Retirement Account Security: AI Risks & Roth Conversions

Christa DiBiase [00:00:03]: I’m Christa DiBiase here with Wes Moss.

Wes Moss [00:00:06]: Wes Moss.

Christa DiBiase [00:00:07]: And today you’re going to talk about a couple of things that I think are really important. First, AI and security, which is—

Wes Moss [00:00:15]: Yeah, bots.

Christa DiBiase [00:00:17]: Yeah, it’s on everyone’s minds.

Wes Moss [00:00:18]: Bots moving my money.

Christa DiBiase [00:00:21]: And then later on, the stock market, the hype, the hogwash. Like, what’s hype? What is—

Wes Moss [00:00:26]: What’s hype?

Christa DiBiase [00:00:27]: What’s hogwash? What’s hogwash? What is going on? You know, you hear all these, I keep, my son even told me like he saw someone on TikTok who said, well, you

Wes Moss [00:00:35]: know, October.

Christa DiBiase [00:00:36]: Oh, or they, they, they followed this person. They said that they predicted, there’s death cross. They predicted, you know, this thing, this historical stock market event. They predicted this housing crash sell

Wes Moss [00:00:46]: in May.

Christa DiBiase [00:00:46]: And now they know in January something’s gonna happen.

Wes Moss [00:00:49]: January fact, Santa Claus rally.

Christa DiBiase [00:00:51]: Yeah. So let’s talk about that too. I think that would be great to cover.

Wes Moss [00:00:54]: There is some validity to some of these and then there’s, The reason I think that the lore, the folklore of what happens at a certain calendar date in markets is that there is a little bit of truth to many of those folklore-oriented sayings that people remember, but we’re going to get into that.

Christa DiBiase [00:01:16]: Okay.

Wes Moss [00:01:16]: Uh, the, but, but I first want to start with, and I’m going to thank you guys here, the Clark Howard Show, for a trove of emails and questions that I’ve been getting really for the last— the topic’s been around now for about a year and it’s a really important topic. And then you guys wrote another letter. Clark had another article about it in a recent newsletter. And I immediately started getting emails, ding, ding, ding.

Christa DiBiase [00:01:42]: Mm-hmm.

Wes Moss [00:01:42]: And I’m just gonna read this. Good morning, Wes. I just read an article that Clark Howard wrote and he strongly recommends having ACAT locks or account transfer freezes on all my brokerage accounts. I’m sure this is something that you’ve heard about. Let me know what we’re doing. Another question. Wes, I heard Schwab is blocking bots, uh, that can drain your account. Just imagine how scary that thought is.

Christa DiBiase [00:02:09]: Sure.

Wes Moss [00:02:10]: I heard Schwab is blocking bots that can drain your account. How can it possibly be safe out there? I’m scared AI will drain my account. There are 2 things happening, and these are 2 separate issues, but they all come back to the same thing, which is the security of your retirement account, your brokerage account, which is the paramount idea to just to begin with. We talk so much about investing and dry powder and 4% rule and how we manage our assets. Before you get to that, you’ve gotta make sure that you have safety, security where your money is placed. Because if we don’t have that, we don’t forget everything else. So it’s the bedrock and the foundation that I wanted to start with today. And these are very real questions in the evolution of financial technology that’s happened over the last 20 years, and particularly the last year or two, because we’ve gone from digital technology and lots of ease and automation, and I can set up Money movement, and it can all be through the website and it’s digital and it’s great.

Wes Moss [00:03:15]: And there’s low friction. Now let’s add yet another level of ease on top of that, i.e., you can have a bot now or an agent that does things for you. And if you give them permission, that agent can potentially be moving money around for you. So we’ve gone from super easy to almost no friction. It’s almost— defies gravity. There’s no gravity anymore if you were to give an agent some sort of control or access to your accounts, which now raises a brand new worry and a threat. And here’s the article paired with Clark’s article that got people super nervous, Christa, which is the Wall Street Journal a week or so ago had the CEO Schwab talking about how they as a company were going to block outside agents like Muse, which is from Meta, Facebook, that’s supposed to be able to do all these great things for you and schedule your life and book you travel and find a dog groomer. And oh, by the way, find you a better interest rate on your money market and potentially move your account somewhere.

