott: Did you inherit any of that or you just don't spend all your income?

Matt: No. Just our emergency fund that's just kind of slowly growing. And then, I just started up a 529 this year for my kids and just kind of putting a little bit of money in there for the 2 kids. We have young kids, 5-year-old and an 8-year-old. And so, it's kind of getting started on that. And I'm not, like you guys mentioned, I don't plan on fully funding their college by any means, but we'll have a little bit of money there, right? So, what's the other part? We have Roth IRAs and the brokerage account. And that one is right now is about $75,000.

And then, our 401(k)s combined is about $200,000. And I guess my question is...I know we're doing okay, but I think it's because we got kind of a late start saving and then putting away money, are we... If we're putting basically... Right now, I'm putting... What are we putting here? We're maxing out our Roth's at the $6,500 per year, and then, about $6,000 a year into the brokerage account.

Pat: Okay. And how much you're putting in your 401(k)?

Matt: That one, what am I putting in? I'm putting in about 10% right now. And so is my wife. And we just bumped those up recently. We always had 401(k)s, but we're never like... We didn't know how much to put in. So, we always put kind of, like, whatever the match was, right? But I wish we would've put more than that, but currently about 10% each.

Pat: How much term life insurance do you have?

Matt: None. We don't have any.

Pat: Okay. Well, this is... Do you have any through work?

Matt: Yeah, but it's minimum. It's $50,000 or something. I don't know what that is.

Pat: And what's your income and what's your spouse's income?

Matt: Combined is $185,000.

Pat: I understand that. What's yours?

Matt: Oh, mine. Mine is about $90,000.

Pat: Okay. And so, your wife is $95k. Yeah. Any life insurance on your spouse?

Matt: She doesn't have life insurance either. I don't know.

Pat: Right. I think one of my first... Just get some cheap term life insurance. You've got a [crosstalk 00:13:03] 5 and 8-year-old. I'd go get a 10-year level term.

Scott: 15-year level term.

Pat: 15-year level term, and I'd get a million dollars each.

Scott: Yeah, I'd get a million dollars each. About 10 times your income.

Pat: Yeah, million dollars each.

Scott: And the reason... We've both sat aside, across from people that have been widowed with young kids. And I've yet to be in a situation where there's enough finances. I don't know about you, Pat, but it's...

Pat: No, no.

Scott: It's always like making tough decisions.

Pat: Yes. And so, that's the first thing you should do.

Scott: It's so cheap too.

Pat: And I don't know why you've... And you said you put $6,000 a year into your brokerage account. How much money is in your brokerage account? You said you had $125,000 in cash and how much do you have in...?

Scott: Yeah, you have some Roth and some brokerage.

Matt: Yeah. I think that the Roth and the brokerage, I think the Roths are... I can't tell you. I know the combined is about $75 grand between our two individual Roths and then that balances the brokerage account.

Scott: And you think you'll be... You don't know if you'll be in Nevada forever or not, but you might be, you might not be.

Matt: Probably. Probably so, yeah.

Pat: Do either of you have a defined benefit pension plan so that when you retire, it's gonna provide a secondary income?

Scott: No way.

Matt: No, I wish. I'm jealous of the [inaudible 00:14:24].

Scott: She'd have been born 40 years prior, man.

Matt: Oh, I know.

Pat: Yeah, they call that pension envy. In focus groups, that is an issue when people talk about retirement.

Scott: That's exactly right. They try to get people with pensions in one focus group and people without pensions in another focus group.

Pat: Because of how they actually view the world. I actually don't know why you're putting... I would increase your 401(k) contributions or put more money in the 529. I wouldn't put anything in the brokerage account.

Matt: Really?

Pat: Yeah.

Scott: Well, the tax benefits of, and I might use some Roth 401(k), the tax benefits there are just much greater than any tax benefits you're going to get out of a brokerage firm.

Pat: And I don't actually know why you have so much money in cash either. I would probably take some of that. I'd take $50 grand of that and drop it into the 529s.

Scott: Or a brokerage account. He says we're not that interested in fully funding the college education.

Matt: Yeah, yeah. But you're saying it would grow faster obviously than our high-yield savings account. So...

