Let's Talk Money

March 30th, 2025

Episode Transcript

Speaker 1 (00:09):
I'm good morning, and welcome to Let's Talk Money at
eight ten WGY. I want to first start off by
thanking you for tuning in this morning and making us
a part of your weekend. This morning, we're talking about
what happened in the markets this week, diving into some
investing in financial planning topics, and answering whatever questions you have,

(00:32):
all aim to help you make smarter moves with your money.
I'm John Malay and I'm going to be your host
for this morning's edition of Let's Talk Money. I'm a
certified public accountant and the chief financial officer, chief operating officer,
and a wealth advisor at Bouchet Financial Group. Again, I
want to thank you for tuning in on this Have

(00:53):
a dreary Sunday morning as we're coming to the closer,
wrapping up the month of March, a little little rainy,
but hey, it's it's not snowing and in the Northeast,
you know, we're in this nice little transition time where
transitioning from winter now, uh, you know early spring and

(01:13):
you know April is that month where you know we
get tend to get a lot of rain, but it's
also start to get some nice warm weather. So I
know we're not officially in April yet. We've got one
more trading day on Monday to wrap up the uh
the first quarter, but uh, you know we're we're getting close.
We're getting close. So you know, if you've been, you know,

(01:35):
watching the markets lately, you know you felt it. You know,
volatility is hanging around and uh, you know it's certainly
making headlines and it's you know, it's hard to avoid
some of those headlines. And you know, stocks finished down
this week, you know, as really investors you know, reacted
to a mix of some sticky inflation data and I'm

(01:57):
going to dig into that, uh, you know, some fresh
tariff announcements, you know, new tariff discussions of on imported cars.
Also we've got the the looming April second tariff deadline date,
a lot of uncertainty around that, and then also obviously
investors just the usual swirl of other policy uncertainty coming

(02:20):
out of Washington. So you know, Friday, we saw the
Fed's preferred inflation gauge, which is the PCE index, you know,
came in a little hotter than expected. And you know,
when I say it little, just a little, and I'm
going to dig into those numbers, you know a little bit,
but yeah, definitely stirred up some concerns about persistent inflation

(02:41):
and how the FED is going to react to that.
And and we also, you know, heard some new tariff
news of twenty five percent on imported autos was being
floated around, and you know a lot of a lot
of discussion about April second tariff deadline, and you know,
we've heard you know, really strong comments and we've seen
you know, backing off that a little bit. You know,

(03:03):
maybe we're gonna be nicer to some of our trading partners.
But all of that again just creating other layers of
complexity and uncertainty for for businesses for sure, if you're
international trade you know, trying to navigate through these waters.
And and obviously that complexity and uncertainty trickles down to

(03:24):
investors alike. So as we know, markets hate uncertainty, and unfortunately,
right now, you know, we've got plenty plenty of it,
and you know, as we get clarity on that uncertainty,
you know, it'll be uh, you know, it'll be seen
whether that's uh, you know, helping the trade imbalance, helping

(03:44):
to bring jobs we'll see how that all plays out.
But certainly, you know, there is uncertainty. And but I
also say, you know, we also have to take you know,
take a step back from some perspective. And you know,
while inflation isn't not at the FEDS two percent target,
nowhere near the elevated you know, levels that we saw
to year to plush years ago, but it is persistent.

(04:07):
And you know, we know that, and there's been a
lot of conversation about that, and you know, I think
you know, the Fed itself, you know, Chairman Powell said,
you know, he's also that's taking a wait and see approached,
you know, to see how some of the you know,
the the tariff policies, how they play out, whether they

(04:27):
impact inflation or not. So certainly just you know, some
some uncertainty there. But you know, but I will say, inflation,
you know, down much closer to target than where we
were two plus years ago, and the labor market remains strong.
You know, people are working, you know, wages are holding up,
and you know, the economy is you know, showing some

(04:49):
resilience and so no, you know, the sky's not falling down,
the world's not coming to an end. But yes, there
there are headwinds, and as investors, you know, we can't
put our head into sand and pretend those headwinds aren't there.
But also we can't overreact, right and you know, and
really this is where long term investors really set themselves apart,

(05:10):
because you know, let's be honest, you know, headlines they
stir emotions and the successful investing isn't about reacting to
the news. It's about avoiding the mistakes that come from
reacting emotionally. And it's hard. I mean, there's no question
if you're sitting back, you know, I you know, I
sat with a a friend who's got some time in

(05:33):
his hands right now, he's retired, and he said, you know,
watching the news, and you know, it's hard not for
all these headlines not to get to you. And you know,
then you look at the market and you you know,
you go, you look at your investment statement or online.
Nobody looks at a statement anywhere online, and you see
it's going down, and you just get nervous and you
want to, you know, react, and you know, again, this