Wes Moss [00:04:23]: Well, what did Schwab do? I think very smartly said no outside bots, period. That in itself made people nervous because wait a minute, if they’re blocking these agents, Doesn’t it mean these agents are dangerous? So if a giant massive custodian like Schwab is saying, uh-uh, no Muse, my families that I work with are reading this and saying, well, doesn’t that mean there’s this other threat? And doesn’t that mean that AI could now drain my account?

Christa DiBiase [00:04:51]: Mm-hmm.

Wes Moss [00:04:52]: So there’s kind of 2 separate issues here. They’re both about security. Clark talks about automated client account transfers. Those are ACATs that you guys talk about.

Christa DiBiase [00:05:00]: Mm-hmm.

Wes Moss [00:05:01]: Some companies will allow you to freeze your account so they can’t transfer. much like you would do a credit freeze.

Christa DiBiase [00:05:07]: Mhm.

Wes Moss [00:05:09]: Then you add in this other layer of digital ease, and now the whole bedrock of the stability and protection of where my money lies, or where my money rests, or where it’s held— the custodian— comes into question. So we’re in a new paradigm, we’re in a new era. It’s 2026, but this is a new world that we live in, and we we should pay attention. So number one, yes, we live in a world where we can start to give access to very smart— what I would consider— I, I think of Young Sheldon, this super genius kid who’s, let’s say, 10 years old and he’s super smart. But imagine if you gave Young Sheldon the keys to your semi-truck and said, why don’t you drive from California to Philadelphia and deliver this precious cargo? What do you think would happen?

Christa DiBiase [00:06:02]: Right.

Wes Moss [00:06:03]: Super smart kid, but I, I would imagine that somewhere along the way something very wrong could happen. So right out of the gate, as we’re in this new world of being able to give agents access, I think that the big custodians like Schwab are smartly saying no, as should you. I don’t know a world ever that we’re going to be in where I would allow any sort of agent to have any sort of access to anything that’s related to moving, trading, accessing my money. And neither should you ever in the history of the world. There may be a generation, Christa, maybe our kids that grow up and gain this level of trust over time, but not in my lifetime will that ever happen. So I don’t want anyone to ever to do that. Number one. Number two, Christa, I think that Where are we getting the next layer of protection? We’ve gotten very good at being smart around dual authentication.

Wes Moss [00:07:09]: And dual authentication, as we all know, we log in, but then there’s another app that, that verifies it’s us. We need that today more than ever. There’s another layer of protection. I call this human dual authentication. You guys talk about someone potentially setting up an account somewhere else, sending an automated request to another firm where your money actually resides. And the firm just says, sure, and sends the money to this new account, which you have no access to. In the world that we live in, there are all these digital controls that are supposed to stop that. But the layer that makes me feel as though money is safe is when it’s, there’s another additional human layer that says, wait a minute, we, we don’t ever let anything just go out automatically.

Wes Moss [00:07:55]: And a human or a team of humans reviews something and says, does this make sense that Christa’s moving this account to this other firm? Or this big wire is going out. No, nobody’s talked to her about that. The relationship you have with a human, which is ironic that we’re in this easy world of everything is automated and digitized. To me, I think that now having a human at your bank or your brokerage firm, a representative that actually knows you, a financial advisor, an independent financial advisor, to be able to be another layer of dual authentication, human dual authentication, to make sure your money doesn’t go somewhere it’s not supposed to go. That’s the extra layer I think we all need. So everyone needs to know someone that knows them, understands them, understands their family. As we do business in this very digitized world, ironically, I think humans today are this extra safety valve that makes me feel comfortable about where my money resides.

Christa DiBiase [00:08:59]: I love it. Okay. We’re going to go to some questions. Uh, you can ask Wes a question at wesmoss.com/ask. Bruno in Georgia sent this one in. Hello, Wes. My wife and I are both 22 and I’ve been listening to your podcast for the past few months after my father-in-law introduced me to the show.

