The internet wouldn’t lie to you, would it?
February 1, 2024
Welcome to The Retirement Tax Podcast, where hosts Steven Jarvis, CPA, and Benjamin Brandt, CFP, work together to bridge the gap between tax professionals, financial advisors, and their mutual clients to help reduce most people’s largest expense in retirement: taxes. Each week, they will dive into conversations around taxes, focusing on what you can truly control (instead of what you cannot) and how to set yourself up financially for your future.
In this episode your favorite “least boring” tax podcast hosts are back to sort out the truth on the internet. Sharing some recent tax articles they read, Steven and Ben dive into a specific example of when the internet gets it wrong and some general advice on how to make sure you know what is actually true online. This isn’t about dragging anyone through the mud, Steven and Ben both give examples of times they’ve gotten things wrong, but it’s important to commit to life long learning and always improving.
What You’ll Learn In Today’s Episode:
Read The Transcript Below:
All right. Welcome back to the Retirement Tax Podcast. I’m your humble co-host. As always, Benjamin Brand. Joining me as always is the mysterious Steven Jarvis. How are you doing?
Ben, I’m doing really good. I’m excited to be recording podcasts in the new year and really excited I get to see you this next week, so that’s always fun to get to spend time together in person.
That is always exciting to spend time together in person. Steven, our audience knows that you’re an international man of mystery. Maybe you could share with them what you did. That was interesting. That was 24 hours long recently.
Is this our first podcast since then? I did a 24-hour obstacle course race. It was just outside of Dallas, Texas, and there’s a new medal on my wall behind me for that race. It definitely checked a box of extreme epic adventure. I’m not sure I’ll do it again anytime soon. I was definitely in really rough shape by the end, but those are the kind of adventures I like. And so you always talk about living your best life and living your best retirement, and I’m just trying to get ahead of the game and start living some of my best life now.
Yeah, my Christmas break was nowhere near as physically exerting. I think my son and I played some VR boxing on the Medi quest that was as close as I came to running a 24-hour race, which I don’t think is very close at all. Well, that’s not what we came to talk about here today, Steven. What we want to talk about today is just because I heard something on the internet, does that mean that it’s true? And we have some, at least one specific example, but I thought we are in the business of creating retirement content. A lot of other people are as well, to varying degrees of accuracy. Where do we go for our facts? Where can other people go and how can we suss out if things are real or not real? Sometimes the barrier to writing an article online is non-existent, so let’s talk about it.
Yeah, there’s a lot of articles that people will send to me. I’ll get text messages and emails that’s like, Hey, Steven, did you see this? Is this right? And if it’s on someone’s blog or on a lesser-known publication, I usually don’t spend a lot of time on it. I’ve got kids, I’ve got a family. There’s no time in my day for me to fact-check the entire internet on taxes. But this most recent article that Ben actually you brought to my attention was on Kiplinger, which is a very well-known publication and puts out a lot of great stuff and really just speaks to the fact that these are complicated issues and content creation comes with this risk of being wrong. And so part of this conversation we’re going to have kind of speaking some truth to what should have been in this article is really not meant to be disparaging to the author. We’ve all been there before, but like you said, Ben, we want to just give our audience some resources, some thoughts on how we can remain skeptical, but also get good information off of the internet or off podcasts like this.
So step one should be kind of correct the record what the article was about. So I texted you this article. Somebody brought it to my attention, I think online, and it basically said, if you’re doing a Backdoor Roth, we need to keep track of each year’s contribution and the best way to do that, or in fact the way to do that is to open up a new account every year with that contribution because that’s really the only way to sort out each of those years. And then I assume the lesson is tracking your basis and things like that. Maybe I’m conflating a few things here, but maybe you could tell us, is that what we actually have to do? And if not, what would be a better way to do it?
