This Faith in Finance podcast is underwritten in part by Praxis Investment Management. Since 1994, Praxis has offered investment products designed to meet the practical needs of everyday investors while supporting positive change through impact strategies that go beyond screening. Guided by faith values, Praxis strives to make a positive impact on the world. Learn more at PraxisInvests.com. Yeah.
How well do you really know your IRA? I'm Rob West. An individual retirement account can be a helpful tool for long-term saving, but like any financial tool, it needs to be understood and used wisely. Today we'll walk through a few common misunderstandings and maybe clear up some confusion along the way. Then we'll take your calls at 800-525-7000.
This is Faith in Finance, biblical wisdom for your financial decisions. Proverbs 18:15 says, An intelligent heart acquires knowledge, and the ear of the wise seeks knowledge. That's a good word for every area of life, including how we manage money. As stewards, we don't want to make financial decisions simply because an account is popular or because someone told us we ought to have one. We want to understand the tools available to us and use them in ways that reflect wisdom, patience, and trust in the Lord.
So, today, let's take a short IRA pop quiz. Don't worry, no grades, no pressure, just a few true or false questions to help us think more clearly. Question number one. You can contribute to an IRA even if you already have a retirement plan through your employer. True or false?
That one's true. You can contribute to a traditional or Roth IRA, even if you also participate in a 401k, 403b, or other workplace plan. In 2026, the total amount you can contribute to all of your traditional and Roth IRAs combined is $7,500 or $8,600 if you're age 50 or older.
Now, you'll need enough taxable compensation to support your contribution, and income limits may affect whether you can deduct a traditional IRA contribution or contribute directly to a Roth.
So, yes, you can have both, but know the rules before you contribute. All right, question number two. An IRA is an account that holds investments, not an investment by itself. True or false? That was also true.
An IRA is more like a container. Inside that account, you may have mutual funds, ETFs, stocks, bonds, money market funds, or other options, depending on what your custodian makes available. That distinction matters.
Sometimes people say, well, I bought an IRA, when what they really mean is I opened an IRA and invested the money. The IRA is the account. The investments inside the account determine how the money is actually working. And there are limits. IRA funds generally cannot be invested in life insurance or collectibles.
Certain precious metals may be allowed if they meet specific IRS requirements and are held properly.
Something called self-directed IRAs can open the door to more specialized investments, but they also come with added complexity and risk. All right, let's get to question number three. Your will determines who receives your IRA, regardless of the beneficiary listed on the account. True or false? That one's false.
Like many financial accounts, an IRA allows you to name beneficiaries. When you die, those beneficiaries generally receive the account directly outside probate. And in most cases, the beneficiary designation controls, even if your will says something different. That's why it's important to review your beneficiaries after major life changes, marriage, divorce, the death of a spouse, or the birth of a child. Stewardship includes making your intentions clear.
Question number four. Traditional IRAs are subject to required minimum distributions. True or false? Well, that one's true. Traditional IRAs are subject to required minimum distributions, or RMDs.
In general, you must begin taking them by April 1st of the year after the year you turn 73. after that first year annual RMDs are typically due by December thirty first. If you don't take the required amount, the penalty can be twenty five percent of the amount not withdrawn, though it may be reduced to ten percent if corrected in time. Roth IRAs are different. They don't require distributions during the original owner's lifetime.
Contributions are made with after-tax dollars, and qualified withdrawals may be tax-free later. But remember, retirement accounts are tools, not ultimate security. Our hope is not in an IRA, a pension, a 401k, or a balance sheet. Our hope is in Christ. All right, well, how did you do?
The goal isn't to become a retirement expert overnight. The goal is to grow in wisdom. An IRA may be one piece of a wise financial plan, but the deeper question is always this: Am I using what God has entrusted to me in a way that reflects faithfulness, generosity, and eternal priorities? By the way, if you want to explore all of that further, check out my new devotional, Our Ultimate Treasure: a 21-day journey to faithful stewardship, when you visit faithfy.com/slash shop. Your calls are next, 800-525-7000.
We'll be right back. Money always seems to ask for more. More income. or savings. More security.