(05:55):
is where long term investors who are disciplined and you know,
we all weas you know, say to our clients. You know,
it's not about timing the market right, because if if
you're some of that, you know, knee jerk reaction to
to uncertainty and to the headlines, it's to say, oh,
I'm gonna pull out and I'm gonna pull back in,
I'm gonna pull out, And you know, timing the market

(06:18):
is so difficult, and you know it's almost impossible, and
so we really preach it's about time in the market, right,
being smart, being disciplined, and you know, sticking to your
plan right, And I think that's important is having a
plan that clearly defines, you know, what are you saving for?
Is it just saving? You know, you shouldn't be Your

(06:38):
plan shouldn't be just more for the sake of more. Right.
You know, we have savings goals. You're either you're saving
for retirement or you're saving for a purchase of a
home or something else. But it should have a timeline, right,
And so sticking to that plan, staying diversified, and keeping
perspective you know when things feel uncertain, those are really

(07:01):
the hallmarks of you know, successful long term investors. So
it's hard during times like this. There's no question we're
human and there is a human. There's a whole behavioral
aspect of investing that's real, you know, and you know,
so it's I think one is recognizing that those feelings

(07:21):
are going to be there and how best to deal
with them and not to overreact. And I think that's why,
you know, I personally feel working with an advisor is
really important. You know, those are the conversations we're having
with our clients, right, and I will say, uh, the
majority of those conversations we go right back to the
financial plan. Let's look at the plan, right, and yeah,

(07:43):
you know you you have Sally's wedding in thirteen months,
and when we did our financial plan, look, we put
this bucket of money aside into cash management because we
knew you needed to pull that money out of the portfolio.
And so we've got that setus side and allocated properly.
And so guess what the market fluctuations is not impacting that.

(08:07):
And I guess I would just say, whether you're working
with an advisor or just you know, working by yourself,
you know, have someone you can bounce ideas off, because again,
sometimes you need that second voice to say, whoa slow down,
is this really what you want to do because you know,
really one of the things that separates successful and long

(08:27):
term investors from those who aren't is really you know,
stopping those unforced errors and reacting and overreacting. So but
we understand, you know, the the uncertainty you know, creates
those emotions. So you know, again I'm here to answer questions,
and uh, you know, we're going to go through the
market shore. They've encourage listeners. If you have questions, call in.

(08:50):
You can reach me at eight hundred talk WGY. That's
eight hundred eight two five five nine four nine. So
I mentioned, you know, the you know, a tough week
in the markets, you know markets on Friday, we saw
you know a bit of a sell off as you
know investors you know, digesting the I really think it's

(09:11):
a combination of the inflation data and I'm going to
go through the PC report, but yeah, it showed you know,
a slight uptick in core PC from what the expectations were,
but very slight, and it showed very you know, promising
data on consumer But you know, that's some news we got.
And also all the tariff news and we saw you know,

(09:33):
you know, markets react and and as I mentioned, you know,
we tend to see market overreaction right now with this
kind of this this feeling of uncertainty, you know, news
and headlines can definitely tip the markets. And you know,
we saw the S and P drop two percent of Friday,
the Dow down one point seven, NASDAK down two point seven,

(09:53):
you know, and the S and P and NASDAK had
finished the week in the red seven of the last
nine week. So this you know, period of uncertainty is
certainly you know, playing out in the markets. And you
know the core PC you know, we we saw it,
you know, raise go up slightly. You know, core PC
came in zero point four percent a monthly basis and

(10:16):
you know analystid estimated increase of point three percent, so
again just a point one percent increase, but that was
enough to uh, you know, get markets reacting. And you know,
on top of that, you know, we're seeing some consumers
sentiment data right and and and remember you know, consumer
spending makes up a huge you know, seventy percent of

(10:38):
our GDP, so how the consumer is feeling, you know,
is really important. And consumers are you know, even though
you know, wage growth is there and the inflation is
largely you know again getting closer to the target, consumers
just feel uneasy and it's coming through in some of
the you know, the consumer surveys, consumer sentiment surveys, and

(11:00):
it's almost like this preemptive inflation anxiety. It's being discussed
where it's weighing on you know, consumer how they feel
and their willingness to spend. So, you know, we are
seeing some drawback and some large expenditures, and part of
it is just this anticipation of you know, how is
this all going to play out? And you know, we know,

(11:20):
you know, consumers still healthy and we'll talk about that
a little bit more healthy. Balance sheets, jobs data is
still so I positive, So still you know, largely very
healthy consumer. Now you know, there are some cracks of weaknesses.
You know, we're seeing in uh, you know, subprime auto,
some categories like that, we're seeing an increase uptick in delinquencies.