Wes Moss [00:09:18]: Go Bruno. Thank you, ma’am.

Christa DiBiase [00:09:19]: It has quickly become part of my commute to work. I work full-time and my wife is in grad school with about 3 years remaining. Her tuition is around $12,000 per semester with 6 semesters left. So far, we’ve been able to pay for school as we go using our savings and my income. We currently have about $80,000 saved with roughly $70,000 in a Schwab— do you want me to read the fund? SWVXX through Schwab.

Wes Moss [00:09:46]: Much of my market fund.

Christa DiBiase [00:09:47]: and $10,000 in checking. After our normal monthly expenses, not including tuition, we have about $1,500 left over from my paycheck each month. My question is, what should we do with our savings over the next 3 years? Should we keep most of the $80,000 in money market knowing we’ll need a significant amount for tuition, or should we start putting some of it into ETFs for long-term investing? We want to avoid taking on student debt, But we also don’t want to miss out on investing while we’re young. How would you balance the two? I love the show and look forward to listening every morning on my commute. Thanks for any advice you can give us.

Wes Moss [00:10:24]: You know, Bruno, I’m just doing the math here. $12,000 times 6 semesters is $72,000, and you’ve got about $80,000 in cash. But at the same time, I want to make sure I get this right, Christa. He has $1,500 left over a month, or he’s $1,500 short per month.

Christa DiBiase [00:10:40]: No, he has $1,500 left over. He’s saying $1,500 left over from my paycheck each month.

Wes Moss [00:10:47]: And that’s after paying for the tuition.

Christa DiBiase [00:10:48]: That’s impressive.

Wes Moss [00:10:49]: That’s after paying for the tuition.

Christa DiBiase [00:10:51]: Yes.

Wes Moss [00:10:52]: Bruno, the simple answer is that you’ve got a liability that’s $72K and you’ve got $72K in savings and you line those 2 up and you keep the money in money market. And you pay for the tuition over the next 2, 3 years. But if you’re, if I’m doing the math here, you already, you’re paying for it and you’re not having to access the $70,000. It sounds like your income is already able to cover the tuition from what I’m seeing here. And if that’s the case, then a portion of that $70,000 should not just stay in money market. I mean, you’re 22. It’s so important just to get going with investing. You know, I was thinking the, the Fed just came out with their survey of consumer finances.

Christa DiBiase [00:11:46]: Mm-hmm.

Wes Moss [00:11:47]: You look at people per age, what happens with, with net worth? It just goes up over time. And it’s because we start earlier and time gives you an advantage. So I want everyone as to be able to get started with investing as soon as you can. And If you’ve got a little bit of a surplus, then technically you don’t need that $70,000 to just pay for the tuition. So, if I’m hearing these numbers correctly, you want to be putting some of that— that is money you can get invested, or at least maybe you take 3 or 4 months of, or even 6 months’ worth of spending in your emergency fund. But after that, maybe half of that, or $30,000 or $40,000 of the $70,000. can get started in broad index fund investing because you’re 22 and you’re not going to need it until you’re 62. And that’s a very long time horizon.

Wes Moss [00:12:43]: And the sooner you get started having it compound, the better.

Christa DiBiase [00:12:47]: I wonder also about— it may not make as much sense with how much you can earn in just, you know, savings right now, but I know the Georgia 529 plan has a state tax deduction. So they can put— right now it’s, I think, $4,000 each for, for account, so $8,000 a couple into that and then pay the tuition out of that. And that may also, you know, give them some tax money back from the state.

Wes Moss [00:13:10]: Oh, with the— to fund a 529 just for her current?

Christa DiBiase [00:13:16]: Right.

Wes Moss [00:13:16]: Yeah, that’s interesting too. That’s a CPA question too.

Christa DiBiase [00:13:20]: Tim in Virginia says, I’m 44 years old with a solid retirement savings and no mortgage. With rising bond rates, I’m considering diverting a portion of assets to long-term treasuries. Then building a bond ladder from the returns. Is it better to use a brokerage or Treasury Direct? And is that a smart strategy?

