Rob West Owning rental property is like ordering pizza with anchovies. It's not for everybody.
Hi, I'm Rob West. There's no question that a rental property can be a lucrative investment, but it's certainly not a passive investment like owning stock. Today, we'll explore the pros and cons of owning rental property, and then it's on to your calls at 800-525-7000. That's 800-525-7000. This is Faith and Finance on American Family Radio … biblical wisdom for your financial decisions.
Okay, my analogy may have been a bit extreme. Not many folks like anchovies, and probably a whole lot more would like to own rental property someday. In fact, we've been getting a lot more calls about it recently.
But my point is that owning a rental property is not for everyone. You have to know your limitations. Do you have the right temperament to be a landlord? You have to be actively involved with a rental property, or pay someone else to do it. We'll get into that, but first, let's look at the pros of being a landlord.
First, there's the income stream. A rental property provides rental income. That's the whole point. Now, if you're carrying a mortgage on the property, it will eat up your rental income, and it goes without saying that you don't want a negative cash flow, but having a positive cash flow is like having money in the bank, literally.
Then there's the appreciation. Homes almost always increase in value when you sell a rental property. You'll probably make a nice profit, but keep in mind that it may be subject to capital gains taxes.
Next, there are tax breaks. The IRS allows you to deduct maintenance and improvement expenses and depreciation. So, for example, you can deduct insurance, mortgage interest, and lawn maintenance. When deducting for depreciation, understand that it will reduce your cost basis, meaning you'll be liable for more capital gains taxes when you sell.
Here's another pro. Let's say you buy a beach house to rent out on a seasonal basis. You can use the property yourself for 14 days a year, or 10% of the number of days you rent it out, and still deduct your expenses.
Oh, and one more: you may already own a rental property. By that I mean you could rent out part of your house, such as a garage or basement, you'd get the rental income and be able to deduct a portion of your mortgage interest and other expenses.
So there are plenty of pros to buying a rental property, and that's why a lot of people do it. But what about the cons of owning a rental?
Well, first, there's often a huge upfront investment cost if you don't already own the property. Not many people can afford to do it, so there's probably a mortgage involved either when converting a principal residence to a rental or buying one to start out as a rental. That means you must charge enough rent to cover the mortgage plus additional expenses. Will you still be in the black?
Next, there's the lack of liquidity. Money in your checking account is considered highly liquid. Money tied up in a rental property is considered highly illiquid, meaning you can't get to it quickly or easily.
You also have exposure to events you can't control. You must pay taxes, and you must have adequate insurance on the property, but you can't prevent increases in those costs. Another example of that is the neighborhood may decline, making it more difficult to rent out your unit and negatively affect appreciation.
You may have difficult tenants who are late with the rent or don't take proper care of your investment, even if you have a security deposit. It doesn't take much to do more damage than a security deposit will cover.
But even with considerate tenants, you still need to keep the property in good repair. There will be midnight calls about broken water pipes and toilets that won't flush. Will you grab a tool bag and head over, or will you hire a management company to do that for you? That will cost around 10% of your rental income.
The final con is actually having to be a landlord again, unless you pay someone else to do it. You have to find and vet prospective tenants. Sometimes you have to be firm with folks when they're habitually late with rent or don't pay at all. Do you have the stomach to evict someone? Of course, you want to help a tenant who's having a temporary problem, but can you be firm when it's necessary?
These are all things you must consider if you're contemplating being a landlord. It's a big decision, so don't make it alone. Of course, bring God into the discussion in prayer. Ask Him to show you the path you should take. James 1:5 reassures us: “If any of you lacks wisdom, let him ask God, who gives generously to all without reproach, and it will be given him.”
All right, your calls are next. The number 800-525-7000. That's 800-525-7000. And by the way, you can call with your questions. We'd also love to hear your testimonies as well. How is God working in your financial life as you've applied His principles to your stewardship?
I'm Rob West, and you're listening to Faith and Finance on American Family Radio … biblical Wisdom for Your Financial Decisions. We'll be right back after this break.
SEGMENT 2
Rob West Well, so thankful to have you with us today on Faith and Finance here on American Family Radio. I'm Rob West. Well, we're going to be taking your calls and questions throughout the remainder of the broadcast. So now is the time for you to get in on the conversation. Our team is ready for you. We just need your calls at 800-525-7000. Again, that number 800-525-7000. That number, by the way, is a special number. It goes all the way back to the late Larry Burkett. That's right, during his program, Money Matters, he was using the same phone number and we're so delighted that it's carried through Larry into Howard and now what a privilege to sit in this seat and be able to encourage you in your stewardship journey each day and you're calling that same number to ask your questions around giving and saving and spending. And so whatever's on your mind today, we would love to hear from you. We're going to dive into those questions here in just a moment. Lines are open, you'll get right through: 800-525-7000. You can call right now.
In the news today, well, what else? We're thinking about waking up, understanding the new reality of the balance in power in Washington. And at least at the moment, Wall Street is rallying after Democrats won control of both chambers of Congress in yesterday's midterm elections. Futures tied to the Dow Jones surged more than 1,000 points before the open. Now, after the open, we're up 1200+ points at the moment. The Nasdaq surging as well, up a full 2.6%, leading the way, the Dow Jones up just more than 2% as the market is really processing the impact and the prospect of divided government with Democrats controlling Congress and President Donald Trump remaining, of course, in the White House. Analysts say the new balance of power could make sweeping changes to tax and spending and regulatory policies, of course, more difficult, potentially reducing uncertainty for investors. However, the election results also raise questions for certain industries, technology companies, particularly those investing heavily in artificial intelligence, could face increased regulatory scrutiny. Treasury yields also declined as investors considered the possibility of more restrained federal spending. We'll certainly keep an eye on that.
Despite the rally, financial analysts caution that political developments are only one factor influencing market performance. Corporate earnings, inflation, and Federal Reserve policy will continue to shape the economic outlook. As Bob Doll has reminded us, reminded us over the last several weeks that, you know, the year following the midterms, at least historically speaking, is pretty good to the upside in the markets. Usually there is a transition. I mean, we saw a pretty sweeping move yesterday toward the Democrats. But that's not uncommon. We tend to see those and that has happened several times even in the past, you know, a couple of decades. For Christ followers, this is a great reminder that we can't predict what tomorrow will bring. Ecclesiastes 11:2 reminds us: "Give a portion to seven, or to even eight, for you do not know what disaster may happen on the earth." In other words, we don't put all our eggs in one basket. Elections and markets and economic conditions can surprise us, and they often do, which is why diversification is an important part of wise stewardship. We just don't know what will happen. Only the Lord knows the future and so part of good stewardship is spreading our risk and we see that perform quite well in periods of uncertainty, and those seem to come more often than not.
All right, we're taking your questions today. The lines are filling up, but we do have some open at the moment. 800-525-7000. You can call right now. Let's dive in. We're going to begin in Missouri today. Dennis, go ahead, sir.
Dennis Well, good morning, sir. I appreciate your program and your ministry and I hope you're doing well today.
Rob West Thank you, sir. I am.
Dennis I appreciate that. I got a couple of questions. I'm in my 70s. I'm retired. And I was in prison for a while, so I've had to restart over my savings and I've got about $11,000 in my savings. I've got a good income. I don't have any... I have only one bill I have for data is helping my daughter pay for her car. And my question concerns... Is it good to have a nest egg for savings? Like, I got a... let's say, a safety deposit box right now that I got a safe in my house. Should I keep cash around my house? That's one question. And the second one is... if my memory will hold on... Oh, my word. I got dementia, so things kick in fast.