(11:41):
But overall, still a healthy consumer. But right with this
uncertainty with these headlines, if we're seeing a declining consumer sentiment,
you know, we're going to see consumers pull back on spending,
right and and we're going to see that and so
and we are seeing that some of the data, so
you know, for the week, the S and P was

(12:01):
down one point five percent, NASDAK was down two point
six uh, and the Dow was down one percent. Year today,
you know, S and P down a little over five percent.
You know, NASDAK down over ten percent year to day.
So certainly you know in correction territory for sure, uh,
and the Dow down two point six percent year to day,

(12:25):
you know. Uh. You know, we are also seeing treasury
yields bounced around a little bit, and you know Friday
of the treasury ten year treasury ended at four in
a quarter percent. So certainly, you know seeing you know,
overall in the market, you know, decline in every aspect.
And again it's it's just uncertainty. And I think as

(12:45):
we start to see things play out, we get some clarity,
you know, in you know April second, you know, this week,
you know, Wednesday has been uh, you know day much
talked about by the Trump administration is you know, you know,
when reciprocal tariffs are gonna come into play and we're
gonna we're gonna hit back hard. We've seen some softening

(13:07):
of that, some some of the verbiage coming out of
the White House over the last week and Uh, you know,
I think so that's there's really some uncertainty there of
how that you know, how the tariffs are going to
play out. Are these going to be short term tools
used to get some negotiations? I mean, certainly since the
announced we've been you know, having some discussions for their

(13:30):
trading partners. So you know, uh hopefully you know, we'll
see on April second, you know, how that plays out.
But I think again, we just have to expect. We're
in this environment where the Trump administration has laid out
a number of significant policy changes and not only you know,
not only with tariffs but also immigration, Uh, the middle

(13:54):
of trying to get a tax deal done, so a
lot of conversation there, and I think as we get
those policies defined, you know through that period, we're going
to see some continued and sertty. So I would just
say as an investor, you know, be prepared, right and
and you know, we've preached that volatility is a part
of being an equity investor, and there will be drawbacks.

(14:15):
There's no questions in drawdowns. And you know, an average year,
so just an average year, let alone a year where
we've got an administration change and some some big policy
changes come into place. Just in an average year, you know,
we see a fourteen to fifteen percent draw down from
the peak of the market to the trough of the market,

(14:37):
so that that's it normal. And so these times you
have to fight that feeling of anxiety and uh, you know,
stay invested, don't make those mistakes that we'll call them
those unforced errors that unsuccessful long term investors make, is
they overreact. Now again, that doesn't mean you put your

(14:57):
head in the sand, right, there are steps you can take,
and you know, talk about that shortly. But you know,
again it's about are you allocated properly? Have you really
looked at your cash flow timing right to make sure
you've you've set aside money that you need to. So again,
as an equity investor, volatility can be our friends too.
So remember, if you're you're in a period where you're

(15:18):
putting money in through like a four to one k
or other thing, where you're you're putting money into the
market every every month, every pay period, you're getting the
benefits of some of these ups and downs. So you know,
being being a long term investor in the equity market,
it means you're going to deal with some uncertainty. But
you know, you know, we had an employee, I'm sorry,

(15:41):
a client presentation a few weeks ago and you know,
presented some slides showing that over the long haunt haul,
you know that the investing investing in the markets is
almost one hundred percent certainty of growth if you again,
if you're diversified in the market, and that you will
have you know, short term folatility, but over a long

(16:01):
term you know, it certainly pays off. And the markets
have shown that, you know, investing in stocks diversified portfolio,
you know, over fifty plus years you're going to average
over ten percent return, again being in a well diversified portfolio.
So again that's a part of being in the equity
market and understanding not to overreact and give into some

(16:24):
of those emotions. So appreciate everyone tuning in this morning,
and again I'm here to answer any questions and trust me,
if you have a question, I'm sure another listener does.
So encourage you to reach me at eight hundred talk WGY.
That's eight hundred eight to five five nine, four nine,

(16:45):
and right on Q we've got to follow Jared from albody. Jared,
appreciate tuning in this morning. How can I help you?

Speaker 2 (16:52):
Yeah, Hi, good morning. I'm sorry. You're a CPA, right.

Speaker 1 (16:57):
Correct, Yeah, I had a question.

Speaker 2 (17:01):
I'm executor of an estate. Uh do you know our
estates taxed differently than individuals because I've had to sell
some individual stocks and the estate to the estate and
I don't know if the taxes go to you know,
the executor or or they stay in the estate.

Speaker 1 (17:24):
Great, great question, Jared. And you know, so so with
states can have a tax fight and requirement and you
know there again, if estates are above a certain limit,
you could you could have an a state tax. Now
they're very high limits right now, and so most likely,
unless it's a very significant estate, you're not going to

(17:47):
be subject to those limits. But they would be done
through through an estate tax return. And are you do
you work with a tax professional right now?

Speaker 2 (17:57):
Uh? Just you know, a tax prepare you know that's
all who does my personal taxes?

Speaker 1 (18:03):
Okay? Yeah, yeah, yeah, so I would And did you
did this occur in twenty twenty four or in twenty
twenty five.