The article very specifically said that basically the biggest drawback to Backdoor Roth contributions, which we’ve talked about on this show, is the fact that the way the author presented it was that you are required to open a new account every time you do a Backdoor Roth contribution. And their point was, so if you do this for 20 years, you now have 20 different Roth accounts to keep track of, which is just categorically untrue. You are not required to open a new Roth account every time you do a backdoor Roth contribution. There are some administratively challenging tracking requirements if you don’t have a system for doing this, but as long as you understand what needs to be reported and have a system for doing it, we can go through the backdoor Roth contribution process with relative ease, and we’ve talked about that on other podcasts. We can do a whole other podcast on it if we need to. We’ll talk about getting feedback and questions from our audience later in the show. But really my thought as I was reading this article was just how easy it is to get that information out there. And for as a consumer, how would you possibly know that that’s not true? You could be turned off of this strategy from this one thing you read and never come back to it because you’re like, geez, well, I don’t want 20 accounts. I don’t want 20 accounts either.
Yeah. So you could be dissuaded before you even start to say, well, this is just too complicated. The juice isn’t worth the squeeze. Now, if you haven’t been tracking, if you use any custodian that you’ve probably heard of, fidelity, Schwab, TD Vanguard, you’re going to be able to go back and look at your contributions to your Roth after the fact. So that in and of itself, if we didn’t keep good track, we could be able to resurrect that information on a fairly straightforward basis, right?
Yeah, absolutely. It is going to take a little bit, a bigger lift to go back and do it. We really want to keep track of it proactively if we can, but this is definitely in the right situation. Backdoor Roth can be a huge opportunity. It’s something I work with clients on regularly. I’ve actually recorded whole courses on it for financial advisors and really with that in mind, Ben, I’m going to have you go first. Other than texting me, I’m not going to give out my cell phone number on the podcast other than texting me, where do you go when you’re looking for new tax information to verify tax things that you read? What’s your resource?
My number one resource is texting Steven. I was going to give out your number, but now I know not to, so I’m going to redact that. My second one is Google. I Google it, and the first two results I usually get depending on how I Google is the IRS website, which sometimes is very straightforward, sometimes not. And my second favorite resource is just kitces.com, the Nerds Eye View blog. Now, I will say that that’s generally written for financial advisors or high-level DIYers. It’s not a two-paragraph answer, it’s a 7,000-word answer. I know Steven has written a couple of articles for the Kitces website. It’s not small, it’s not a weekend project. I don’t think it’s a multi, it’s just short of writing a book, I think from what I read. So those are kind of my two go-to IRS website and kites.com.
I’m a big fan of Kitces. That’s kitces.com. For those who aren’t familiar, Ben, like you said, I’ve actually written some articles one on backdoor Roth contributions actually just a couple of months ago. But you’re right, it’s a little bit heavy. And some of these areas can become good litmus tests for whether a DIYer wants to continue being a DIYer because unfortunately, there’s, I don’t have just a really great recommendation of here’s the easy-to-understand guide to doing taxes on your own. Big fan of Kitces. I spend a lot of time on the IRS website because it’s not user-friendly, but it is more authoritative. I’m going to guess that most of our listeners don’t want to spend their weekends reading the IRS’s website. I’d probably prefer not to either, but I am sort of expected to, and I do get a lot of good information from there. But Ben, really the challenge of getting that good information is a big part of why you and I do this podcast. It’s why you do your separate podcast that covers so many more things besides just taxes. It’s hard to find good information and good information that’s relatable and digestible and can be taken and put into practice by DIYers.
But people should be, I don’t want to say skeptical of what they hear online, but if something sounds too good to be true, you should have, in the military, we had a chain of command where you can send things uphill and get a more definitive answer or response. So you should have, if you read something online that says Backdoor Roth is not worth the juice, is not worth the squeeze, and you’ve got to open up 20 different accounts for 20 years’ worth of contributions, you should have a chain of command that you can run it up. So run that by, put that into Google IRS website kitces.com. Run it by, if you have a tax preparer, run it by them. If you have a financial advisor, run it by them. I would say for the most part, if you’ve got a good advisor, they’re going to be bringing you these ideas.
But if they’re not intimate with what your specific goals are, what you’re trying to accomplish, they might not guess that this applies to you, but you should feel like there’s an open line of communication if you do have a professional that you’re paying, or you can float them these ideas and say, Hey, I came across this. What do you think? So I don’t want to say skeptical, but run it up the chain of command. Don’t just grab the ball of a new idea and run with it. You want to do a little bit more due diligence. I think especially finding things online, like we said in the beginning, the barrier to entry to write an article online sometimes is very low.