Wes Moss [00:13:39]: Okay, Tim, you know, we’ve gone into where we’ve gone from TINA to TARA. You know what I’m talking about?

Christa DiBiase [00:13:45]: No.

Wes Moss [00:13:46]: TINA was when rates are really low. Interest rates were really low for way over a decade. There was this Wall Street euphemism called TINA that stood for there is no alternative. It’s stocks or nothing else. And when rates are really low, that favored a certain kind of stock. Well, now with rates back to long-term historical averages, 25-year highs, TARA comes into play. There are reasonable alternatives to stocks. So Tim, you’re in, you’re thinking about that because you’re thinking about Hey, I can get 5, 5.5%.

Wes Moss [00:14:27]: Maybe that’s an option for me. So I think that’s the first part. Number one. Number two, Treasury Direct is great and you can invest for as little as $100 using Treasury Direct. I just don’t know. I, I, that’s not how I would use it. If you’re going to do bond investing, why not just do it in a brokerage account? And then you can still buy individual treasuries if you want through through any brokerage firm, or you can buy treasury-oriented specific year ETFs. And to me, that is a much more flexible and almost as low cost, close to no cost.

Wes Moss [00:15:06]: There’s a tiny bit of, there’s a little bit of an expense ratio in some of these bond ETFs, but I would be using a brokerage account to access treasuries, mostly ETFs that do this, as opposed to using Derek

Christa DiBiase [00:15:20]: in Colorado says, I’m 54 and I have a 401 with my current company that is a moderate size, and I have a larger 401 with my previous employer. My current employer 401 is with a large insurer, and my previous employer 401 is in Fidelity. I’m able to roll the Fidelity into the insurance company. This will allow me to configure the rule of 55 next year. How would I know if one plan has better investments than the other, and should I do the rollover? What should I look for?

Wes Moss [00:15:49]: Derek, first of all, you may really not have a lot of choice. If you have $500K in the old 401 and $50K in the new one, and you’re going to be using the rule of 55 and you need to have money in the current plan so you can access it early without a penalty, you really don’t have a lot of choice. The bulk of your assets almost have to be in that new plan that you’re going to leave age 55 plus. You may not have a lot of choice. Number one. Number two, even the big insurance company 401 plans, which I remember 20 years ago, they were awful and they’re expensive and they, they were double, triple, quadruple the cost of a Vanguard retirement plan or Fidelity retirement plan. That’s changed a lot. And even though it may be a big insurance company that now does investments, You usually have 20 or 30 different fund options.

Wes Moss [00:16:44]: And very often those expense ratios are very competitive. I would be looking at the list of securities. You probably have index-oriented options, meaning an S&P 500 type of fund and a, or MSCI international type fund, usually because they’re index-oriented. The fees are super low. Now, if they’re 0.1 at Fidelity and they’re 0.2 at this insurance company, it’s not quite as good, but I don’t see a— the world has changed from one 401 being 0.2 and another being 2. It’s not 10 times like it used to be. So, so the new plan options that you can reinvest your assets in should be competitively priced. But to some extent, to be able to utilize the Rule of 55, you almost have to be moving money into the new plan.

Christa DiBiase [00:17:38]: I’m glad to hear that’s changed because I know that’s something that Clark always cringes at when someone says that they’ve got a 401 with an insurance company. And then I just thought I’d ask you this question because I did receive 3 of these this week. Adam in Colorado says, I’m excited the Retire Sooner Method is finally here. I’m wondering when it might be available as an audiobook for us audiophiles. Never. Since it comes from the podcast.

Wes Moss [00:18:01]: It’s never coming. Adam, it’s never— I did— it took me a week to record it. It’s taken 3 months to edit it and they’re still not done. So I don’t think it’s ever coming.

Christa DiBiase [00:18:11]: It will be coming out.

Wes Moss [00:18:12]: Never. It’s almost done. And it is— I’ve recorded it. It took quadruple the amount of time. No wonder people do this professionally. I’m not a pro at narrating a book. I thought it’d be easy. It was not easy.