Speaker 2 (18:11):
Five?

Speaker 1 (18:13):
Okay? Okay, yeah, so I would work with your your
your tax professional and just you know, go through what's
what is happening with within the estate and just to
make sure you're you know, properly accounting for everything. And again, uh,
you know, one of the benefits of the state taxes

(18:35):
is uh, you know, the exclusion amount is significant, very significant.
So most likely the state, unless it's a very significant state,
well will fall under that exclusion from both the New
York State and federal perspective, and you won't really have
any estate tax.

Speaker 2 (18:51):
Well yeah, I wish it was. But is there any
income tax or state income tax?

Speaker 1 (18:55):
Newar means so again, if it's held through this state,
you know, again you would do the estate tax return
and then that would you know, be handled through the
estate tax return, so.

Speaker 2 (19:07):
There could be income tax do and state income tax
besides the estate tax.

Speaker 1 (19:14):
No, so I guess I'm saying you know that again
the tax return would be done by the state the estate, right,
so you do your state tax and then and then
you know that's how they you know, the return in
taxes would be handled. And I would say, if you
have very specific questions that I really would want to
get you know, again, everyone's situation is a little bit

(19:34):
different that you know, if you want to call into
the call into the office and can connect you with
one of our tax professionals and and you can have
a conversation about that if that's something you'd like to do,
So you can certainly feel free to you know, reach
call us into the office you know at five eight
seven two zero three three three three, and we could
certainly help you out in a more more individual individualized

(19:56):
basis where we you know, really work at some of
your numbers and information to be more be helpful that way.
All right, thank you so much, Thank you, appreciate appreciate
you calling again. If you have questions, you can reach
out to UH to me at eight hundred talk w
G Y that's eight hundred eight two five five nine
four nine. Appreciate that call with Jared, and you know,

(20:20):
just wrapping up, you know, Mark, you know on the markets,
you know, so I did mention you know, PCE report
came out on Friday, you know, and it did show
you know, so uh the PC pricing decks increased by
two point five percent year over year and that was
completely in line with forecasts. But again that is you know,

(20:41):
shows a little persistency inflation pressures, you know, above the
FED two percent target and core PC and that's the
number I was citing earlier, you know, which excludes you know,
vault of food and energy prices. You know, it rows
by two point eight percent over the same period time
and that was slightly above expectation. So you know, economist

(21:02):
expectation was two point seven for that and so just
a point one percent increase. So on the inflation, you know,
really not any big surprises there. You know, it was
really in line with expectations. So again on its on
its own, shouldn't really you know, trigger what we saw
in the markets on Friday again, I think where there's

(21:24):
this heightened stage of uncertainty and I think really tariffs
really the driving concern of that. But also we saw
that consumer spending you know, rebounded from January to February,
so you know, increasing with a zero point four percent increase,
and you know, really you know, knowing that the consumer

(21:46):
is still continuing to spend. Now when you ingest that
for inflation, you know, it really shows more of a
modest point one percent increase, but still you know, positive
in that. And so you know, again and mixed, you know,
we are seeing you know, uh, you know, inflation numbers

(22:07):
really coming largely in line with what expectations are. We
are seeing consumer spending hold up, right, and disposable income
hold up. So we're seeing we saw an increase in
February as well. So you know, overall consumer consumer is
still staying in a good place. But what's changing a lot,

(22:27):
right is consumer sentiment is going down. And we did
see a drop in in a large drop in consumer sentiment.
And so you know, there's a University of Michigan, you know,
does a survey and uh, you know, the consumer survey
did show that consumer sentiment is going down. Is and again,

(22:47):
how could it not be right? Is consumer We're hearing
all this negative news. We're seeing the markets pull back
a little bit, and so you know, and people are
feeling the pinch a little bit and also just against
seeing the headlines. And we're again as consumers, you know,
if there's concerned, we want to you know, we want

(23:09):
to sock some money away, right, you know, So we
are seeing some modest, you know, small increases in savings
and we can just get more conservative, we pull back
on some large durable good purchases, right, and that's just
human nature as a consumer. So we are seeing you know,
consumer sentiment being impacted, you know, by all the uncertainty

(23:30):
in all of the negative news. So certainly have to
keep an eye on that. Because I mentioned consumer is
a huge part of our GDP, and so we are
kind of that midway point of the show and taking
a break. I want to thank you for tuning in
with me today. I hope you were enjoying the show
so far. I hope you will rejoin us after the break.
I encourage listeners to call in with questions. You can

(23:52):
reach me at eight hundred Talk WGY. That's eight hundred
eight two five five nine four nine. You were listening
to Let's Talk Money you by Bouchet Financial Group, where
we help our clients prioritize their health well we manage
their wealth for life. Well, good morning, and thank you