Pat: You don't need that much liquid cash. You've got a very, very low mortgage, right? You've got a dependable income. You're going to have a million dollars of life insurance each. You have access to your 401(k)s. You can borrow from both of those. For both you and your wife, you could borrow up to $50,000 each.

Scott: Six months in cash should be great.

Pat: Is more than enough. So, you're doing great. We're just cleaning up around the edges. You did miss the big one, which is the term life insurance. But either that $50 grand. I'd take that $50 grand out of cash, and I'd put it either into the 529s for the kids or I'd put it in the brokerage account by something along the lines of a total market. And I'd increase my 401(k) by 2% a year till it was at the maximum.

Scott: Yeah.

Matt: Okay, great. I have one more question if I have time.

Pat: And by the way, you're doing great. I don't care when you started. Yeah, you have no debt. Your mortgage is tiny. I mean, yeah.

Matt: Yeah. We don't live like [inaudible 00:16:24].

Pat: Look, you've got $400 grand saved, and you got $300 and some thousand equity in your house in your early 40s. You're fine.

Scott: Okay, and what was your other question for us?

Matt: The other question is a little bit more complicated in that I have dementia and Alzheimer's in my family. So, I have my grandparents on both sides suffered with Alzheimer's dementia for... It was not a good time for my parents to try to take care of them. And I don't know if I've ever heard this question in your show yet. But is there a way to prepare for that?

Because even if I'm going through life, saving money, doing all the right things, and I have a parent or two that get dementia and, like, my grandma had it for 15 years or 12 years. How do you... Is there an insurance policy or some way to prepare for that taking place?

Scott: There is. Well, there's long... I mean, I suppose...

Matt: [crosstalk 00:17:21] not affecting us financially.

Scott: Yeah. I mean, you could, theoretically, purchase a long-term care insurance policy on a parent or a grandparent for that matter.

Pat: He's talking about... You're talking about yourself or for your grandparents? Your parents?

Matt: Sorry, for my parents. I'm sorry, yeah. For my parents as they age, as they are getting older. If one of them were to come down with dementia and start showing those signs, and this would be more for them, I guess. I mean, should they purchase some kind of an insurance plan or is that even an option for them?

Scott: Yeah. Well they need to purchase it before they get diagnosed with it.

Pat: Or thinking about... Yeah.

Scott: So that long-term care insurance, the amount of premium today is, like, 10% of... Long-term care policies issued today is, like, 10% what it was 25 years ago. So, and 30 years ago. It was much more common being sold by insurance companies. A lot of insurance companies got in the business of providing long-term care. And then, they realized they didn't know how to price it properly. They all lost a ton of money on it. And so, got out of the business.

Pat: That and bond yield [inaudible 00:18:28] to nothing.

Scott: Yeah, Fed lowers rates. So, it's very difficult. They can't make any money on their portfolio, which is how insurance companies make a lot of their money as well.

Matt: Sure.

Scott: So, I mean, there are some long-term care solutions, whether it's just a traditional long-term care policy, or there's some hybrid-type policies that's a combination of... It's basically like a whole-life insurance policy or universal-life insurance policy that is designed to use your cash first and then an insurance rider kicks in after the fact. Having said that...

Pat: If your parents were to pack up everything they owned, right, including the equity in the house, how much money would be in that suitcase?

Matt: That's the other problem. They're not real open about their finances.

Pat: Do you think it's a million, 2 million, 10 million?

Matt: No. No, no, no.

Scott: $200,000?

Matt: Yeah, more like that.

Pat: Well, so $200,000, you're going to let the government deal with it.

Matt: Oh, okay. Okay.

Pat: That's just the reality.

Scott: No, Medicare. Yeah. So, yeah. I mean...

Matt: But yeah. A lot of it fell back on my parents when they were taking care of their parents. So...

Pat: Oh, correct. And that's a decision, right? That is a decision. Look, I had that... Children are not responsible for their parents' well-being if they enter a nursing home.

Scott: I mean, financially.

Pat: Financially, right?

Scott: That's right.

Pat: They're not, right? And so...

Scott: The government and depending on the state, the state, oftentimes it's a Medi-Cal or Medicare type...

Pat: Which will kick in after Medicare if they spend a certain period of time. And look, some families decide...

Scott: If they have no assets.