Rob West No worries, Dennis. Let me give you the response to the first question, and perhaps you can recall the second. You know, I would say keeping a modest amount of emergency cash at home is wise. Certainly not large sums. I'm glad to hear you have a safe. That would be really key. Generally, we talk about an emergency savings account. I would use a high-yield savings account at a bank or a credit union for that. A lot of our listeners use Ally Christian Banking, and they're paying 4% on their money market up to $100,000. That's a great option for somebody to have for their emergency savings. If you want to learn about that, you can go to faithfi.com/banking.
But you're hitting at another piece of this, which is, okay, beyond my emergency savings of three months expenses or, you know, in the retirement season of life that you're in, you know, maybe even somewhere between six months and a year, but that's in a savings account or a money market. I think the cash at home is really, you know, how many days do you want to be able to cover your expenses in the event of a disruption? Let's say there was a disruption in the banking system. Let's say there was a short-term impact to the grid that involved electricity or a temporary disruption in in the banking system that was localized or maybe even larger than that, maybe it was or isolated to your bank. On the low end, I think you'd want probably three days worth of expenses. On the high end, I'm thinking 14 days, so two weeks. So here's the thing: because of a major weather event or some other technological or electrical disruption, would it make sense to have two weeks worth of cash to cover your needs for two weeks? I think that makes sense. Put it in the safe, forget about it. It's there if you need it. And you know, you could weather that disruption. I think that's probably the right amount. There's some people that would say, no, I want to build my plan to to be able to have what I need in terms of food and water and supplies for somewhere between one month and three months. And I want the cash to go with it. Well, that would be up to you.
I think that's probably a little beyond what most people will do. I think somewhere between three days and two weeks is probably the right number. And then you could determine, you know, just based on what you spend in a month and reduce that to a daily amount and then multiply it out. That would tell you how much cash you actually need to have on hand. And I'd probably, you know, keep small bills, fives and tens and twenties in case, you know, stores can't make change. But I wouldn't keep thousands of dollars at home unnecessarily just because of theft and fire or loss, things like that. Not to mention, we're just not earning any interest on it. But is that helpful to you, Dennis?
Dennis Yeah, it is, in many respects. I'd already said, you know, I was going to I was going to sort of pull out a thousand and a couple of thousand and put in my safety... put in my little safe at home or the firebox is what it is. Yeah. But I think if I have them a couple of thousand, I could help somebody in the family out that that needs some cash.
Rob West I love that idea. Well, I appreciate your call today, Lord bless you, sir. Hey, we started the program today by talking about being a landlord and Paul and Julian have both been landlords, they're holding, they want to weigh in on that conversation. We'll get their thoughts right after this break. Stick around.
SEGMENT 3
Rob West Well, great to have you with us today on Faith and Finance here on American Family Radio. Lines are open, we're taking your calls today at 800-525-7000. You know, we started the program today by talking about whether you should be a landlord and just all that comes with, you know, having a rental property. We know it's not for everyone, trying to give you just some things to think about if either you're in that situation or you're considering it. And we've got a couple of callers here that have some real-world experience in this. We're going to get their thoughts on it, in addition to taking your financial questions today. Let's head to Texas. Paul, what are your thoughts on being a landlord?
Paul Uh, yeah. So, first thing I would tell anybody is, uh, do your calculations mostly for what do you really think your cash flow is going to be? Uh, because, you know, uh, depends on how much equity you have in that property, so that, you know, do you have a mortgage payment? What are your taxes? And so, what are you going to net each month? And at a high level, what I sort of figured out, I was stuck with a property that in a bad market, so I just, rental was just an interim step, and seven years later I sold it at a loss, and was glad to be rid of it. Uh, one time here, I got a property by, uh, in the Dallas-Fort Worth area, by design, and, uh, unfortunately, uh, the second thing I want to tell anybody is if you're buying a property that you haven't lived in, house inspector, house inspector, house inspector, and go through it with a fine-tooth comb, because I got one that didn't point out that I had plumbing reroutes. And plumbing reroutes means slab leaks, and slab leak means thousands of thousands of dollars.
Yes. And one sprouted up. Uh, the good news is, uh, because I was in an area where values were appreciating, after all the aggravation, I still probably netted out like about $70,000. But in terms of the hours that I had to spend between tenants, uh, you know, it's, whenever every time I hear the word "passive activity" from the IRS, it's just I, I laugh. Almost minimum wage for, for what I, what I, uh, uh, spent on it. And so if you have one property, remember this: depending on your cash flow, a tenant can break or damage things much faster than the rental deposit can, uh, cover. So, you really need to spend a little money, like, you know, there was a, my insurance company had a free vetting service for both credit cards, uh, credit score, and criminal, uh, background checks. So, it's really a numbers game. Figure out how much money you've got in the home, what is your cash flow going to be, and like diversification, if you really had two to three, you can probably make it, 'cause every tenant's going to do something you don't like, and if it's all in one property, uh, and you run negative, you're going to, you're going to run negative.
Rob West Mm. Yeah. Wow, Paul. I mean, that's, uh, real-world experience there you're describing. You've obviously been through the trenches. Um, you know, just kind of looking back, uh, obviously other than learning from these, you know, mistakes that I think all of us can relate to, certainly the one about making sure you have a good inspector, uh, has it been overall a positive experience for you financially?
Paul Uh, the second one was a positive experience only because it was in the Frisco, Texas area, and it was, I got it, uh, during a little bit of a down dip, and then we had this crazy, uh, like the mid or like after 2010 where property values were just going through the roof, and that's how even after all that I went through and spending $4,000 to re-insulate the attic from rats, etc., I still netted out. So the one thing I would tell people: you know, look at the numbers, right? If you're, if you're going to go and get a property where you have a strong, strong belief that long-term it's going to be escalation and you want that to be an investment to cash out, well then, you know, you can run negative every year, and in the end, you know, if the equity's going up, then the, the house is your gold mine. But I'll let you explain to people, you know, the benefits of, of long-term capital gains, and on that, I just wanted to point out that depreciation, yeah, don't think of it as a magic deduction. It's nothing more than a tax-deferred loan, the way I look at it, when you go to sell the home. If you're going to die, then you don't care, but if you're going to sell the home someday, every dollar you depreciate is just more that you have to pretend that you gained in, in appreciation.
Rob West Yeah, well, that's a great point and a great reminder, and I think to Paul's point, at the end of the day, how much money will this property actually put in my pocket each month? That's part of how you analyze whether it's worth it. We calculate the rental income: how much rent can you realistically collect each month? We subtract all the expenses, and don't miss property taxes, and insurance, and maintenance, and repairs, and vacancy, and mortgage payments. And then we calculate our return: we take our annual cash flow and divide it by the total cash invested in the property. And, you know, are we looking for a 6% cash-on-cash return, or are we looking for something higher than that? I mean, ultimately, that's what it's going to come down to, but don't miss the work that's going to go in along the way and the importance of cash reserves. So Paul, really great comments. Thanks for being on the program today. Julian, you've been a landlord for 35 years, I understand. Go ahead with your thoughts.
Julian Yeah, can you hear me? Okay.
Rob West Yes, sir.
Julian Um, yeah, I'm actually working at one now. So the advantage is I get to listen to you when I'm, uh, working. So, uh—
Rob West Excellent!