But what if the better question is, how much is enough? This Faith Phi Field Guide isn't just a book to read. It's a practical guide that helps you prayerfully answer that question for your own life. one step at a time. Order your copy of How Much Money is Enough today at faithfy.com/slash shop.
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Well, we've got some lines open today. We're ready to hear from you. The number to call is 800-525-7,000. That's 800-525-7,000. You can call right now.
The team is standing by, and we would love to tackle your question today. Let's go ahead and dive into those phone calls here in just a moment as we begin to apply biblical wisdom to your financial decisions. Because here's what we understand: that as you manage money, there are going to be questions that come up along the way. And I know you want to be found faithful as a steward and use sound financial wisdom as you make decisions, but we always want to do it in light of biblical wisdom as well, understanding the role of money in our lives and that money should reflect our values. The way we handle it should be a clear indicator into what our priorities are and where we've placed our trust.
And tell a story about what's most important to us. We'll help you do that as. And we answer your questions today. Again, that number 800-525-7000. Let's begin in Akron today.
Rhonda, you'll be our first caller. Go ahead. Hi, Rob. Thank you. I am 68 and my husband is 71.
We're both retired and we have about 500,000 plus in investment. Our financial advisor, we have a $1,000 mortgage left with 10 years left to pay at 2.75 interest. And a car loan of 30,000 left of 4.99 interest. Our financial advisor, we wanted to. withdraw the money, the funds from our investments to pay both off.
And our financial adviser suggests that we don't do that because the tax rate would be like thirty seven thousand dollars, he said. And he said to do a equity home equity line of credit And pay it to use that money to pay them off and to make a one. annual payment a year from our investments. I've never heard of this. Hmm.
Yeah. Let's talk through this. I don't love the sound of it, but let me just clarify a few things.
So, your mortgage is $100,000. What is the interest rate? 2.75. 2.75 Correct.
Okay. And then in addition to that, you uh you said you had a car loan and what was the interest rate on that? 4.99.
Okay, so 4.99 on the car, and that one is at 30,000, correct? Correct. And then what's the total of the home repairs that you need?
Well, what the advisor is telling us to do is. Instead of withdrawing, we wanted to pay the mortgage and the car off, and we wanted to withdraw it from our investments. And he said he wouldn't advise us to do that. Instead, open a equit home equity line of credit and pay them off with that. Yeah.
And pay an annual payment. Yeah. Okay. And make the annual payment from the the investments. Is that right?
Yeah. He said your tax rate would be much lower. Yeah. And what is the total of the repairs, the home repairs that you have, or renovations? No repairs.
No repairs. We're just wanting to pay off the yeah, pay off the mortgage in the car.
Okay, got it. Yeah, so at the end of the day here, when we look at this, I mean, with those numbers, I wouldn't be in a hurry to pay off a 2.75% mortgage with a HELOC. You're not going to get a rate anywhere close to that. You're going to be, you know, up in the sevens and you'll have a higher rate as well on the car loan.
So we're replacing low interest rate loans with something higher.
Now, the first mortgage is obviously collateralized by the home, so that wouldn't change. But the car is only collateralized by the car itself.
Now we're tying both of these. To your home, which is not good. And we're raising the interest rates.
Now, I assume, you know, do you guys itemize your taxes right now? No, we're not it no, we don't either. Yes, so you take the standard deduction like most people do. And what type of investment account are we talking about? Is it a retirement account or a taxable account?
You know, I knew you'd ask me. I'm not very knowledgeable about what type of accounts they are. I just know that they're not at risk Uh This is something that my husband handled. Yeah, that's okay, but you don't remember if it's an IRA or something close to it? Gosh, I don't.
I really don't. Yeah. All right.
Well, you know, at the end of the day, I'd love to understand why he's recommending that because, you know, perhaps it's he doesn't, it's these are taxable investments and he doesn't want to trigger capital gains by selling taxable investments that have appreciated. You know, perhaps he doesn't want to take withdrawals from a retirement account that would increase your taxable income, you know, if you're on Medicare or something like that. Or he expects the investments to outperform over time. I mean, those could be legitimate planning considerations, but they need to be weighed against the certainty of paying a higher variable interest rate. And even though you're not feeling the effects of that debt service, to your point, because he's suggesting that you pull it from the investments, I just, it doesn't compute with me.