Pat: If they have no assets, right? If they have no assets. And some families decide that they're going to support their parents and some families decide that they're going to let the government support their parents. But if there are no assets or the spenddown is relatively quickly, the idea that they're going to buy insurance and cover this... You buy insurance to protect an asset, that's what you're doing. And the reason you're buying long-term care insurance is to protect your own assets so there isn't a spenddown if in fact you go into a long-term care facility. That's what it's for.

If there are no assets to protect, then, you know, I'm not making a moral judgment. Some of you people are saying, well, people need to take responsibility for themselves.

Scott: [crosstalk 00:20:46] That's why, you're just... From a financial standpoint.

Pat: From a financial standpoint. And look, we had the same decision in my own family with my dad. It's like, okay. Are we going to let the government take care of them or are the children going to take care of them? And fortunately, the children, there's five of us. We were able to take care of my dad and he stayed in a nice facility.

Scott: I guess it wasn't equal from the five siblings.

Pat: So, my...

Scott: My guess is some are doing much better financially than others and...

Pat: Which is normally the case, which is normally the case.

Scott: I'm just guessing.

Pat: That would be a fair guess. And so, the idea that you need to take responsibility like your parents took responsibility. And by the way, it used to be big differences in the types of facilities that those people would enter. There are differences, but they're not dramatic differences in the facilities themselves. So...

Matt: Great.

Pat: All righty.

Matt: Well, I appreciate it.

Pat: You're doing a great job.

Matt: Thanks so much. Thank you, guys, very much. And I gotta say before I end here, my favorite part of your show is when you guys get off-topic. So, it's always entertaining.

Pat: No problem.

Matt: [crosstalk 00:21:56]

Scott: So, Matt, we've been broadcasting on a Sacramento radio station for 28 years. And every once in a while, someone would complain to like, the management that we should stick to topic. And we're like, "Sorry. Get your own show."

Pat: Yeah. We actually, on our podcast too, people are complaining about that.

Scott: That we get off topic? You can skip, fast forward podcasts, you know. It's not that complicated. They have a little 10 or 15 second thing. It is click, click, click. Is that how you go through a lot of the ads on some of the...? Click, click, click.

Pat: Yes.

Scott: Yeah. It's not that difficult. Let's continue on. We're talking to Roshna. Roshna, you're with Allworth's "Money Matters."

Roshna: Hi there.

Scott: Hi Roshna.

Roshna: Hi. I wanna say, I love your guys' show and especially when you get off topic and you talk about your families because I've got kids about the same age and relate to it.

Scott: How old are your kids then?

Roshna: 27 and 25 this year. And I love the Netflix story, I think, that Scott had where you called or texted your kids that they had to be on their own plan now and your daughter was in two minutes speaking for her brother.

Scott: That's correct.

Pat: What did I forget? What happened?

Scott: Netflix, something about the, yeah. I can only have so many passwords or whatever. And my younger ones were getting old. Whatever. Anyway, I told them, I was afraid to tell my oldest daughter because she can... So, I don't know what happened. Anyway.

Pat: My kids were lending out my passwords to their friends.

Scott: Yeah nice. Netflix has recently cracked down on this.

Pat: Oh, yes. We are aware. All right, Roshna, what can we do to help you? By the way, it's a trip having young adult kids, isn't it? Some of the's pretty fun.

Roshna: Yeah, it's great. And my daughter, [inaudible 00:23:46] daughter went from teaching, "I should go to law school." My daughter pivoted from teaching, and now, she works for a big publisher. So...

Scott: Yeah. Oh, good for her.

Roshna: So, you know. Anyways, I am calling because I have two questions. So, as far as the first one, we're getting killed on taxes, my husband and I. And I know you guys talk a lot about the RMDs and the ticking tax time bombs. So, I just need to know whether we should be putting money... We now have the Roth 401(k) option. And then, we have our traditional 40...I'm sorry 403(b) option and we have our traditional 403(b), which we have been putting money away in, even though we will have a pension. So, we have about...

Scott: So, will you and your husband both have pensions at retirement time?

Roshna: Yes.

Scott: And how old are you today?

Roshna: 57, and he's 59, and we think, probably, in about 3 years we will be retired.

Scott: And what percentage of your income will your pension make up?