Julian Yeah, uh, appreciate it. So yeah, just know you're going to be a social worker. Um, I could tell you war stories, getting involved in people's lives. Uh, you know, certainly presidencies under Biden and the COVID effects certainly hit us in the courts as well. Um, and getting help from local authorities, know that, uh, they have their hands tied sometimes on evicting squatters if there's no warrants or things like that that allow them to get into the home, you can't get into the home to get them out. Um, court eviction process is very long, expensive, and often, uh, getting your money back once you've been awarded the money—I mean, getting it awarded is half the, it isn't even half the battle.
Rob West Wow. Wow, those are, uh, really helpful. I'm sure a lot of people listening saying, "I was thinking about becoming a landlord, maybe not so much now." I appreciate your thoughts though, and thanks for being a regular listener, sir. We're up against a break. We'll be right back.
SEGMENT 4
Rob West Well, thanks for joining us today on Faith and Finance here on American Family Radio. We've got lines open, three to be exact. So if you have a financial question, call right now at 800-525-7000. Before we head back to the phones, let me remind you Faith and Finance is listener-supported. And one way you can support the ministry, if you're encouraged by it, you've found something helpful, is to consider becoming a FaithFi Partner. Partners are a huge part of helping us bring you this program every day because they support us either monthly or annually at a level that is really meaningful: $35 or more a month or $400 or more per year. And we ensure that you get all of the latest from FaithFi. We send you four issues of our magazine, Faithful Steward. We send you all of our new studies and devotionals. We're working on our new one that comes out right after the first of the year, Randy Alcorn's new devotional published through FaithFi. It's the first time he's done a 31-day devotional on money. He's wanted to do one for a long time. And we're so thrilled that he's publishing through FaithFi. And so we're going to be able to bring you that as a part of our partner program, his 70th book! Think about that. Published here, and I know it's going to be a real encouragement to you. But that's the kind of thing we'll mail to you several times a year, plus the magazine, plus ministry updates quarterly from me so you can celebrate what God's doing in our midst as lives are being changed. And if you'd like to be one of those partners, we have nearly 1,000—almost, well, we're about 50 away from hitting the 1,000 partner mark—we would be grateful. Just head to faithfi.com/give. That's faithfi.com/give. All right, let's get to as many calls as we can between now and the end of the program. 800-525-7000. Let's go to Arkansas. Carla, go ahead.
Carla Hi. Um, my question was, my husband and I—well, I'm fixes to retire at the end of the year. My husband is a self-employed barber, he's still working. And we do have some money in CDs, about $85,000. I have Fidelity with where I work, 401(k). But sadly, it's not where it should be because we've had to help adult children in the last few years and draw out money. So, I'm—we're at retirement, and we are a little concerned about, you know, retirement money. But um, now for sure, since the election didn't go our way, um, my husband, I mean, he's been talking about it, he wants like me to get this money out of the 401(k) and put it like in an IRA. And I'm just, you know, we're only talk—we're talking about, I'm ashamed to say, $60,000. Um, at one time it was $85,000.
Rob West There's nothing to be ashamed of. Okay?
Carla Well, it is to me when you work there so long. But anyway, um, he uh—so together, our savings right now is $152,000. Okay? And right now, like I said, we've got the CD, we got $85,000 in the CD, and it's drawing 4.16% at a credit union. And then the Fidelity, well, it comes, you know, it's up and down, and I've talked to them several times 'cause I want to make sure that I don't lose much. 'Cause it was 70, now it's back down to 67. And it was 85, and then years back when Biden won, I lost like $15,000. And I have not yet seen it go back up into the 80s. But anyway, so I guess he's telling me about an IRA, you put it in an IRA and you don't lose money anymore, and you can draw monthly, but you still are getting money. Uh, I don't really know what he's thinking. And when I call Fidelity to ask them what I should do, they just tell me to wait 'til the first of the year, 'cause I retire December 31st. But in the meantime, I don't want to lose—keep losing money.
Rob West Yeah, yeah. Well, I appreciate those questions. So a couple of thoughts: one related to the 401(k) versus the IRA, another related to the market and where we might be headed from here in light of the election. With regard to the account type, I think there's three things that are important to understand here. Number one is a 401(k) and an IRA are both retirement accounts. So moving money from a 401(k) to an IRA doesn't automatically protect it from market losses. What matters is—and this is point number two—is how the money is invested. So even if you just leave it right there in the 401(k), you can move it among the menu of investment options available to you into a more conservative mix of investments or a more aggressive mix of investments. They probably have money market funds. They probably have what are called stable value funds, or short-term bond funds. They could even have what's called a target-date fund, which gets more conservative as you get closer and closer to retirement. But you've got options there.
But the third is that a rollover to an IRA can make sense, but for other reasons. And mainly, it gives you more investment choices. So instead of the limited menu of investments in the 401(k), as soon as you get to the IRA, you essentially have unlimited investment options. But one is not more aggressive or more conservative—it's just the account type, and they're exactly the same with regard to them being tax-deferred retirement accounts. It's ultimately going to come down to which investments do you select, regardless of whether you're in the 401(k) or the IRA. Now, typically, you're not able to roll it out until you separate from service. Very few companies have something called an in-service rollover. It does exist, but it's not typical. So normally, you would leave it where it is, and then when you retire or separate from that company, that's the point at which you'd roll it out to an IRA. Why? So that you could have more investment options, and so you could hire an advisor to manage it for you. You know, under $100,000 would typically be below a minimum for advisors, but if you have all-in $150,000 or more, you know, you should be able to find an advisor that could take responsibility for it. He or she would start by getting to know you and your husband, what your goals and objectives are, your risk tolerance, your income needs—all of these issues would need to be explored before he or she would build a portfolio and deploy the investments.
Now, with regard to the market, here's what I would say: listen, I understand that, you know, yesterday perhaps didn't go for the way that a lot of our listeners here today would have liked and prayed for. And yet, we understand, you know, going back over the last 100 years, I mean, just about every decade has a major event that could have caused, you know, you or I to be very concerned about the future of the stock market. We know that with regard to midterms, this is not uncommon. Now, we could talk about the very specific reasons for this one, but this is not uncommon for us to see the House or the Senate or both move away from the sitting president at the midterms because usually, especially in the second term, about this time favorability is not positive, and so the country's looking for a change. And normally, in the year following midterms, the market does quite well. And we're seeing that today, I think, because one of the policies of the president was around these tariffs. And the bottom line is, it's inflationary, and there's a lot of people that are very concerned about those tariffs and the impact on our economy.
And I think what you're seeing the market react to today with the Dow Jones up 1,000 points is: number one, gridlock, so we're not going to see a lot of sweeping changes in one direction or the other, 'cause the president's already said he's got his veto pen ready. And number two, we're probably not going to see these wild on-again, off-again tariffs that the market really doesn't like. And number three, the Federal Reserve is still committed to getting inflation down, and we have a Fed chair that's committed to trying to get interest rates down as soon as he can based on inflation. So I think the better option for you is to stay invested, make sure it's the right investment mix that fits your portfolio and your risk tolerance and objectives. But that's the only way to outpace inflation so this money keeps growing. And findaccka.com is the place to go to find an advisor. Thanks for your call. We'll be right back.
SEGMENT 5
Rob West So thankful to have you with us today on Faith and Finance here on American Family Radio. We're taking your questions today: 800-525-7000. We'll be headed to Tennessee in just a moment, out to Virginia, but first Joe is waiting patiently in Indiana. Go ahead, sir.
