August 04, 2022

The Listener Question I’ve Never Been Asked, Ep #109

22 minutes

In this special listener question edition of the Retirement Made Easy podcast, I’ll cover three amazing listener questions plus a bonus question that I’ve never been asked before: Should you sue your financial advisor? Tough question! Listen to this episode to hear my answers!

Remember, you can submit your questions at RetirementMadeEasyPodcast.com!

You will want to hear this episode if you are interested in...

[2:54] Ask me a question at RetirementMadeEasyPodcast.com!
[4:18] Question #1: Can you stop or suspend social security?
[7:28] Question #2: How do tax payments work with an inherited IRA?
[11:57] Question #3: Pay off your house or increase 401k contributions?
[16:31] Question #4: Should you ever sue your financial advisor?

How do tax payments work with an inherited IRA?

Sue recently inherited her dad’s IRA and stocks. What are taxes going to be like this year? Will she have to make mandatory withdrawals from the IRA? Sue plans on working five more years and doesn’t want to get killed with taxes.

The rules for inherited IRAs changed after January 1st of 2020. Once you inherit an IRA, the rules say that you have 10 years to empty the inherited IRA. At the end of the 10 years, the money has to be completely removed and taxes must be paid. However, there is NO mandatory annual distribution.

If you have a 401k through an employer and you’re contributing $10,000, you could still contribute $17,000 to the 401k. You could take a distribution from the IRA and increase your 401k contribution by the same amount. The tax situation would be a wash.

What do I recommend? What should Sue do with the inherited stocks? Listen to learn more.

Pay off your house OR increase 401k contributions?

Should you increase the money you put in your 401k or put more toward your mortgage? This particular couple I spoke with stated that they were 8 years away from retirement. I was looking at their 401k statement and their mortgage statement and asked them this question: What other debt do you have?

Turns out they had three other loans: One for their SUV, one for their solar panels, and a 401k loan (at an interest rate of 5.5%). I’m a Dave Ramsey Smartvestor Pro. My answer? They need to pay off the 401k, SUV, and solar panel loans first.

Then I did an analysis to find out if they were on track for retirement. Sadly, they weren’t on track to retire in 8 years. I found that it would be closer to 12–14 years down the road before they could afford to retire.

Should you ever sue your financial advisor?

This particular person’s financial advisor had recommended a speculative investment that was very high-risk. This couple wasn’t at the stage in their lives when they should be taking risks. So when this investment failed, a sizable portion of their portfolio went belly up. This man could lose everything depending on how his bankruptcy proceedings play out.

You can go to BrokerCheck and see the history of your advisor and find out if they’ve ever been sued. If they have been, you can read through the suit and find out what they settled for. If they’ve been sued multiple times, find another advisor. I would NEVER have recommended this illiquid investment choice to this man. So what should he do? Listen to hear my full thoughts!

Resources & People Mentioned