(24:18):
for staying with us that short commercial break. I'm John
Malay and I'm your host for this morning's show. I'm
a certified public accountant, I'm the chief operating officer, chief
financial officer, and a wealth advisor at Bouchet Financial Group.
So here we are on this kind of a dreary
Sunday morning, but hopefully the day we'll get a little

(24:41):
nicer as it progresses. But the first time we really
talked about markets, and you know, some of the volatility
that we've been and we you know, most likely you're
going to continue to see for the short short term.
So you know, again major theme there is, you know,
don't overreact, stay disciplined. And you know, one of the
things that I want to talk about, you know that's

(25:02):
getting you know, a lot of attention again is wroth conversions.
And you know, just for those of you who most
you know are familiar with what a wroth conversion is.
But but if you're not, it's you know, taking an IRA,
which is really a tax deferred vehicle. Right, So if

(25:23):
you have an IRA, you're gonna you know, you put
money in, you might get a tax break if if
you do a deductible contribution, it grows tax free. But
then when you take the money out, that's when you
pay taxes. And it could be problematic if if a
lot of your investments, if a lot of your portfolio
is in a tax deferred vehicle. There's some uncertainty there, right,

(25:45):
So and typically what happens if you know, you know,
as four oh one k's are are so prevalent, you know,
as a disciplined you know, investor, you're putting money to
your four oh one K, you then retire, you roll
that into an IRA, and so there's uncertainty associated with that,
and it's tax uncertainty, right and because you have to

(26:06):
pay tax on that money as you draw it down. Also,
there's things called rm ds required minimum distributions that kick
in at seventy three right now that we'll go up
to seventy five, where the IRS says, hey, you've got
to we want some of our tax money. So you
have to start drawing that money out. And you know,
if you've only invested in a tax deferred vehicle like

(26:30):
a four to oh one K and then rolled this
to an IRA, that could be a very large number.
And so a lot of individuals are looking at okay
for a lot of reasons saying, hey, I want to
either avoid rm ds or I don't like this uncertainty
around taxes. I mean, like we can tell you, we
can look at this current tax code and tax rates
and say, okay, you know, here's what you pay now

(26:52):
based on your earnings. You know, you may have W two,
you may still be working and have W two wages,
or maybe you're an early retiree, and we can say, okay,
based on today's rates, right, if we do a ROTH conversion,
you know, what will you be paying in taxes right now?
Or if you're doing R and ds what would that be?

(27:14):
But we can't tell you what it's going to be
in five years, ten years, because we don't know what
the tax rates.

Speaker 3 (27:19):
Are going to be.

Speaker 1 (27:19):
Is it going to be different? And you know there
are definitely some financial people, you know, using that fear
to sell products, right and here, you know, buy this
product that's gonna take this money and make it all
tax free. And and and if you ever encounter something

(27:42):
like that, I always, you know, ticket pause and say,
you know, okay, what are you getting out of this?
What is this good for me? And that's why I
think it's it's really important to work with a fiduciary
because you know, we're we're going to do it. It's
in our client's best interest, and we're going to evaluate,
you know, what's right for the client from a perspective.
And so so with the ROTH conversion with a roth IRA. Right,

(28:05):
so if if money in a ROTH, you don't get
a tax break when you put money in, but earnings
and growth accumulate tax free and then when you pay
take money out, you don't pay taxes. And so with
a Wroth conversion, you can convert that ira traditional IRA
to a ROTH. Now you have to pay taxes at

(28:27):
the time you do that conversion.

Speaker 4 (28:29):
Uh.

Speaker 1 (28:30):
But again you know, depending on again, if your goal
is to eliminate eliminate some tax uncertainty, that you might say, hey,
I'm going to pay taxes. I think you know, historically
tax rates are fairly low right now compared you know,
to where they've been. So is it more likely taxes
they're going to go up or stay the same? And

(28:52):
and again nobody knows with any certainty. We see how
the Trump administration is really you know, trying to use
tariffs to increase some revenue. There's other ways federal govern
can can increase revenues other than taxes. And who knows.
Maybe you know, the idea will they'll they will change
the structure and tax higher earning you know, individuals more

(29:16):
so you know that's unknown, right, But one of the
reasons to do with a Roth conversion is now you're
if you do that conversion, you're going to pay taxes
on that conversion, and hopefully with the idea that you're
either take you're taking that tax uncertainty and overall that
you're going to pay a lower tax. And I'm gonna

(29:36):
hold off on getting into a little bit more details there.
You have a caller, Chris, Uh, Chris, what can I
do for you this morning?

Speaker 5 (29:44):
Yeah?

Speaker 4 (29:44):
My question this morning is I have a couple I
have four or five by five grand children.

Speaker 1 (29:48):
We have five more or five.

Speaker 4 (29:50):
Thirty nine plans for them as they go head towards college,
and I'm gonna have a couple of them that probably aren't.

Speaker 1 (29:55):
Going to go to school. And I was just wondering
if it's.