Joe Hi, Rob. Thanks for taking my call. My uh, my sister, my 80-year-old sister, recently widowed, is pursuing Medicaid. Her income is just too small for the true cost of living. Unfortunately, she is just over the cut-off. In Michigan, it's 1,835, and she—her income is around 2,026. She only has about 2,000 cash on hand as well, which would fit the criteria. If she can be qualified for needing in-home care, the cut-off amount goes up to 2,982, and we're pursuing that because she has some legitimate medical needs, but they haven't been drawn up by a doctor to say just that. So right now, we're in limbo a little bit on whether or not she'll get qualified. If she gets qualified, when the money comes in—we're going to be having the sale of my mom and dad's house, and she'll get 1/6th of that, which is around 36k. That will definitely knock her off of Medicaid qualification, with the exception—I learned of a Medicaid-compliant annuity. If she can throw that money directly into an MCA, would that work, or do you think she'll get knocked off just because she's got 37k coming in?
Rob West Yeah, it could be an option. You have to be careful. Essentially, the 36,000 is going to count as an asset. So that's going to—when she receives those proceeds outright, that could put her over Medicaid's asset limit, depending on the program. The Medicaid-compliant annuity converts the assets into income, so instead of holding 36,000 in savings, she purchases an annuity that provides regular payments. But not every annuity qualifies, so that's why, you know, you've got to have a specific type, the Medicaid-compliant annuity, which meets the strict requirements, including it has to be irrevocable, meaning you can't change it or take it back; non-assignable; it's got to have the soundness from the actuaries; and it's got to be structured with appropriate payments and beneficiary provisions. Now, even if the annuity is not counted as an available asset, its payments may affect her income eligibility and require, you know, contribution toward care. So, I would have an elder law attorney review the situation. It's not guaranteed that even a compliant annuity is going to, you know, preserve her Medicaid eligibility. The state may have rights to, you know, remaining annuity proceeds. So you really need to get some sound counsel that includes, you know, looking at the state law for the state of Indiana, and really an elder care attorney is the one who's going to specialize in this.
Joe Okay. The in-home care requirement would be 2,982, and so she'd still fall underneath that if she gets an income from an MCA, just for your information. But the—if she doesn't qualify, should she instead set up an IRA with the 37k that's coming in and, or, and hold back a little bit of emergency fund as well and set the rest up in an IRA, or do you have a thought on that?
Rob West Yeah, so first of all, I would just say, you know, I think that's encouraging that, you know, for total monthly income including the annuity payments stays below Indiana's limit, then that could be a more realistic option, so I would certainly look at that. You've got to do the income test, which includes Social Security or pensions or annuity payments, other accountable income; then the asset test; then make sure the annuity meets the requirements; and then even below the income limit, she could owe a monthly contribution toward her care, so you'd need to just look at all of those pieces. In terms of, you know, an IRA, you know, I wouldn't recommend putting that into an IRA simply to qualify for Medicaid. First of all, IRA contributions require earned income, so if she's only receiving Social Security or pension income, she can't contribute to an IRA. You know, and there are, of course, annual contribution limits, so she wouldn't be able to put the whole thing into an IRA. This isn't coming to her as an inherited IRA, is it?
Joe The money is coming as a sale from the proceeds of a house, a sale of a house.
Rob West Okay, yeah. So because it's not already in an IRA, again, in order to get it in, she could only do up to the annual limit, and then she'd have to have the earned income up to that amount as well in order to qualify. And then the IRA doesn't automatically protect assets from Medicaid. You would have to, you know, again look at Indiana just to see how retirement accounts are treated. It may be that IRA balances are resources counted toward Medicaid eligibility. You'd just have to check on Indiana. So, you know, at the end of the day, I think you might be onto something with the Medicaid—or with the Medicaid-compliant annuity if it's properly structured, but I would—I would want an Indiana elder care attorney to approve that structure before you purchase anything.
Joe Good, good. Thank you so much for the info.
Rob West Absolutely, Joe. God bless you. We appreciate you walking alongside your sister in this. I'm sure she really values that. Let's go to Virginia. Robert, go ahead with your question.
Robert Good morning, Rob. If I continue to work at age 76, am I required to take a required minimum distribution from my 401(k), or is it deferred until I stop working?
Rob West Yeah, for a current employer's 401(k), generally you can delay required minimums until retirement if you're still working, so long as you own no more than 5% of the company and the plan permits it. There is not a working exception for a traditional IRA, and it does not apply the ability to delay RMDs to any old employer's 401(k)s. But if it's a current employer's 401(k), generally you should be able to delay that until you retire.
Robert All right, that sounds good.
Rob West Okay, Robert. Lord bless you, my friend. Thanks for being on the program. Let's round it out today in Tennessee. Casey, thanks for your patience. Go ahead.
Casey Hi. Hi, I'm—I'm 77, my wife's 69. We're in a—we've been married about 10 years, and we've got a blended family. So between us, we've got 13 kids, some of them adopted, you know? So we're trying to look at estate planning. She's got an old will she's got to get neutralized, and we got to make a new will, you know, all that stuff. And we have no idea how to—how to—how to put this, how to straighten this out. I've got about eight acres here in Tennessee with a nice house, and I really don't know how to distribute this, how to keep, you know—I want to set it up so that, you know, if something happens to us, you know, there isn't a war between the two families. You know, the questions like, what happens if I pass away, and then—then what happens when she passes away after me? How does that all get distributed, and vice versa? We don't know whether we should go to an accountant or to like a—an estate planning attorney. I looked up Kingdom Advisors; there isn't one within 100 miles of me, so... I don't really know where to go from here. We've got around—between an IRA and a—just general savings, we got around $80,000. So that's kind of where it's all at.
Rob West Well, it's a—it's a great question, Casey, and you're right: you do need an estate planning attorney, and potentially a trust, not just a simple will. The goal is going to be to accomplish two things: one, protect the surviving spouse, which is most often going to be your wife, although only the Lord knows, but I'm just talking on average; and then make sure both sides of the family receive the inheritance that you, as a married couple, intend. So here's what I would recommend: I'd start with an estate planning attorney, not an accountant. And I'd look for a Christ follower who's an estate planning attorney. Maybe you call your local church and connect with a pastor there and ask who is an estate planning attorney in the church. You know, you could ask some friends or family members for recommendations, but that's really what you need—someone who can structure the estate and address the property ownership. A CPA can help with the tax questions, but the biggest issue here is the estate planning attorney. The reason you'd want to consider a trust is, if you passed first, then a properly structured trust could allow your wife to continue to live on the property for the rest of her life and then preserve your intended share for your children, if that's what you want. And then you want to decide what happens together after both of you pass away. You could divide among the children, you could leave it to one child with compensation for the others, you could direct that it be sold and divided. You know, that's up to you, especially with assets that are brought into the marriage that were, you know, assets that were acquired prior to marriage, you know, when you were previously married. So I think at the end of the day, you've got to address the fact that one child might want to keep the land, another might want to sell, that can create disputes. So you've got to establish in the trust how decisions are made and how buyouts work, and I would also review how it's titled. So you would want to get with an estate attorney to think through all of that, and then ultimately document it. I'm going to send you a book called The Smart Stepfamily Guide to Financial Planning that will help you think through some of this. That's going to be our gift to you, Casey. And so stay on the line, my team will get your information. I hope that helps. God bless you, my friend. Faith & Finance Live is brought to you each day by FaithFi and American Family Radio. Big thanks to Taylor and Devon and Patty and Pat and everybody here at FaithFi. You can support us at faithfi.com/give, and then come back and join us tomorrow.
Rob West Owning rental property is like ordering pizza with anchovies. It's not for everybody.