Roshna: It'll make up about... Vast majority of it. So, the pension will be at this moment as I calculated it about $220k total for us.

Pat: And what's your income today?

Roshna: Next year, or for this year, as I looked for our taxes because I haven't filed this year's yet or last year's. It's gonna be 350k.

Pat: Okay. And are you saving the maximum in your retirement accounts?

Roshna: Close to. We didn't hit the 30k this year. That could be the max. So, around $26,000 is what we put away each. So, currently there's 1.8 in the 403(b). Should I be putting in... Should we be contributing to our Roth 403(b) or continue with the traditional 403(b)? Because like I said, we have no deductions to speak of. And we're all W2 income and...

Pat: And are you gonna be in California indefinitely, you think? I hear your husband laughing in the background.

Roshna: Yeah. He'd leave now if he could.

Man 2: We're looking for a house.

Roshna: We're looking for a house for six months and one day in like, somewhere off the coast of Washington or something with a 0% tax rate and cooler summers.

Pat: Okay. Yeah. Then, I wouldn't use any Roth. I wouldn't use a Roth at all. I'd put everything in tax deductible.

Roshna: Okay.

Scott: Because you're at a point... You're paying in California...Gavin, I'm sure he sends you a thank-you note every year. You're paying 9.3% of your income to California. So, when you choose to put money into a Roth, you're foregoing... Well, even looking at the... You're saving a 10, what's the... Well, no. Right here're squarely in the 24% tax bracket. So, you're not doing yourself any favor on a federal...

Pat: Yes, it's a wash.

Scott: The federal''re gonna be in the same tax bracket in retirement as you're in today.

Pat: So, it's state tax.

Scott: The state tax is what's driving it. I would put everything in the deductible.

Pat: And actually, do you have an HSA account?

Roshna: No.

Scott: Okay. Because they probably have better health insurance.

Pat: They probably do.

Scott: They don't have a high deductible, like the majority of Americans. Like, my 27-year-old reaching out to me because she's been having this cold for the last couple of weeks and I tell her to the doctor and she didn't want to spend $150 or whatever it's going to cost and I'm like, "Well, I'm not paying for your doctor bill. Sorry."

Roshna: Yeah. No. I think, I mean, my daughter just switched jobs and I said, "Just do a high deductible. You know, you're young and..."

Scott: That's right.

Roshna: "You'll be fine."

Pat: And so, do you have any money outside of 403(b)s that you're managing in brokerage accounts that...?

Roshna: Yes.

Pat: And are they tax efficient?

Roshna: That's a good question. I'm not sure.

Pat: So, when you do your taxes, you're gonna...

Roshna: Oh, yeah.

Pat: ...receive a 1099 that shows income and capital gains or dividends from that. What does that look like? And how much money is in brokerage accounts? Is it material?

Roshna: About $700k.

Pat: That's material.

Roshna: Okay.

Pat: And how is that money being managed in there for tax efficiency?

Roshna: Okay. So that kind of leads me to my next question, which is it's in mutual funds and individual stocks and we're heavily weighted in Apple stock and you just got done talking about China and Apple and, you know. But I don't want to take the capital gains because... And it's been a great stock for us. So, I had a creative idea. I want to run it by you. I'm thinking if we could gift, you know, $15,000 each to my mother who is very elderly and frail and not in good health at all. And then, eventually, when she passes away, the cost basis on that will be, you know...

Pat: Stepped up.

Roshna: Whatever [inaudible 00:29:09].

Pat: Do you have siblings?

Roshna: I don't.

Pat: I have never thought of this plan in 10 years. This is really good. But it doesn't have to be $15,000. You can do all of it.

Roshna: Oh really? I thought we were limited with the gift.

Pat: No. You can use up part of your unified credit.

Scott: Unified credit is how much you can gift either at your death or while you're living.

Pat: And right now, it's 12.5 million, 13 million each?

Scott: Each, 25 million.

Pat: Or higher. I think it's higher. I think it went up this last year.

Scott: Even if it sunsets, which it says that...I think it's still at 5 million each...

Pat: That's 10 million in the year 20...

Scott: ...with inflation adjustment, 2026.

Pat: 2026. So, what's your mother's financial situation?