Wes Moss [00:18:25]: It took forever. But it’s even harder for the people editing it because I had to read every sentence like 3 times.

Christa DiBiase [00:18:30]: Okay.

Wes Moss [00:18:30]: But it is almost done, Adam. It’ll be out. I would say in the next month or so. So keep looking on Amazon for the audio version of the Retire Sooner Method.

Christa DiBiase [00:18:41]: All right. Coming up next, we’re going to talk about stock market legend and lore, hype or hogwash.

Wes Moss [00:18:50]: After studying thousands of Americans, 55 and older, I’ve learned retirement’s hardest part isn’t necessarily the money. It’s the thing nobody warns you about, the sudden lack of purpose. In my new book, The Retire Sooner Method, I break down the 5 things that separate America’s happiest retirees from the unhappiest ones. It’s not just a savings number. It’s a way of thinking about life on the other side. Pick up your copy today on Amazon or your local bookstore. That’s the friendly little green book, The Retire Sooner Method. You brought this up and I think it had something to do with one of Somebody has been asking you about maybe Scary October, which—

Christa DiBiase [00:19:30]: Oh yeah.

Wes Moss [00:19:32]: There’s Scary September, then there’s Scary October. Is that real? Is there any credibility behind so many different calendar-based, market-oriented— I don’t know if you want to call them euphemisms or legends or lore, but there are a lot of them. There’s one for almost every season. And I wanted to go through some of the ones that I think are well known, but maybe also misunderstood and see, do they have any real teeth to them or is it just kind of all bark and, and no bite? And I think the reason right outta the gate, the reason these perpetuate is that there is a little bit of truth to most of them. And then some of them were actually very accurate for a little while and then it maybe lost their luster. So we’re looking at history, stock market history. Does a season or a calendar matter? And the answer is mostly, I would say they’re mostly hype, a lot of hogwash, but at least probably worth understanding. And here are a couple of the big ones.

Wes Moss [00:20:36]: Number one, there’s this thought that September is really bad for the market, and then October is also bad for the market. And part of that is because the reputation of October, and there were some real disasters. So October 24th through 29th of 1929, Christa, that was the Black Monday period.

Christa DiBiase [00:20:57]: Mm-hmm.

Wes Moss [00:20:59]: In 1987, that was one of the biggest one-day decline that we’ve had. That was Black Monday on October 19th, 1987, and that has kind of given October a really bad reputation. And then if you think about the financial crisis in October of ’08, the market was down almost 17% in one month. However, if you look over the course of history, October is positive on average. September is actually negative on average.

Christa DiBiase [00:21:27]: Hmm.

Wes Moss [00:21:28]: So September is arguably the worst month. It has a weak track record. October has kind of the bigger scary moments, but on average has been a decent positive month, about a half a percent gain over the course of history if you go back from 1928 through 2024. So I would say that we’re already almost through October anyway, and September’s the bad month. Now, again, do you get out of the stock market because historically September’s a bad month? No. That doesn’t make sense either, but at least it, it helps to understand history. Another one that gets a ton of press is the sell in May and go away, meaning that stock market returns from November to April are really strong. Then from May through October, traditionally weak.

Wes Moss [00:22:19]: We ran the numbers on this, Christa, on sell in May, and we looked at September. So sell in May from 1989. through 2025. If you were to just do a buy-and-hold strategy and you were invested the whole time, you averaged about 11%. If you were to sell in May and go away, and then now that your money is out of all investments, we transferred money into whatever the, the Treasury rate was at that point. So it’s almost like an asset allocation.

Christa DiBiase [00:22:52]: Okay.

Wes Moss [00:22:53]: Sell in May and go away. So you were out May through October, but you were in November, December, January, February, March, April. You averaged 8.6%. So you did not do nearly as well if you sell in May. So it just doesn’t—

Christa DiBiase [00:23:12]: Timing the stock market.

Wes Moss [00:23:13]: Doesn’t hold water. A growth of a dollar, if you do sell in May over that period of time, a dollar grew to $20. If you didn’t sell in May and go away, you were invested the whole time, grows to $41.