I mean, so I would ask him to walk you through the math. and show why borrowing at today's rates Is expected to produce a better outcome than just simply keeping your existing mortgage and just paying on these out of current cash flow and enjoying these low interest rates while you're doing it. If there's something related to tax savings or investment concerns, I'd want him to lay out those assumptions clearly. I mean, the only other reason he wouldn't want you to do it is because he's charging a fee. I don't want to insinuate that there's a, you know, any kind of attempt to just pad his own pocket, but there's no incentive for this advisor to encourage you to take $150,000 out because that's now $150,000 he can't charge fees on.
That may not have any bearing on his recommendation, but if it's not that, I'd want him to lay out those assumptions and show you why increasing these interest rates with a home equity line of credit has any reason to make sense.
Okay, yes. I understand that.
Okay. And then my next question is he's also recommending that we do a trust. Why would we need one? We have everything handled, wills, final arrangements paid for. Why would people need trust?
Yeah. So if he's recommending a trust, it's probably for estate planning reasons. And essentially, the primary reason that somebody would have a revocable trust rather than a basic will is they want to avoid probate.
So you can transfer your assets, personal property and the home and your other assets that don't have a named beneficiary. You can transfer them more efficiently. You can also ensure that the assets are managed if you're incapacitated. Remember, a will only goes into effect at your passing, but with a trust, your trustee or successor trustee could step in if you're incapacitated for some reason, or if you don't want everything to go out at one time. And you wanted, you know, let's say certain assets to be passed off to heirs at age 20, 30, or 40, or when they graduate college.
Something like that could be done with a trust versus a will. But apart from that, a will is, I mean, excuse me, a trust is not necessary. It's only if you want some of these added features like the ones that I mentioned. Rhonda, I hope that gives you some things to think about. And perhaps the next step is to go back and just ask him to clarify the reasons for both recommendations.
And if I can help further, don't hesitate to call.
Well, folks, still a lot more to come here on Faith and Finance.
So be sure to get your calls in. Lines are filling up, but we've got room for you. The number 800-525-7000. We'll take a quick break and then be back with much more just around the corner. Again, that number 800-525-7000.
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For licensing information, visit NMLSconsumerAccess.org. Great to have you with us today on Faith and Finance. I'm Rob West. We're taking your calls and questions today. I've got room for you.
If you have a question, call right now. 800-525-7000. Let's go back to the phones. Let's see. We'll head to Joy, and Joy is in Chicago.
Go right ahead. Yes, thank you for taking my call. And my grandson is moving to Bali. And I'm just wondering, would it be better if he sends the money he makes home or start a bank account there? Mm.
Yeah. How long is he planning to be there, Joy? two years, he has a limit. His company will only say two years.
Okay. Yeah, so if he's planning to return to the U.S. in two years or less, it's going to be wise to keep. A good bit of his savings in the U.S. This avoids having all of his assets exposed to the Bali banking system or currency, and that's going to make it easier to pay U.S.
bills. Or invest for the future. He's probably just gonna want enough money in Indonesia just to cover living expenses and maybe a small emergency fund while he's there. But I would consider having him transfer excess savings beyond his living expenses and an emergency fund back to the US periodically rather than letting the large balance accumulate overseas. Thank you so very much.
Yeah, you're welcome. Yeah, absolutely. It sounds like a great experience. I think he needs to check into the exchange rates and the transfer fees before moving the money. And, you know, he's just got to remember, as a U.S.
citizen, he's going to need to report and pay U.S. taxes on his worldwide income, even while he's living overseas, though there are some tax credits and so forth and exclusions depending on his situation. But I think the big idea here is just keep enough money locally there in Indonesia based on what he needs to live, but don't feel obligated to keep all of your savings overseas. I think the bulk of it should stay here. And, you know, these reporting and tax rules can be pretty complex.
So it'd be worth him connecting with a CPA or a tax professional who really specializes in expat taxation before he makes any major decisions. But, Joy, thank you for calling. Let us know if we can help further. Let's go to Indonesia. Indiana, Greg, go ahead.