I’m Okay with being skeptical. I think there some skepticism is warranted on a lot of online things. The other thing I would throw out there, go to retirementtaxpodcast.com. We have a Contact Us button. Send us, if you come across an article or a blog post and you say, Hey, wait, I was listening to Ben and Steven the other day, and what I’m reading here just doesn’t seem quite right. Send it our way. We’d love to talk about it on a podcast. We want to make sure that what we’re sharing is relevant and digestible for all of you. I like this idea though, of having a chain of command. You run it up. The other thing I would put in kind of what I think of as your order of operations, and we can use Backdoor Roth continuing to use that as the example is let’s see if we can figure out if this is relevant to us before we start spending more time on it.
And so even in the article, they do a decent job of explaining who this is relevant to. They give some criteria of here’s who might consider this strategy. And so if you find yourself saying, oh, wait, I’m already retired and I’m not really in that accumulation phase anymore. I’m going to skip over this 20 account thing and just move on, this probably isn’t relevant to me or my income’s at a level where I can just contribute directly to Roth, great. I’m going to skip over this backdoor thing and just do it the traditional way. So we can also try to screen for is this something I really need to spend time on or should I go spend more time with my kids?
Right? Yeah, I know where a lot of people would want to air in that equation. But yeah, that’s something great to think about. I’ve made mistakes on my show as well. People are kind enough to point it out to me. I could think there was something not that long ago about HSAs that I completely butchered, and I had some listeners kind enough to hold me accountable to say, Nope, you’re way off base. And I had to print the audio vision of print a retraction. So it happens to the best of us, and I consider myself to be the best of us.
And Ben, I’m not sure if I’ve admitted this on the podcast, but when it comes up, I have no problem owning. There’s actually a mistake in my book, the book I wrote a year ago, “Don’t Get Killed On Taxes”. This huge book with all these tax concepts on it, and our editor doing a fantastic job helping us with grammar, made a slight change that I didn’t catch when I was doing my technical review. And it basically says in one of the chapters that you can deduct gifts to family, which is not true if you’re making cash gifts to your family. That is not deductible. It’s also not taxable for them, but just that one little word and I’ve got a mistake in my book, and if we get around to doing a second edition, we’ll make sure that gets corrected. Yeah, but I think it’s a great point that we’re not doing this to drag anybody through the mud. It’s just a recognition that these are complicated and nuanced topics. We got to make sure that before we apply something in our own life, we’re really doing our due diligence.
Would it be immature for me to admit that the reason I texted you the article is because it was written by a CPA and not a CFP?
No, it’s not immature at all because I immediately noticed that they had a law degree and a CPA, so then it’s just that much more fun for me.
Right? Nobody’s perfect. I guess nobody’s perfect.
Been another article that I’ve been sent several times for me, and I spent a lot of time on numbers, so I probably have a little bit more of a tuned-in radar to when things don’t feel quite right. But this article was talking about what they called forgotten 401Ks, where the idea is, and I know this happens in practice, someone leaves an employer for a new job and forgets to roll over their 401k or do something proactive with their 401k. And so they’ve left behind this money, and in the article buried way down in the footnotes, they did explain how they came up with the number, but it doesn’t pass the straight-face test at all. And in the article, they claimed that there was $3.1 trillion with a T of forgotten 401Ks. And so then I saw financial advisors in particular all over using this almost as a scare tactic to create this real sense of urgency for people that, Hey, you need to run out and find your forgotten 401Ks.
Here’s this gold mine that you’ve left behind, and now this is going to save your retirement. Go find your forgotten 401k. And the first time I saw this, something didn’t feel quite right to me, and so again, I spent all sorts of time on this. So I started digging and found some of the reports on this because my very first question Ben, was, well, wait, how much is there in 401Ks altogether, which I did not know off the top of my head. At the end of 2022 in the US there was about $8 trillion total in 401Ks. And so by that math, according to this article, creeping up on half of all 401ks were allegedly forgotten, which again, that doesn’t pass this rate face test. Were they trying to be malicious or deceitful on purpose? No, of course not. They just got a little carried away trying to make their point. But it reinforces that, again, just because something sounds fancy or official, we’ve got to take those extra couple of steps to say, wait, can I verify whether this is accurate or whether I need to do something about it?