Christa DiBiase [00:23:25]: Wow.

Wes Moss [00:23:26]: So it’s pretty obvious that Even though there is a little truth to that’s a slightly weaker period of time, it’s not weak enough to try to sidestep it. So again, a little bit of validity, not in practice would you ever wanna do that, in my opinion. How about the Santa? That’s like the friendliest one of them. The Santa Claus rally.

Christa DiBiase [00:23:48]: Mm-hmm.

Wes Moss [00:23:49]: Santa Claus rally is the idea that the last 5 days of the, of the year and the first 2 calendar days of the next year, is a really good time to be invested. And then the January effect is that how January goes, so goes the year. Now there’s a little validity in this one.

Christa DiBiase [00:24:10]: Really?

Wes Moss [00:24:11]: So if you look at the— again, we’ve looked at 1950 through 2025. In all of these years, you had an average of 8.2%. On average, 76% of those years were positive. If you had a negative Santa rally, or it wasn’t up during that 7-day period, if you only isolated those years— now there’s only 17 of these out of that whole long period of time— markets only averaged 6.5%. So if Santa wasn’t around, then is that— that means the rest of the years is bad? Well, historically, but that’s 17 out of 76 years. So I don’t know. Again, you can slice and dice history and kind of make a point here, but I don’t think that’s enough in the sample to really make it work. This is one that is interesting though.

Wes Moss [00:25:03]: If you have a positive January, the next— again, we’re looking at what happens February through December, the rest of the year. You have a positive January, the rest of the year is positive 87% of the time, on average 12.2%. Okay. Now, what if you have a negative January? Well, the next 11 months are positive only, only 60% of the time.

Christa DiBiase [00:25:30]: Oh, okay.

Wes Moss [00:25:32]: With an average of 2.1%. So, it gives a little weight to, hey, if January is good, you’re getting some momentum for the rest of the year. And historically, Markets do better. Now, do you do this and actually trade on it? Maybe if you’re an algorithmic trader, it, it weighs into whether you’re in and out of the market on any given day. But for how I invest and how we invest and how we talk about investing, which is really a long-term endeavor, then these are important and fun to kind of understand and know. But I, I wouldn’t be putting those into my investment decisions or calculations about when to be invested or when not to.

Christa DiBiase [00:26:17]: Okay. We’ll go to a couple of questions that came in for you, Wes. Steve in Indiana says, I’m planning to retire in June of 2027 at age 53. And my wife plans to retire a year later in June of 2028 at age 55. Right now, even after maxing out my 401, her 403, and our catch-up contributions, We’re still in the 24% tax bracket. We have about $2.9 million saved for retirement, roughly $2.1 million in pre-tax retirement accounts, $715K in a taxable brokerage account, and $35K in Roth accounts. Our income is going to change dramatically as we retire. In 2027, we expect to earn about $190,000 before retirement contributions.

Christa DiBiase [00:26:59]: In 2028, that should fall to around $40,000. How can we take advantage of those lower income years? Should we continue maxing out our retirement contributions while we’re still working? Should I shift some or all of my 401 contributions to Roth? And once our income drops, would 2027 or ’28 be a good time to start doing Roth conversions? We expect to need about $100K a year after taxes to live comfortably, although we could spend a little less if it makes sense. Part-time work in retirement is also a possibility.

Wes Moss [00:27:30]: All right, Steve, if you, you’re in a classic situation here for Roth conversions, because you’re, you’re thinking about becoming a super early retiree. What matters in your case is the change in income and going from 2027 at $190K all the way down to $40K creates this great opportunity. And by then you’ll be 55. And you have over 20 years, you have really, you actually have 20, you have 20 years at that point before your RMDs will kick in. So 55 to 65 to 75, your RMDs won’t be till 75. So you technically have 20 years of low income or managed income to be able to do Roth conversions. And the way to do Roth conversions is to spread them out over time. The good news for you, you’ve got, you’ve got a ton of time to do this.