Hi, I'm Rob West. There's no question that a rental property can be a lucrative investment, but it's certainly not a passive investment like owning stock. Today, we'll explore the pros and cons of owning rental property, and then it's on to your calls at 800-525-7000. That's 800-525-7000. This is Faith and Finance on American Family Radio … biblical wisdom for your financial decisions.
Okay, my analogy may have been a bit extreme. Not many folks like anchovies, and probably a whole lot more would like to own rental property someday. In fact, we've been getting a lot more calls about it recently.
But my point is that owning a rental property is not for everyone. You have to know your limitations. Do you have the right temperament to be a landlord? You have to be actively involved with a rental property, or pay someone else to do it. We'll get into that, but first, let's look at the pros of being a landlord.
First, there's the income stream. A rental property provides rental income. That's the whole point. Now, if you're carrying a mortgage on the property, it will eat up your rental income, and it goes without saying that you don't want a negative cash flow, but having a positive cash flow is like having money in the bank, literally.
Then there's the appreciation. Homes almost always increase in value when you sell a rental property. You'll probably make a nice profit, but keep in mind that it may be subject to capital gains taxes.
Next, there are tax breaks. The IRS allows you to deduct maintenance and improvement expenses and depreciation. So, for example, you can deduct insurance, mortgage interest, and lawn maintenance. When deducting for depreciation, understand that it will reduce your cost basis, meaning you'll be liable for more capital gains taxes when you sell.
Here's another pro. Let's say you buy a beach house to rent out on a seasonal basis. You can use the property yourself for 14 days a year, or 10% of the number of days you rent it out, and still deduct your expenses.
Oh, and one more: you may already own a rental property. By that I mean you could rent out part of your house, such as a garage or basement, you'd get the rental income and be able to deduct a portion of your mortgage interest and other expenses.
So there are plenty of pros to buying a rental property, and that's why a lot of people do it. But what about the cons of owning a rental?
Well, first, there's often a huge upfront investment cost if you don't already own the property. Not many people can afford to do it, so there's probably a mortgage involved either when converting a principal residence to a rental or buying one to start out as a rental. That means you must charge enough rent to cover the mortgage plus additional expenses. Will you still be in the black?
Next, there's the lack of liquidity. Money in your checking account is considered highly liquid. Money tied up in a rental property is considered highly illiquid, meaning you can't get to it quickly or easily.
You also have exposure to events you can't control. You must pay taxes, and you must have adequate insurance on the property, but you can't prevent increases in those costs. Another example of that is the neighborhood may decline, making it more difficult to rent out your unit and negatively affect appreciation.
You may have difficult tenants who are late with the rent or don't take proper care of your investment, even if you have a security deposit. It doesn't take much to do more damage than a security deposit will cover.
But even with considerate tenants, you still need to keep the property in good repair. There will be midnight calls about broken water pipes and toilets that won't flush. Will you grab a tool bag and head over, or will you hire a management company to do that for you? That will cost around 10% of your rental income.
The final con is actually having to be a landlord again, unless you pay someone else to do it. You have to find and vet prospective tenants. Sometimes you have to be firm with folks when they're habitually late with rent or don't pay at all. Do you have the stomach to evict someone? Of course, you want to help a tenant who's having a temporary problem, but can you be firm when it's necessary?
These are all things you must consider if you're contemplating being a landlord. It's a big decision, so don't make it alone. Of course, bring God into the discussion in prayer. Ask Him to show you the path you should take. James 1:5 reassures us: “If any of you lacks wisdom, let him ask God, who gives generously to all without reproach, and it will be given him.”
All right, your calls are next. The number 800-525-7000. That's 800-525-7000. And by the way, you can call with your questions. We'd also love to hear your testimonies as well. How is God working in your financial life as you've applied His principles to your stewardship?
I'm Rob West, and you're listening to Faith and Finance on American Family Radio … biblical Wisdom for Your Financial Decisions. We'll be right back after this break.
SEGMENT 2
Rob West Well, so thankful to have you with us today on Faith and Finance here on American Family Radio. I'm Rob West. Well, we're going to be taking your calls and questions throughout the remainder of the broadcast. So now is the time for you to get in on the conversation. Our team is ready for you. We just need your calls at 800-525-7000. Again, that number 800-525-7000. That number, by the way, is a special number. It goes all the way back to the late Larry Burkett. That's right, during his program, Money Matters, he was using the same phone number and we're so delighted that it's carried through Larry into Howard and now what a privilege to sit in this seat and be able to encourage you in your stewardship journey each day and you're calling that same number to ask your questions around giving and saving and spending. And so whatever's on your mind today, we would love to hear from you. We're going to dive into those questions here in just a moment. Lines are open, you'll get right through: 800-525-7000. You can call right now.
In the news today, well, what else? We're thinking about waking up, understanding the new reality of the balance in power in Washington. And at least at the moment, Wall Street is rallying after Democrats won control of both chambers of Congress in yesterday's midterm elections. Futures tied to the Dow Jones surged more than 1,000 points before the open. Now, after the open, we're up 1200+ points at the moment. The Nasdaq surging as well, up a full 2.6%, leading the way, the Dow Jones up just more than 2% as the market is really processing the impact and the prospect of divided government with Democrats controlling Congress and President Donald Trump remaining, of course, in the White House. Analysts say the new balance of power could make sweeping changes to tax and spending and regulatory policies, of course, more difficult, potentially reducing uncertainty for investors. However, the election results also raise questions for certain industries, technology companies, particularly those investing heavily in artificial intelligence, could face increased regulatory scrutiny. Treasury yields also declined as investors considered the possibility of more restrained federal spending. We'll certainly keep an eye on that.
Despite the rally, financial analysts caution that political developments are only one factor influencing market performance. Corporate earnings, inflation, and Federal Reserve policy will continue to shape the economic outlook. As Bob Doll has reminded us, reminded us over the last several weeks that, you know, the year following the midterms, at least historically speaking, is pretty good to the upside in the markets. Usually there is a transition. I mean, we saw a pretty sweeping move yesterday toward the Democrats. But that's not uncommon. We tend to see those and that has happened several times even in the past, you know, a couple of decades. For Christ followers, this is a great reminder that we can't predict what tomorrow will bring. Ecclesiastes 11:2 reminds us: "Give a portion to seven, or to even eight, for you do not know what disaster may happen on the earth." In other words, we don't put all our eggs in one basket. Elections and markets and economic conditions can surprise us, and they often do, which is why diversification is an important part of wise stewardship. We just don't know what will happen. Only the Lord knows the future and so part of good stewardship is spreading our risk and we see that perform quite well in periods of uncertainty, and those seem to come more often than not.
All right, we're taking your questions today. The lines are filling up, but we do have some open at the moment. 800-525-7000. You can call right now. Let's dive in. We're going to begin in Missouri today. Dennis, go ahead, sir.
Dennis Well, good morning, sir. I appreciate your program and your ministry and I hope you're doing well today.
Rob West Thank you, sir. I am.
Dennis I appreciate that. I got a couple of questions. I'm in my 70s. I'm retired. And I was in prison for a while, so I've had to restart over my savings and I've got about $11,000 in my savings. I've got a good income. I don't have any... I have only one bill I have for data is helping my daughter pay for her car. And my question concerns... Is it good to have a nest egg for savings? Like, I got a... let's say, a safety deposit box right now that I got a safe in my house. Should I keep cash around my house? That's one question. And the second one is... if my memory will hold on... Oh, my word. I got dementia, so things kick in fast.