Speaker 4 (29:58):
A better better investment if I took all those five
twenty nine or five twenty twenty nine plans and put
them into Glathio Race for them at their age now,
which is sixteen, seventeen eighteen, and just added something every year,
if that benefit that to have down the road better
than just four or five thousand bucks to go to college,
you know?

Speaker 1 (30:21):
So you know, yeah, great question there, Chris. And you know,
so you know five two nines are a great vehicle
to provide, you know, for for education. And I will say, so,
you know, the Secure Act two point zero, you know,

(30:41):
which which did allow so unused money in a five
two nine can be rolled into a raw. And so
what I would say is, I would continue to look
at putting money into the two nine and then if

(31:03):
if there is unused money, uh, then you can look
at rolling it to the to the wroth account at
that point and so and there are rules around that,
and so what I would just say is that, uh,
you know, five to nine, I think it still continues
to be you know, a great you know investment vehicle

(31:25):
for for saving for education. And then again with with
Secure Act two point zero, it did add some flexibility
that if you have you know, unused money in your
five to nine, you can roll it into a wroth
I RA for that beneficiary. And so again there's some

(31:46):
specific rules of rules around that, but I think I
think it's still a great strategy continue to put money
into five to nine. And again, if if they get
to the point where that child can't use you know,
does not use the five two nine, right, you, you
basically can then roll that into a ross. Now, now
that again there's limitations on how much you can roll

(32:07):
per year. So uh, but I think that that that
would be the recommended vehicle I would recommend I was suggest.
All right, thanks for your time, all right, thank you,
appreciate you. You calling in great question there from Chris
and just going back to Ross. So, so talk a

(32:28):
little about what a ROSS conversion is. And so one
of the the areas that is confusing with ROSS is,
you know, the idea that there's a a five year
rule and there's not a five year rule. Actually there's
there's two five year rules which are very different and
meant to, uh really meant to prevent different things. And

(32:52):
so just want to talk a little bit about that
because it does trip people up a little bit. And
so there's there's actually two rules, you know, so one
of the five year rules. So so first of all,
you say, why five years? How did the iris you know,
why not a seven year rule? You know, and you know,
I try to find if there's any justification for that.
You couldn't really find it any other than you know,

(33:14):
they wanted to strike a balance of you know, encouraging
long term retirement savings. But so there are two five
year rules and one pertains to wroth contributions and then
there's a separate rule that applies to Wroth conversions. Okay,
and so, and we'll start with the Roth conversion.

Speaker 5 (33:38):
And so.

Speaker 1 (33:40):
With the Roth conversion. The five year rule is really
meant to prevent people from using a Roth conversion to
circumvent paying a ten percent penalty. But remember, typically, if
you have an IRA and you take money out before
you're fifty nine and a half, right, you have not

(34:01):
only have to pay tax on it, but you have
to pay a ten percent penalty. Now, with a conversion
Wroth conversion, if you convert your IRA into a Wroth Ira,
you pay tax. Right, So you're gonna pay tax on
that full amount you converted, right, but you're not gonna
be subject to a penalty. But this is where the
five year rule comes into play. And it's a separate

(34:24):
five year rule for every conversion you do. So if
you do a conversion one year and then you do
another year, each conversion has its own five year counter
And basically what it says is, hey, you have to
keep that you have to have that Wroth account open,
you have to keep that conversion in the Wroth for

(34:44):
five years. And if you access the principle, right, you've
already paid tax on it, so you're not gonna be
taxed again, but you're gonna be subject to the ten
percent penalty. So basically, IRS is saying, if you do
a conversion, you can't circumvent the ten percent penalty by
converting your traditional IRA to a ROTH and then immediately

(35:06):
starting to pull that money. Now, think about this. For
somebody's forty years old. I changed jobs. I had, you know,
one hundred thousand dollars in a four O one K.
I rolled that to an IRA. I do a ROTH conversion,
I pay tax, but now I start pulling the money
out immediately. Can't do that. I'm gonna get hit with

(35:28):
that penalty. Now if I keep it for five years
and then go after take out some of my principal
I won't be hit with that ten year penalty. Third
ten percent penalty. Excuse me. Now. An important thing here
is that this does not apply if you're fifty nine
and a half or older, because you're already not subject

(35:49):
to the ten percent early withdrawal. So if you're if
you're sixty five years old, so you're older than fifty
nine and a half and you do that Roth conversion,
this rule doesn't apply to you because you're you are
already exempt from the ten percent penalty. So you're sixty five,
you do a big roth conversion, right, you're going to
pay tax, right, but you're you're not going to be

(36:10):
subject to the ten percent penalty and you're not going
to be subject to the five year rule on conversion.
So one rule specifically related to conversions. And again the
clock starts on January first of the year that you
do the conversion. And remember conversions have to be done