Wes Moss [00:28:27]: You’re going to drop. So I wouldn’t— 2027 is not the year to do it. It’d be 2028 when you’re down to 40, which gives you the opportunity to say, okay, I’m comfortable paying taxes to convert into a Roth only up to a certain level. And in your case, you may say, I only want to get to the 22 bracket. In order to do my conversions, which will leave you, you may be able to do $100,000 in conversions and still stay in 22. And again, I’m not running these exact numbers here, maybe $130,000, $140,000. So you have to do those calculations with a CPA and do a Roth conversion calculation. And again, tax rates will be different potentially in the future, but think of all that room.

Wes Moss [00:29:12]: You’re going to go from being in the virtually 0% bracket to saying, hey, I’m going to do Roth conversions all the way up to 22, maybe 24. You get to pick your effective rate. So that’s how I would be looking at it. You’ve got 2 years before you need to start this, but then the window is going to be wide open.

Christa DiBiase [00:29:32]: Fantastic. Okay. Tony in Georgia says, hi Wes, I wanted to ask a question about setting aside money for a family member in retirement, but keeping it secret. I’ve been blessed to end up with a very high-paying job in my life, and I have very little desire to live a lavish lifestyle. I’m in my early 40s and I’m already starting to cut back on work and plan to have the ability to fully retire by age 50, although I may keep working in some capacity. I have one sibling who means so much to me. They have numerous kids, and while they make a decent living, they have not been very good with money and spending over the years. And are very behind on retirement and trying to get debt paid off before they can make any headway.

Christa DiBiase [00:30:13]: I know that they are working on doing better and trying to get on track, but I worry my sibling will end up struggling in their older years, even if they start heading in the right direction now. I can’t imagine living an early retirement life while someone so important to me is struggling to pay their bills, even if a lot of it is self-inflicted and bad spending habits. I want to set aside money while I’m still working, probably $100,000 or $200,000. to let grow over the next 20 years and be there to help supplement their retirement. I also don’t want to let them know about it because I worry they may think this covers them, which it won’t, and they may not do as well getting their own spending and saving under control. What is the best strategy from a tax standpoint to set aside money in an investment and give to them later? Is my only option to take out money from brokerage accounts when I’m older, eat the tax bill, and gift it to them annually? I know there’s a gift tax exclusion of $19,000 per year currently, but then I would be paying capital gains taxes when I take it out. Is there a good way to save money for another adult and transfer it to them later in life without letting them know about it?

Wes Moss [00:31:18]: Who doesn’t want Tony as their brother?

Christa DiBiase [00:31:20]: I know.

Wes Moss [00:31:22]: That’s cool. It’s interesting. You’d like to help. A lot of things happen here, Tony. You want to help, but you’re worried about the financial responsibility of your sister. So it makes it—

Christa DiBiase [00:31:35]: Or brother, we don’t know.

Wes Moss [00:31:36]: Or brother. Uh, I, because I have a sister, I,

Christa DiBiase [00:31:39]: well,

Wes Moss [00:31:39]: I have both, so I don’t know. Uh, either way, you want Tony as your sibling and you’re very nice to think about this. And I think there are some ways to do this. I think the easy long-term way would be able to help your sibling have some financial education and you can, These are 2 routes that come to mind. One, help them fund a Roth every year. And if they don’t have the money that they’re not doing it, maybe you gift $7,500. And guess what? You could do this. If, if your sibling is married, you could give $7,500 and $7,500 and they both do a Roth.

Wes Moss [00:32:14]: And then you do that every year and you’ve got $15K over the next decade is $150K. And now you’ve got your sibling plus their spouse. with a real accumulation of money and it helps bring them into the fold and maybe helps them be more enrolled in their finances. That’s a, maybe that’s the altruistic. You’re, you’re, you’re giving me a side eye on this one.

Christa DiBiase [00:32:39]: Only because it sounds like, well, it sounds like he’s concerned that this sibling—

Wes Moss [00:32:45]: They’ll know about it.

Christa DiBiase [00:32:45]: If they know. Yeah. Well, they will know. The sibling will know about it.