Roshna: She's fine.

Pat: What I worry about is... So, if she goes into a nursing home...

Scott: Yeah, yeah, yeah.

Pat: ...she's not going to have to spend the Apple stock in order to support her?

Roshna: No, no. I have 24-hour care for her in the home and she has an income over $200,000...

Pat: Oh my.

Roshna: support her.

Pat: You know, so I'd think about this. This is brilliant.

Scott: Well, yeah. There's more planning that needs to happen before I'm going to say this is the best thing you should do.

Pat: I don't know if there's any... What's her net worth? Because you're going to inherit her assets at some point in time.

Roshna: I am, but most of them are not liquid assets.

Pat: It doesn't matter.

Roshna: Right. So, we...about 5 million.

Scott: Yeah. Then, I probably wouldn't want to use up my unified credit to save a capital gain tax.

Roshna: Okay. Well, I mean...

Scott: And when you're in Washington, you don't have to pay any state capital gains on that.

Roshna: Well, it's 5 million. But remember, I had a dad too. He passed away. So, it would be the...

Scott: I'm worried about the assets coming to you and your husband.

Pat: Not the other way around.

Scott: Yeah. Yeah. Yeah. And who knows what the state...You're relatively young. Who knows what the state taxes are going to be like. So, you start with $15,000, which I think it's what $18,000 or $17,500 or something like that.

Pat: Yeah. How much money do you have in Apple stock itself?

Roshna: About 140,000.

Pat: You know, Scott. I disagree. I disagree. Well, what is it? It's September.

Scott: I don't know. It's a lot of work. You're gonna go through quite a bit of work...

Pat: Yeah, it's a bit of work.

Scott: ...for all this and it could be that Apple's... I mean, Apple doesn't have to decline that much to negate any of the tax savings you're kind of trying to...

Pat: But do the maximum gifting amount this year and then the maximum gifting amount January 1.

Scott: You could do that. Yes, yes, you can certainly do that.

Pat: And then, get halfway there. And halfway there. Okay, like that, we agree.

Roshna: Okay.

Pat: We think that's a good idea. I don't know if there's any... I've never thought of it. I don't know if there's any rules against it. I don't see why there would be.

Roshna: And I wouldn't sell it immediately because I'm not admitting it and so, I would wait.

Pat: You wouldn't have any choice when to sell it because...

Roshna: Right, that's true.

Pat:'d have to inherit it first in order to sell it.

Roshna: Well, yeah, that is correct.

Pat: Because the basis moves with it. Is the rest of the portfolio pretty tax-efficient?

Scott: I mean, if you were calling and you had $140,000 to your name and it was on Apple stock, there'd be some different planning purpose around diversifying. This is a relatively small piece of your portfolio, particularly when you figure out the net present value of your pension, it's...

Pat: Five percent.

Scott: It's less than that. It's such a small piece of your portfolio, of your life savings. It really is. So, it's...

Roshna: Okay.

Pat: But, still, it's not a bad idea.

Scott: No, no, I like the idea.

Pat: So, I would do it this year and next year, but I wouldn't use up any part of the unified credit.

Roshna: Okay. I'd buy that. That [crosstalk 00:32:58].

Scott: I was thinking about $70 grand. And if she lives a couple more years, she can maybe get all the way there.

Pat: Yeah.

Roshna: Yeah. No, that's great.

Pat: So, the rest of the portfolio needs to be managed really tax-efficiently.

Roshna: Meaning no dividends. Right?

Pat: I don't know why you'd want anything to pay dividends in your portfolio. You've got that big old fat pension which looks like fixed income.

Scott: And right now, you have high income.

Roshna: Right. And there are never... Yeah. Okay. So, and you're not worried about the RMDs then?

Pat: No. Well, maybe, but I mean, we're trying to figure... Yeah, but don't... You're not gonna...

Scott: I'm worried about less about the RMDs than I'm worried about you taking a tax deduction. I mean, you're paying tax to California today using a Roth in order to be... And then you're gonna be in a tax-free state when you pull the money out.

Roshna: Right, okay.

Scott: That's the biggest plan out there.

Pat: And worry about the RMDs once you retire. That's when the planning takes place, when your income drops to $220k and you want that... But you want that portfolio to be as tax efficient as possible, that brokerage account.