(36:31):
in that tax year, so you have to you know,
if you're doing a conversion in twenty twenty five, it
has to be done by December thirty first and twenty
twenty five. But the counter starts as of January first
of twenty twenty five. And so that's the five year
rule on conversions. Now there's a separate five year rule

(36:55):
on roth contributions. And this rule really dick about whether
qualified distributions of earnings are taxable or not taxable. And remember,
to get the most benefit of a wroth, right, you
want to let it sit in there for more than

(37:16):
five years, and you want you don't want to take
money out until after you're fifty nine and a half. Now,
the five year rule here with with with wroth contributions
is this again is about whether earnings right are are

(37:37):
taxable or not? Right. So, because if you're making a
contribution to a roth, the principle you put in you
can take out and not pay taxes. But the benefit
of the wroth right is the money you're putting in
and then its growth in earnings are tax free, right,
and that that's the real powerful vehicle, vehicle powerful component
of a roth. Right. So the rule on the five

(38:00):
that applies to contributions is you have to have a
wroth account open for five years, right for you to
take earnings out and not to be taxed, right, And
so's that becomes important, right, So, and that applies whether
you're fifty nine and a half or not. So again,
if you do a big rollover and you're sixty five

(38:23):
years old, right that, now you open up a wroth
ira you roll it over, you're not subject to the
five year conversion, but you are still subject to the
five year earnings. So if you start to take money out, right,
you can take out your principle, but you can't tap
into the earnings without paying taxes on that. And I

(38:44):
know those two can be confusing. That's why it's helpful
to work with a professional. We have a caller right now,
Paul in Connecticut. Paul, appreciate you listening this morning. How
can I help you?

Speaker 5 (38:55):
John, I'm laughing because I'm a nonpracticing CTA and of
persee th reason why every good classes for people is
that Green's discussion you just said on growth I arranged
and that other question by the guy about the States.
And I do have a sense of humor. So and
I call it like a.

Speaker 1 (39:13):
Couple shows a week.

Speaker 2 (39:15):
One is on horse.

Speaker 5 (39:16):
Racing, and often these shows to get you know, get
my view out. Now, I have an unusual situation. I
guarantee that in two thousand and two thousand and one,
and I inherited eyebonds a good friend of mine in
Connecticut and Harford at of financial services Gurb said, these
eyebonds are mispriced and they were bait.

Speaker 3 (39:37):
Base rate three two to three six.

Speaker 5 (39:40):
I'd have to go on my computer. So I have
a one hundred and ten base on these eye bonds.

Speaker 3 (39:48):
That mature all at the same time in twenty thirty
and twenty thirty one, right when I'm turning seventy two,
give or take.

Speaker 1 (39:57):
Right seventy.

Speaker 5 (40:00):
So I've been modeling this, and I.

Speaker 3 (40:01):
Go, Man, the base crank on this is.

Speaker 5 (40:04):
Five and a half percent since inception compounding. You get
what I'm saying.

Speaker 3 (40:09):
I know, and I'm going should I Should.

Speaker 5 (40:13):
I catch these in over time?

Speaker 3 (40:16):
Should I write it out? And the reason being if
you and I just did it on chat GPT on
Treasury Directed States Summer Electronic and.

Speaker 5 (40:27):
You may not know the answer hard copy, you can
hold them. I'm thinking maybe.

Speaker 3 (40:31):
I'll hold them an extra year and earn nothing. I'll
see how inflation goes.

Speaker 5 (40:37):
I've modeled this and on at odds with.

Speaker 3 (40:39):
Having massive income in two years in a row, I.

Speaker 5 (40:44):
Need a lot of income.

Speaker 2 (40:45):
If you know what I mean.

Speaker 1 (40:46):
Do you have any thoughts on it? Yeah? Yeah, great,
great question. And as you said, you've got some unusual circumstances,
so you know, I have a lot of experience in
that area. So I would say I'd like to do
is bounce that off to some of my tax guys

(41:09):
who are I think I have a little bit more exting.

Speaker 5 (41:11):
Maybe I'll cart you in the office, because yeah, here's
my thing, and I'm I'm trying.

Speaker 3 (41:16):
To enhance in a way what you guys do.

Speaker 5 (41:19):
And I've said this to my friends.

Speaker 3 (41:20):
You guys are very good. I have a lot of
respect for your firm, and I listened to a lot
of shows, and there's no way that these tax issues,
including the fellow that called about an estate, because I
did it with one friend and I did the final return.
I understand this inside and out because specific to me,

(41:42):
the value of a good tex I'm emphasizing this to
the public. A good tax CPA who understands how to
analyze a return and make good decisions versus a processor
is very difficult to find. And the reason I never.

Speaker 5 (41:58):
Did this is because a lot.

Speaker 3 (42:00):
Of people have software. Now you're guys and gals, and
they just pump it through and go we're done. And
two friends of mine have recently engaged me, just what
you think of this return? The first one was completely wrong.
I go, look at it.