Wes Moss [00:32:49]: Yeah.

Christa DiBiase [00:32:49]: And so also if the sibling knows you can take out contributions for any reason, that could be a problem. And so maybe they will be less motivated. To, you know, get—

Wes Moss [00:32:58]: Fair, fair. Yeah. Okay, now what’s another way to do it? What I’m thinking here would be maybe it’s a revocable trust where you stay the trustee, it’s revocable, and your sibling is the beneficiary, and you give stock into the revocable trust. The— yes, you will likely have to be responsible for the taxes and the dividends moving forward. But if you’re going to just leave stock in an account that you could then change your mind on it, it would be a way to say, hey sibling, this $100K today could be worth a lot in 10 and 15 and 20 years, but we want to make sure you stay responsible. Now you need an estate planning attorney to do this. It’s a little more complicated. You got to spend a little bit of money to set up a trust to be able to potentially do that.

Wes Moss [00:33:56]: But it would be a way to— if you do the Roth route, your sibling would have to know. If you do the revocable trust route, you may be able to keep it a little more opaque.

Christa DiBiase [00:34:07]: Oh, I would keep it secret, and then you can will it or put it in your will, right?

Wes Moss [00:34:10]: Let me say this. I get questions about this whole, like, I want to do this for somebody who doesn’t know. That is balderdash. There’s no— I, I am not a believer in Hey, I— but this person can’t handle it, and so I’m gonna do this for them. These are grown-ups we’re talking about.

Christa DiBiase [00:34:31]: Well, but this is what Tony asked for.

Wes Moss [00:34:33]: Yeah, I don’t really believe in the whole I want to do it secret thing.

Christa DiBiase [00:34:36]: Okay,

Wes Moss [00:34:37]: I don’t believe in it. Money is such a hard thing to accumulate. It’s so hard to do it. And if you are willing to help someone and they, even with free money, and they can’t handle free money, then You’re kind of, you know, you’ve had an open— the drain is open. So no matter how much water you pour in it, the tub still stays empty. There’s gotta be some level of restraint, personal responsibility when it comes to assets. I’m just, that is my belief. It’s, well, let’s say you’re able to do this secretly.

Wes Moss [00:35:12]: You accumulate $1 million, your sibling gets it. What happens to the money? Have you saved the sibling or does the sibling spend it in a year or two and blow it anyway?

Christa DiBiase [00:35:21]: Okay. Well, that—

Wes Moss [00:35:23]: Still want Tony as my brother.

Christa DiBiase [00:35:25]: On that happy note, that does it for us today. I want Tony as my brother as well. And congratulations on your upcoming early retirement, Tony.

Wes Moss [00:35:34]: Christalina, I love having you here. I love these questions. So thank you as always for being in studio. You can find me throughout the week. We’re at yourwealth.com. That’s Y-O-U-R, Your Wealth. Have a wonderful rest of your day.

Disclosure [00:35:49]: Hey y’all, this is Mallory with the Retire Sooner team. Please be sure to rate and subscribe to this podcast and share it with a friend. If you have any questions, you can find us at wesmoss.com. That’s W-E-S-M-O-S-S dot com. You can also follow us on Instagram and YouTube. You’ll find us under the handle Retire Sooner Podcast. And now for our show’s disclosure. This is provided as a resource for informational purposes and is not to be viewed as investment advice or recommendations.

Disclosure [00:36:17]: This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. The mention of any company is provided to you for informational purposes and as an example only and is not to be considered investment advice or recommendation or an endorsement of any particular company. Past performance is not indicative of future results. Investing involves risk, including possible loss of principal. There is no guarantee offered that investment return, yield, or performance will be achieved. The information provided is strictly an opinion and for informational purposes only, and it is not known whether the strategies will be successful. There are many aspects and criteria that must be examined and considered before investing. This information is not intended to and should not form a primary basis for any investment decision that you may make.

Disclosure [00:37:04]: Always consult your own legal, tax, or investment advisor before making any investment, tax, estate, or financial planning considerations or decisions. Investment decisions should not be made solely based on information contained herein.