Roshna: So, that basically means kind of index... We're [inaudible 00:34:07] income.

Scott: I mean, another plan with this stock or anything else with a high...if you're helping your kids at all financially or gifting to your kids, you can transfer some gift stock to them. They sell it if they're in a lower income bracket. Their capital gains might be little to nothing on it. And you can do the same with charity as well.

Roshna: Okay. All right. Well, thank you. I appreciate your time. And, you know, I feel much better. The whole idea of being in a tax-free state or a lower tax state.

Pat: Roshna, I own a home up in Lake Tahoe.

Scott: Oh, look at you.

Pat: Well, it's...

Scott: Okay. Is this the brag hour? I'm just kidding. You didn't mean it that way.

Pat: It's in Nevada. It's in Nevada.

Roshna: Okay.

Pat: And I was talking to...

Scott: That was your point.

Pat: That was my point.

Scott: You've got a very small residence in Nevada.

Pat: It's not on the shores of Lake Tahoe. It's in the Lake Tahoe vicinity, but it is in the state of Nevada. And Lake Tahoe is on both the California shores and the Nevada shores. And I chose the Nevada shore for the exact reason, that at some point in time to establish residency. But my point being, I was talking to six neighbors. There was a little get-together of six neighbors. And every one of them, every one of them, had left the state of California to establish residency in the state of Nevada for tax purposes. And they were somewhat disgusted with policies in the state of California.

Roshna: Right. Yes. That would describe us to a T, only not somewhat, very excessive.

Pat: Oh, it's hard. It's such a beautiful state, though, isn't it?

Roshna: It is. It is. Husband was born and raised here. I immigrated here as a child and it's home. And that's why I don't want to sell our home here because it's still home. But I, you know, it's... Anytime there's an imbalance of one-party state of any...whichever direction, it's never good as a moderate.

Scott: And by the way, a supermajority and the same party controls [crosstalk 00:36:21].

Pat: And you mentioned Six Months and a Day. So, you might want to spend some time on...

Scott: It's a little bit more than that.

Pat: ...on what's called the domicile rules.

Roshna: Okay.

Pat: It's more than Six Months and a Day. It used to be Six Months and a Day, but now they look at what's called domicile and there's many attorneys in many states that practice...

Scott: ...are experts in that. And there's different opinions too.

Pat: There's lots of different opinions.

Scott: And it's a four-year period of time that the franchise tax board can audit you and most likely will.

Roshna: Oh, great. [crosstalk 00:36:49]

Scott: There you go. So, you're glad you called. I mean, if you didn't have any income, they don't care. But if you've got a lot of income, they...

Pat: Yeah, so you want to look at the domicile rules.

Scott: Yeah.

Roshna: [crosstalk 00:36:59]

Pat: So appreciate the call.

Scott: Appreciate the call. It's funny, Pat. I was just...earlier today, I was having a conversation with somebody. It was the same about getting out of California. They talked to a tax attorney, getting the plans in place. They'd already moved to North Carolina, but their business was in California. And it's not often as easy as it looks. It'll be interesting to see over the next five years what some of these states do, states like California and Illinois and New York. And you can only raise the taxes so high and eventually people will say, "All right, that's it. I fold. I'm out of here."

Pat: "I'm done. I'm done."

Scott: And there used to be the...what do they call it, the source?

Pat: The source rule.

Scott: The source tax. So, that your pension would follow you. So if you worked in a state... If you worked in Illinois, they got great pensions for public employees there. You work in Illinois, you leave the state, you move to Texas, let's say, where there's no income taxes, they used to be able to tax you, and then there was a rule that changed, I don't know, maybe 20 years ago or so.

Pat: A long time ago.

Scott: Maybe more than that. I just haven't been [inaudible 00:38:08].

Pat: Yeah. But in privately held companies, what they do look at is the embedded gains in many privately held companies.

Scott: What are you talking about? For the domicile rule?

Pat: Yeah, private companies is... So, if I start a company and it's worth...and my basis in it is 0 and I move out of state when it's $10 million, and then I sell it, but I'm living in a different state...

Scott: Oh yeah.

Pat: ...the government doesn't just say, "Eh."

Scott: Same thing with stock options.