Rob West No worries, Dennis. Let me give you the response to the first question, and perhaps you can recall the second. You know, I would say keeping a modest amount of emergency cash at home is wise. Certainly not large sums. I'm glad to hear you have a safe. That would be really key. Generally, we talk about an emergency savings account. I would use a high-yield savings account at a bank or a credit union for that. A lot of our listeners use Ally Christian Banking, and they're paying 4% on their money market up to $100,000. That's a great option for somebody to have for their emergency savings. If you want to learn about that, you can go to faithfi.com/banking.
But you're hitting at another piece of this, which is, okay, beyond my emergency savings of three months expenses or, you know, in the retirement season of life that you're in, you know, maybe even somewhere between six months and a year, but that's in a savings account or a money market. I think the cash at home is really, you know, how many days do you want to be able to cover your expenses in the event of a disruption? Let's say there was a disruption in the banking system. Let's say there was a short-term impact to the grid that involved electricity or a temporary disruption in in the banking system that was localized or maybe even larger than that, maybe it was or isolated to your bank. On the low end, I think you'd want probably three days worth of expenses. On the high end, I'm thinking 14 days, so two weeks. So here's the thing: because of a major weather event or some other technological or electrical disruption, would it make sense to have two weeks worth of cash to cover your needs for two weeks? I think that makes sense. Put it in the safe, forget about it. It's there if you need it. And you know, you could weather that disruption. I think that's probably the right amount. There's some people that would say, no, I want to build my plan to to be able to have what I need in terms of food and water and supplies for somewhere between one month and three months. And I want the cash to go with it. Well, that would be up to you.
I think that's probably a little beyond what most people will do. I think somewhere between three days and two weeks is probably the right number. And then you could determine, you know, just based on what you spend in a month and reduce that to a daily amount and then multiply it out. That would tell you how much cash you actually need to have on hand. And I'd probably, you know, keep small bills, fives and tens and twenties in case, you know, stores can't make change. But I wouldn't keep thousands of dollars at home unnecessarily just because of theft and fire or loss, things like that. Not to mention, we're just not earning any interest on it. But is that helpful to you, Dennis?
Dennis Yeah, it is, in many respects. I'd already said, you know, I was going to I was going to sort of pull out a thousand and a couple of thousand and put in my safety... put in my little safe at home or the firebox is what it is. Yeah. But I think if I have them a couple of thousand, I could help somebody in the family out that that needs some cash.
Rob West I love that idea. Well, I appreciate your call today, Lord bless you, sir. Hey, we started the program today by talking about being a landlord and Paul and Julian have both been landlords, they're holding, they want to weigh in on that conversation. We'll get their thoughts right after this break. Stick around.
SEGMENT 3
Rob West Well, great to have you with us today on Faith and Finance here on American Family Radio. Lines are open, we're taking your calls today at 800-525-7000. You know, we started the program today by talking about whether you should be a landlord and just all that comes with, you know, having a rental property. We know it's not for everyone, trying to give you just some things to think about if either you're in that situation or you're considering it. And we've got a couple of callers here that have some real-world experience in this. We're going to get their thoughts on it, in addition to taking your financial questions today. Let's head to Texas. Paul, what are your thoughts on being a landlord?
Paul Uh, yeah. So, first thing I would tell anybody is, uh, do your calculations mostly for what do you really think your cash flow is going to be? Uh, because, you know, uh, depends on how much equity you have in that property, so that, you know, do you have a mortgage payment? What are your taxes? And so, what are you going to net each month? And at a high level, what I sort of figured out, I was stuck with a property that in a bad market, so I just, rental was just an interim step, and seven years later I sold it at a loss, and was glad to be rid of it. Uh, one time here, I got a property by, uh, in the Dallas-Fort Worth area, by design, and, uh, unfortunately, uh, the second thing I want to tell anybody is if you're buying a property that you haven't lived in, house inspector, house inspector, house inspector, and go through it with a fine-tooth comb, because I got one that didn't point out that I had plumbing reroutes. And plumbing reroutes means slab leaks, and slab leak means thousands of thousands of dollars.
Yes. And one sprouted up. Uh, the good news is, uh, because I was in an area where values were appreciating, after all the aggravation, I still probably netted out like about $70,000. But in terms of the hours that I had to spend between tenants, uh, you know, it's, whenever every time I hear the word "passive activity" from the IRS, it's just I, I laugh. Almost minimum wage for, for what I, what I, uh, uh, spent on it. And so if you have one property, remember this: depending on your cash flow, a tenant can break or damage things much faster than the rental deposit can, uh, cover. So, you really need to spend a little money, like, you know, there was a, my insurance company had a free vetting service for both credit cards, uh, credit score, and criminal, uh, background checks. So, it's really a numbers game. Figure out how much money you've got in the home, what is your cash flow going to be, and like diversification, if you really had two to three, you can probably make it, 'cause every tenant's going to do something you don't like, and if it's all in one property, uh, and you run negative, you're going to, you're going to run negative.
Rob West Mm. Yeah. Wow, Paul. I mean, that's, uh, real-world experience there you're describing. You've obviously been through the trenches. Um, you know, just kind of looking back, uh, obviously other than learning from these, you know, mistakes that I think all of us can relate to, certainly the one about making sure you have a good inspector, uh, has it been overall a positive experience for you financially?
Paul Uh, the second one was a positive experience only because it was in the Frisco, Texas area, and it was, I got it, uh, during a little bit of a down dip, and then we had this crazy, uh, like the mid or like after 2010 where property values were just going through the roof, and that's how even after all that I went through and spending $4,000 to re-insulate the attic from rats, etc., I still netted out. So the one thing I would tell people: you know, look at the numbers, right? If you're, if you're going to go and get a property where you have a strong, strong belief that long-term it's going to be escalation and you want that to be an investment to cash out, well then, you know, you can run negative every year, and in the end, you know, if the equity's going up, then the, the house is your gold mine. But I'll let you explain to people, you know, the benefits of, of long-term capital gains, and on that, I just wanted to point out that depreciation, yeah, don't think of it as a magic deduction. It's nothing more than a tax-deferred loan, the way I look at it, when you go to sell the home. If you're going to die, then you don't care, but if you're going to sell the home someday, every dollar you depreciate is just more that you have to pretend that you gained in, in appreciation.
Rob West Yeah, well, that's a great point and a great reminder, and I think to Paul's point, at the end of the day, how much money will this property actually put in my pocket each month? That's part of how you analyze whether it's worth it. We calculate the rental income: how much rent can you realistically collect each month? We subtract all the expenses, and don't miss property taxes, and insurance, and maintenance, and repairs, and vacancy, and mortgage payments. And then we calculate our return: we take our annual cash flow and divide it by the total cash invested in the property. And, you know, are we looking for a 6% cash-on-cash return, or are we looking for something higher than that? I mean, ultimately, that's what it's going to come down to, but don't miss the work that's going to go in along the way and the importance of cash reserves. So Paul, really great comments. Thanks for being on the program today. Julian, you've been a landlord for 35 years, I understand. Go ahead with your thoughts.
Julian Yeah, can you hear me? Okay.
Rob West Yes, sir.
Julian Um, yeah, I'm actually working at one now. So the advantage is I get to listen to you when I'm, uh, working. So, uh—
Rob West Excellent!
Julian Yeah, uh, appreciate it. So yeah, just know you're going to be a social worker. Um, I could tell you war stories, getting involved in people's lives. Uh, you know, certainly presidencies under Biden and the COVID effects certainly hit us in the courts as well. Um, and getting help from local authorities, know that, uh, they have their hands tied sometimes on evicting squatters if there's no warrants or things like that that allow them to get into the home, you can't get into the home to get them out. Um, court eviction process is very long, expensive, and often, uh, getting your money back once you've been awarded the money—I mean, getting it awarded is half the, it isn't even half the battle.