Yeah, that’s interesting, that 4 trillion, it kind of jumps to some conclusions as well. I mean, there are legitimate reasons to leave behind a 401k. I was just talking to someone in the previous hour. They were 53 and they were looking to retire, and so we talked about 59 and a half and 55. There are sometimes legitimate reasons why you would want to leave something behind in your 401k even if you don’t work there anymore because there’s something really strategic that we’re trying to do. Or maybe you just really like the low-cost options or investment performance, or there’s the stable value fund that you really like, or you’re planning to go back to work there someday. I mean, there are a lot of reasons why you would forget your 401k, forget – meaning, just leave it behind. But that’s interesting. Sometimes you also have to think about is there a reason, kind of a hidden reason why somebody might write this article.
For example, in the article we originally started talking about, they alluded to a different way that might be less complicated to have tax-free money in retirement, and I believe that was life insurance. The backdoor Roth is too complicated, so you should buy life insurance as an option. Now, I can’t think of anything more complicated than life insurance and annuities. If you look at a perspective, often there are hundreds of pages long, which tells me that they’re extremely complicated. Maybe not complicated to sell if that’s what you’re into, but sometimes you got to wonder, is there an ulterior motive? I guess that’s the term I’m looking for for some of these articles. You’ve got to put on your BSS detector.
Yes, and then update your BS detector regularly. And again, I try to assume the best or try to assume positive intent with what people are doing. Life insurance has its place. I would agree with you that if we’re going to rank complexities of things, anything that comes with hundreds of pages of prospectuses, which all insurance products do, that’s not going to rank very high on my list of low-complexity strategies. Going back for just a second to your comment about reasons to leave a 401k behind, totally agreed there, and I think it reinforces what we talked about real often on this show, which is, at the end of the day, we need to have a strategy that’s proactive and specific to our situation. It’s so much easier to talk about broad strokes and rules of thumb, and everyone should always, in fact, we did an episode not too long ago about always and never. We’ve got to take the time to apply this stuff to our specific situation if we really want to have good outcomes.
Alright, so what should we say for action items? Step number one, be a lifelong learner. Always be out there, especially if you’re doing this yourself. Be consuming content all the time around areas of retirement planning, financial planning, areas that you’re interested in, but be a bit skeptical. The more name brand, the publication, maybe a little less skeptical. If it’s Jim’s retirement blog, maybe we want to be a little bit more skeptical, but we’re always looking for new ideas. We’re not trying to be judgmental. Then running up the chain of command. If there’s an idea that you think might apply to you, take it to the next best source. So for us, that is the IRS website or that’s kitces.com. You might also have a CPA or a CFP in your chain of command, run by them. And then once you’ve done the due diligence, then implement this new idea. Don’t get struck by the shiny object syndrome where I see a new idea, I grab the ball and run with it and hope the IRS never checks. That’s not a valid strategy long term.
Hope the IRS doesn’t notice is not a valid strategy, especially when we’re talking about tax planning, but really financial planning in general. Ben, I think you’re spot on. We’ve got to take that extra step and find some way to confirm what we’re reading before we just get our expectations to laser it in on this new idea we’ve never heard of before. That little dose of skepticism will do us a lot of good in the long run.
I love it. Well, Steven, any parting thoughts for us today?
Ben, I’m looking forward to hearing from our listeners. Again, retirementtaxpodcast.com. Send us your articles, send us the things that you’re skeptical of. We’d love to be able to weigh in and be part of your chain of command.
That sounds fantastic. All right, well, until next time, don’t let the tax man hit you where the good Lord split you.
Steven (Disclaimer) (17:25):
Hi everyone. Quick reminder before you go. While Ben and I feel very strongly about the information we’re sharing on this podcast, it is for educational purposes only and should not be taken as specific tax, investment or legal advice. You need to make sure that you are working with a professional to evaluate how these concepts apply to your specific situation before you take action.