Pat: Yes.

Scott: And some restricted stock are issues.

Pat: Yeah.

Scott: And probably every state treats it a little bit differently. So, we're not [crosstalk 00:38:51].

Pat: We live in the state of California. So...

Scott: Currently. Although I was joking with Pat, because Pat's been talking about leaving the state of California.

Pat: I don't think it'll ever happen.

Scott: And I told Pat, I said, "Well, you can either send 13.3% to Gavin Newsom, or you can send 50% to Kathy." Because I think that's...if you go to Nevada and she's not going with you, and...

Pat: I believe that is the case.

Scott: You were both young and broke when you got married. So, my guess is 50% of whatever you've got is [inaudible 00:39:22].

Pat: Oh, and the fact that I do love her is...

Scott: Oh, there's that.

Pat: She's the mother of my children as well.

Scott: There is that.

Pat: I am financially motivated, but not only financially motivated. So, you know, 37 years of marriage. I don't think I'm going to call it off because of a high-state income tax.

Scott: People do other strange things.

Pat: Oh, they do, but I'm not one of them, hopefully.

Scott: Who was I talking to recently? I'm trying to think what the situation was. Oh, yeah. A person I know, their spouse had a very significant stroke at a young age. And person's not getting better, won't ever get better. And from a planning standpoint, financial planning standpoint, like, one thing he's struggling with is divorce. Right?

Pat: Divorce.

Scott: Divorce. And so, that the assets would be split. He has not. He remained married for many years.

Pat: Understand.

Scott: And he loves his wife and is very committed to his wife and family. And here's where sometimes these laws get so screwy, right? Because should the care, her care, get to the point where it's just gobbling up all the family finances, it'll keep...the government won't step in until he's pretty much broke...

Pat: That's right.

Scott: ...depleted almost everything.

Pat: I've seen it twice. I've seen it twice, where a couple's got divorced in order to maintain the asset.

Scott: Yeah. That's nutty.

Pat: Yeah.

Scott: And I'm depressed. We're having this conversation as we're getting later in the program, thinking people are thinking, "I think that's enough for me."

Pat: That's enough.

Scott: Well, hey, we are near the end of our program, unfortunately.

Pat: Yes.

Scott: This time always goes by quickly.

Pat: But I would like to ask if you are listening to this podcast and you enjoy it even slightly, if you'd be so kind to go on and rate us.

Scott: Review us.

Pat: Review us.

Scott: [crosstalk 00:41:26]

Pat: Which is a form of rating. You give your stars and then you write either negative or positive things. If you would be so kind. Our marketing people tell us...

Scott: What if they want to write negative things?

Pat: Have at it. I mean, it's okay. It's all right. I mean, I've never written a negative review myself, although I've never written a positive review either. So, there you go.

Scott: I mean, you spend a lot of time reviewing podcasts.

Pat: Well, I just think that the market... No, no, even on restaurants or Yelp or whatever. I use Yelp all the time to find things, but I've never positively or negative reviewed anything, only because I figured the...

Scott: I do sometimes OpenTable, because they send me a thing. How was your experience last night at...? My wife and I had dinner with my nephew. It was a delightful dinner with my nephew and his fiancé. They're getting married in a couple of weeks. They are early 20s, delightful young couple, at Paragary's in Midtown Sacramento in the outdoor patio, which is probably the nicest patio I've ever had dined in, in the world. I mean, it's just they did a phenomenal job. The food's great and all that.

Pat: And so, you gave them a positive review.

Scott: I got a little thing from OpenTable, "Please let us know how your experience was" and I did.

Pat: So, but back to...

Scott: I don't know why I've just decided to give Paragary's a nice plug, but...

Pat: Oh, I worked for Randy Paragary when I was a waiter when I was in college, and I worked for Randy Paragary. He has subsequently passed away, and a great guy. But please give us a review.

Scott: We are out of time.

Pat: Please give us a review.

Scott: Yeah. Thanks so much for listening to our program and we'll see you next week.

Man 1: This program has been brought to you by Allworth Financial, a registered investment advisory firm. Any ideas presented during this program are not intended to provide specific financial advice. You should consult your own financial advisor, tax consultant, or estate planning attorney to conduct your own due diligence.