Rob West Wow. Wow, those are, uh, really helpful. I'm sure a lot of people listening saying, "I was thinking about becoming a landlord, maybe not so much now." I appreciate your thoughts though, and thanks for being a regular listener, sir. We're up against a break. We'll be right back.
SEGMENT 4
Rob West Well, thanks for joining us today on Faith and Finance here on American Family Radio. We've got lines open, three to be exact. So if you have a financial question, call right now at 800-525-7000. Before we head back to the phones, let me remind you Faith and Finance is listener-supported. And one way you can support the ministry, if you're encouraged by it, you've found something helpful, is to consider becoming a FaithFi Partner. Partners are a huge part of helping us bring you this program every day because they support us either monthly or annually at a level that is really meaningful: $35 or more a month or $400 or more per year. And we ensure that you get all of the latest from FaithFi. We send you four issues of our magazine, Faithful Steward. We send you all of our new studies and devotionals. We're working on our new one that comes out right after the first of the year, Randy Alcorn's new devotional published through FaithFi. It's the first time he's done a 31-day devotional on money. He's wanted to do one for a long time. And we're so thrilled that he's publishing through FaithFi. And so we're going to be able to bring you that as a part of our partner program, his 70th book! Think about that. Published here, and I know it's going to be a real encouragement to you. But that's the kind of thing we'll mail to you several times a year, plus the magazine, plus ministry updates quarterly from me so you can celebrate what God's doing in our midst as lives are being changed. And if you'd like to be one of those partners, we have nearly 1,000—almost, well, we're about 50 away from hitting the 1,000 partner mark—we would be grateful. Just head to faithfi.com/give. That's faithfi.com/give. All right, let's get to as many calls as we can between now and the end of the program. 800-525-7000. Let's go to Arkansas. Carla, go ahead.
Carla Hi. Um, my question was, my husband and I—well, I'm fixes to retire at the end of the year. My husband is a self-employed barber, he's still working. And we do have some money in CDs, about $85,000. I have Fidelity with where I work, 401(k). But sadly, it's not where it should be because we've had to help adult children in the last few years and draw out money. So, I'm—we're at retirement, and we are a little concerned about, you know, retirement money. But um, now for sure, since the election didn't go our way, um, my husband, I mean, he's been talking about it, he wants like me to get this money out of the 401(k) and put it like in an IRA. And I'm just, you know, we're only talk—we're talking about, I'm ashamed to say, $60,000. Um, at one time it was $85,000.
Rob West There's nothing to be ashamed of. Okay?
Carla Well, it is to me when you work there so long. But anyway, um, he uh—so together, our savings right now is $152,000. Okay? And right now, like I said, we've got the CD, we got $85,000 in the CD, and it's drawing 4.16% at a credit union. And then the Fidelity, well, it comes, you know, it's up and down, and I've talked to them several times 'cause I want to make sure that I don't lose much. 'Cause it was 70, now it's back down to 67. And it was 85, and then years back when Biden won, I lost like $15,000. And I have not yet seen it go back up into the 80s. But anyway, so I guess he's telling me about an IRA, you put it in an IRA and you don't lose money anymore, and you can draw monthly, but you still are getting money. Uh, I don't really know what he's thinking. And when I call Fidelity to ask them what I should do, they just tell me to wait 'til the first of the year, 'cause I retire December 31st. But in the meantime, I don't want to lose—keep losing money.
Rob West Yeah, yeah. Well, I appreciate those questions. So a couple of thoughts: one related to the 401(k) versus the IRA, another related to the market and where we might be headed from here in light of the election. With regard to the account type, I think there's three things that are important to understand here. Number one is a 401(k) and an IRA are both retirement accounts. So moving money from a 401(k) to an IRA doesn't automatically protect it from market losses. What matters is—and this is point number two—is how the money is invested. So even if you just leave it right there in the 401(k), you can move it among the menu of investment options available to you into a more conservative mix of investments or a more aggressive mix of investments. They probably have money market funds. They probably have what are called stable value funds, or short-term bond funds. They could even have what's called a target-date fund, which gets more conservative as you get closer and closer to retirement. But you've got options there.
But the third is that a rollover to an IRA can make sense, but for other reasons. And mainly, it gives you more investment choices. So instead of the limited menu of investments in the 401(k), as soon as you get to the IRA, you essentially have unlimited investment options. But one is not more aggressive or more conservative—it's just the account type, and they're exactly the same with regard to them being tax-deferred retirement accounts. It's ultimately going to come down to which investments do you select, regardless of whether you're in the 401(k) or the IRA. Now, typically, you're not able to roll it out until you separate from service. Very few companies have something called an in-service rollover. It does exist, but it's not typical. So normally, you would leave it where it is, and then when you retire or separate from that company, that's the point at which you'd roll it out to an IRA. Why? So that you could have more investment options, and so you could hire an advisor to manage it for you. You know, under $100,000 would typically be below a minimum for advisors, but if you have all-in $150,000 or more, you know, you should be able to find an advisor that could take responsibility for it. He or she would start by getting to know you and your husband, what your goals and objectives are, your risk tolerance, your income needs—all of these issues would need to be explored before he or she would build a portfolio and deploy the investments.
Now, with regard to the market, here's what I would say: listen, I understand that, you know, yesterday perhaps didn't go for the way that a lot of our listeners here today would have liked and prayed for. And yet, we understand, you know, going back over the last 100 years, I mean, just about every decade has a major event that could have caused, you know, you or I to be very concerned about the future of the stock market. We know that with regard to midterms, this is not uncommon. Now, we could talk about the very specific reasons for this one, but this is not uncommon for us to see the House or the Senate or both move away from the sitting president at the midterms because usually, especially in the second term, about this time favorability is not positive, and so the country's looking for a change. And normally, in the year following midterms, the market does quite well. And we're seeing that today, I think, because one of the policies of the president was around these tariffs. And the bottom line is, it's inflationary, and there's a lot of people that are very concerned about those tariffs and the impact on our economy.
And I think what you're seeing the market react to today with the Dow Jones up 1,000 points is: number one, gridlock, so we're not going to see a lot of sweeping changes in one direction or the other, 'cause the president's already said he's got his veto pen ready. And number two, we're probably not going to see these wild on-again, off-again tariffs that the market really doesn't like. And number three, the Federal Reserve is still committed to getting inflation down, and we have a Fed chair that's committed to trying to get interest rates down as soon as he can based on inflation. So I think the better option for you is to stay invested, make sure it's the right investment mix that fits your portfolio and your risk tolerance and objectives. But that's the only way to outpace inflation so this money keeps growing. And findaccka.com is the place to go to find an advisor. Thanks for your call. We'll be right back.
SEGMENT 5
Rob West So thankful to have you with us today on Faith and Finance here on American Family Radio. We're taking your questions today: 800-525-7000. We'll be headed to Tennessee in just a moment, out to Virginia, but first Joe is waiting patiently in Indiana. Go ahead, sir.