Hi, Rob, love the show. Thank you. I have a question for you about retirement.
So I'm currently sixty one. And uh I'd like to retire in a couple of years. I'd be sixty-three and my wife would be sixty-one. And um Right now, our portfolio is about eighty percent in pretax investments, so IRAs in my four hundred one K, and we have about twenty percent in Roth IRAs. And based on our Living expenses and how much we're going to have to pull from our portfolio every year.
My advisor is basically having us pull from the pretax accounts first. And if we do that, then we're going to be over the ACA threshold to get any subsidies.
So I'm trying to figure out the best way to pay for health care. I'm wondering if I should consider like a Roth IRA conversion or some way to Lower that. Um, ma uh, what are they? Ma magi they call it, right? Yeah, the modified adjusted gross income.
Yeah, it sure does. You know, and this is exactly the kind of planning opportunity you want to think about before retirement. And the key really isn't managing the investments in the portfolio. It's managing taxable income, as you said, the modified adjusted gross income during the years before Medicare.
So since the ACA premium tax credits are based on income, the way you take withdrawals makes a pretty significant difference.
So if your portfolio is currently 80% pre-tax, 20% Roth. And taking all the withdrawals from the pre-tax will increase your MAGI and could therefore reduce or eliminate the ACA tax credits, I think, to your point.
So it may make sense to use a combination of pre-tax and Roth contributions to manage that taxable income because those qualified Roth withdrawals are not going to increase the ACA calculation. A Roth conversion could be beneficial, but the timing is important because the conversion increases the modified adjusted gross income in the year it's done.
So, doing one during the ACA years could reduce or eliminate those premium tax credits for that year as well.
So, many people instead consider partial Roth conversions in the years before they retire while they're still working, only if you're in a favorable tax situation or after you reach Medicare at age 65, when the ACA subsidies are no longer a factor, although then you're just going to have to factor in the IRMA on the additional premium on the Medicare.
So, really, the timing depends on your current tax bracket while you're working, your expected retirement income, your long-term goals, and then future RMDs.
So, I wouldn't automatically convert now just to qualify for the subsidies. I think the better approach is probably to work with, and maybe you've already got this, a tax-savvy financial planner or a CPA to project your income over the next several years and coordinate those withdrawals and any Roth conversions so you balance current tax savings, ACA credits. future RMDs and then the Medicare Irma and try to find the sweet spot between all of it. You're going to have to make some assumptions because we don't know future tax rates. But the value of those ACA subsidies can be substantial.
So it's worth running the numbers before you make any conversions. Right, right. That's not complicated at all. No, not at all. Yeah, I mean, it's just a day in the life, right?
Right, okay. Yes, and I guess the other thing that I keep thinking about is they say that you should keep your Roth accounts for later in your retirement years and not pull from that. But I'm going to have to pull from that in order to get these subsidies.
So, again, it's balanced. It is. And I think that's where you've got to just run all the scenarios. And that's where a savvy financial planner could be great. And they have some pretty sophisticated software that can run all these scenarios for you once you plug in your current tax rate, your mix of pre-tax versus after-tax retirement accounts, your future expected income in retirement.
We can plug in current tax rates and then we can just run all kinds of scenarios. You're going to have to make some assumptions, but you can probably find that sweet spot and then you update it every year and react accordingly. Sure.
Okay. All right.
I appreciate it. Thank you so much. Absolutely, Greg. We appreciate your call today, sir. God bless you.
Folks, we so appreciate you being along with us each day, and we look forward to taking your questions and hearing your stories and being invited into your stewardship journey. It's our privilege to come alongside you. I couldn't do this without an amazing team behind me each day, certainly contributing to today's broadcast. Mr. Devin Patrick, our producer, handling our phone calls today, Pat Montague.
We're so thankful for Pat and also Mr. Jim Henry on research, plus the entire cast and crew here at Faith Phi. It's an amazing group of men and women committed to equipping you as wise stewards of God's resources. If you want to check out our work, you can learn more at faithby.com where you can give and download the app and check out some great content as well. Have a wonderful weekend and we'll see you next week.
Bye-bye. Faith in Finance is provided by FaithFy and listeners like you.