Joe Hi, Rob. Thanks for taking my call. My uh, my sister, my 80-year-old sister, recently widowed, is pursuing Medicaid. Her income is just too small for the true cost of living. Unfortunately, she is just over the cut-off. In Michigan, it's 1,835, and she—her income is around 2,026. She only has about 2,000 cash on hand as well, which would fit the criteria. If she can be qualified for needing in-home care, the cut-off amount goes up to 2,982, and we're pursuing that because she has some legitimate medical needs, but they haven't been drawn up by a doctor to say just that. So right now, we're in limbo a little bit on whether or not she'll get qualified. If she gets qualified, when the money comes in—we're going to be having the sale of my mom and dad's house, and she'll get 1/6th of that, which is around 36k. That will definitely knock her off of Medicaid qualification, with the exception—I learned of a Medicaid-compliant annuity. If she can throw that money directly into an MCA, would that work, or do you think she'll get knocked off just because she's got 37k coming in?
Rob West Yeah, it could be an option. You have to be careful. Essentially, the 36,000 is going to count as an asset. So that's going to—when she receives those proceeds outright, that could put her over Medicaid's asset limit, depending on the program. The Medicaid-compliant annuity converts the assets into income, so instead of holding 36,000 in savings, she purchases an annuity that provides regular payments. But not every annuity qualifies, so that's why, you know, you've got to have a specific type, the Medicaid-compliant annuity, which meets the strict requirements, including it has to be irrevocable, meaning you can't change it or take it back; non-assignable; it's got to have the soundness from the actuaries; and it's got to be structured with appropriate payments and beneficiary provisions. Now, even if the annuity is not counted as an available asset, its payments may affect her income eligibility and require, you know, contribution toward care. So, I would have an elder law attorney review the situation. It's not guaranteed that even a compliant annuity is going to, you know, preserve her Medicaid eligibility. The state may have rights to, you know, remaining annuity proceeds. So you really need to get some sound counsel that includes, you know, looking at the state law for the state of Indiana, and really an elder care attorney is the one who's going to specialize in this.
Joe Okay. The in-home care requirement would be 2,982, and so she'd still fall underneath that if she gets an income from an MCA, just for your information. But the—if she doesn't qualify, should she instead set up an IRA with the 37k that's coming in and, or, and hold back a little bit of emergency fund as well and set the rest up in an IRA, or do you have a thought on that?
Rob West Yeah, so first of all, I would just say, you know, I think that's encouraging that, you know, for total monthly income including the annuity payments stays below Indiana's limit, then that could be a more realistic option, so I would certainly look at that. You've got to do the income test, which includes Social Security or pensions or annuity payments, other accountable income; then the asset test; then make sure the annuity meets the requirements; and then even below the income limit, she could owe a monthly contribution toward her care, so you'd need to just look at all of those pieces. In terms of, you know, an IRA, you know, I wouldn't recommend putting that into an IRA simply to qualify for Medicaid. First of all, IRA contributions require earned income, so if she's only receiving Social Security or pension income, she can't contribute to an IRA. You know, and there are, of course, annual contribution limits, so she wouldn't be able to put the whole thing into an IRA. This isn't coming to her as an inherited IRA, is it?
Joe The money is coming as a sale from the proceeds of a house, a sale of a house.
Rob West Okay, yeah. So because it's not already in an IRA, again, in order to get it in, she could only do up to the annual limit, and then she'd have to have the earned income up to that amount as well in order to qualify. And then the IRA doesn't automatically protect assets from Medicaid. You would have to, you know, again look at Indiana just to see how retirement accounts are treated. It may be that IRA balances are resources counted toward Medicaid eligibility. You'd just have to check on Indiana. So, you know, at the end of the day, I think you might be onto something with the Medicaid—or with the Medicaid-compliant annuity if it's properly structured, but I would—I would want an Indiana elder care attorney to approve that structure before you purchase anything.
Joe Good, good. Thank you so much for the info.
Rob West Absolutely, Joe. God bless you. We appreciate you walking alongside your sister in this. I'm sure she really values that. Let's go to Virginia. Robert, go ahead with your question.
Robert Good morning, Rob. If I continue to work at age 76, am I required to take a required minimum distribution from my 401(k), or is it deferred until I stop working?
Rob West Yeah, for a current employer's 401(k), generally you can delay required minimums until retirement if you're still working, so long as you own no more than 5% of the company and the plan permits it. There is not a working exception for a traditional IRA, and it does not apply the ability to delay RMDs to any old employer's 401(k)s. But if it's a current employer's 401(k), generally you should be able to delay that until you retire.
Robert All right, that sounds good.
Rob West Okay, Robert. Lord bless you, my friend. Thanks for being on the program. Let's round it out today in Tennessee. Casey, thanks for your patience. Go ahead.
Casey Hi. Hi, I'm—I'm 77, my wife's 69. We're in a—we've been married about 10 years, and we've got a blended family. So between us, we've got 13 kids, some of them adopted, you know? So we're trying to look at estate planning. She's got an old will she's got to get neutralized, and we got to make a new will, you know, all that stuff. And we have no idea how to—how to—how to put this, how to straighten this out. I've got about eight acres here in Tennessee with a nice house, and I really don't know how to distribute this, how to keep, you know—I want to set it up so that, you know, if something happens to us, you know, there isn't a war between the two families. You know, the questions like, what happens if I pass away, and then—then what happens when she passes away after me? How does that all get distributed, and vice versa? We don't know whether we should go to an accountant or to like a—an estate planning attorney. I looked up Kingdom Advisors; there isn't one within 100 miles of me, so... I don't really know where to go from here. We've got around—between an IRA and a—just general savings, we got around $80,000. So that's kind of where it's all at.
Rob West Well, it's a—it's a great question, Casey, and you're right: you do need an estate planning attorney, and potentially a trust, not just a simple will. The goal is going to be to accomplish two things: one, protect the surviving spouse, which is most often going to be your wife, although only the Lord knows, but I'm just talking on average; and then make sure both sides of the family receive the inheritance that you, as a married couple, intend. So here's what I would recommend: I'd start with an estate planning attorney, not an accountant. And I'd look for a Christ follower who's an estate planning attorney. Maybe you call your local church and connect with a pastor there and ask who is an estate planning attorney in the church. You know, you could ask some friends or family members for recommendations, but that's really what you need—someone who can structure the estate and address the property ownership. A CPA can help with the tax questions, but the biggest issue here is the estate planning attorney. The reason you'd want to consider a trust is, if you passed first, then a properly structured trust could allow your wife to continue to live on the property for the rest of her life and then preserve your intended share for your children, if that's what you want. And then you want to decide what happens together after both of you pass away. You could divide among the children, you could leave it to one child with compensation for the others, you could direct that it be sold and divided. You know, that's up to you, especially with assets that are brought into the marriage that were, you know, assets that were acquired prior to marriage, you know, when you were previously married. So I think at the end of the day, you've got to address the fact that one child might want to keep the land, another might want to sell, that can create disputes. So you've got to establish in the trust how decisions are made and how buyouts work, and I would also review how it's titled. So you would want to get with an estate attorney to think through all of that, and then ultimately document it. I'm going to send you a book called The Smart Stepfamily Guide to Financial Planning that will help you think through some of this. That's going to be our gift to you, Casey. And so stay on the line, my team will get your information. I hope that helps. God bless you, my friend. Faith & Finance Live is brought to you each day by FaithFi and American Family Radio. Big thanks to Taylor and Devon and Patty and Pat and everybody here at FaithFi. You can support us at faithfi.com/give, and then come back and join us tomorrow.
Owning rental property is like ordering pizza with anchovies. It's not for everybody. There's no question that a rental property can be a lucrative investment, but it's certainly not a passive investment like owning stock. On this Faith & Finance on AFR, Rob West explores the pros and cons of owning rental property. Then, it’s on to calls.
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