Speaker 5 (42:15):
I don't.

Speaker 3 (42:15):
I'm not practicing, but I could tell you the other
one they got. I had a friend in Louisiana who's
selling a home, and I go, you need to know
the basis of the home, and they go, well, I'll
never know, And I go, why because of Katrina biped
it out. I go, it doesn't matter. You need to
figure out. It's almost like people are being obstinate, if

(42:36):
you know what I mean. I'm just trying to make
people chuckle too. But I'll call your office.

Speaker 1 (42:41):
Yeah no, And I appreciate, Paul. I appreciate those comments.
And I say, as a firm, we totally agree with that.
And I will say our tax planning we have, we
have great over the last five years. We've greatly increased
our capabilities in terms of people and tools. We've got

(43:02):
an amazing team of c pas and rolled agent and
in our cfps as well. And I will say it
is you can't avoid tax. It's a huge part of
our financial planning process is conducting really extensive tax planning
and having h individuals and we've got several individual visuals

(43:25):
who are also doing some tax prep and so uh
they are in this every day dealing with it. And
and it's it's you're right. There is software out there
that where I think sometimes you get people who know
a little bit throw things into a software really don't
understand it all, but the software is going to spit
out this nice little pretty report. And again I think
software is great, and we we have software tools we use,

(43:48):
but you've got to have the horsepower, you've got to
have the the analytical knowledge and first hand knowledge to
know how to analyze that whether the inputs are all
right and it's really and you know it because it
gets back to you know, why are people even thinking
of things like Roth conversions? Like taxes are a huge
impact on our retirement planning and you you really can't

(44:12):
uh in our you know, in our philosophy really put
together strong dynamic financial plans without having some some tax
planning is a part of that because again getting to
the whole you know, IRA Roth conversion process. You know
the reason a lot of people do these conversions is
think about it. You have an IRA, you know what

(44:36):
that balance is today. You know how you've got it
diversified in terms of your portfolio, so you could project
out some reasonable expectations of growth. But the unknown is
when you pull that money out, what are you gonna
pay taxes? And again this is not like fear like
it's not about you know, you know, it's not about

(44:59):
go We'll get some type of vehicle that's going to
be a zero tax bucket vehicle that's gonna have huge
sales charges and you're not really going to understand, you know,
what's happening with your money. It's just plan and put that,
you know, put that analysis together, and so ross conversions
may be appropriate. And again the downside of a ross
conversion is you're paying the taxes. Now, the upside is, right,

(45:23):
you've you've you've paid the taxes. You've you've got you've
now have certainty over what that is, and the money
and the and whatever growth that happens from that point
is tax free. And that's where you know, generally, you know,
the more time that you have. So generally with the
roth uh conversion buckets, we want that to be the

(45:45):
last bucket that somebody touches. And and many times it's
part of estate planning, and that's going to be a
big part of the bucket that's going on to airs,
you know, and and think about it. You know, you
you pass your IRA, you know, to your children, right,
taxes have not been paid on that, and so they're

(46:05):
gonna get this. They're gonna have to draw you know,
draw it down over ten years and then they're gonna
pay taxes. Right, And now that's not a terrible thing, right,
You're still getting that money. So it's still in that positive.
But now think you know, you're you're now that same
child is getting an inherited wroth diray where the taxes
have already been paid, so now they draw it down

(46:26):
over ten years, but now they don't have to pay taxes, right,
And so again it's just part of financial planning that
you know there is uncertainty and you know, and it's
definitely not a one size fits all because again generally
the things yet, hey, how how are we going to
pay the taxes when we do the conversion, because there
are going to be taxes due and on the amount

(46:48):
you convert. And you know, again if you're under fifty
nine and a half and you're using some of the
money as part of part of that conversion to pay taxes, well,
well guess what. The amount you just use for taxes
is now a distribution, so subject not only to taxes
but to the ten percent penalty. So you want to
plan solidly around that. So again it's it's you know,

(47:12):
most financial strategies are not one size fits all, and
it's about going through analyzing. And again with with the wrath,
the longevity of the wrath account, you know you want
that around a long time to help recoup some of
that benefit, and so you know we're coming, you know,

(47:35):
near the end of the show. Appreciate everybody you know
tuning in. You know, I want want to have a
little segment about taxes. Taxes are coming April fifteenth, the
date is coming, so you still have a little bit
of time to make some last minute i RA contributions,
HSA contributions. So just want to remind everybody of that.

(47:56):
And you know, I want to thank you for tuning
in today. I hope you enjoyed the show. I know
I I certainly did. Hope you enjoy the rest of
your weekend, have amazing week ahead. Be sure to check
out our website Bouche dot com for great content and information.
You have been listening to Let's Talk Money, brought to
you by Bouchet Financial Group, where we help our clients
prioritize their health while we manage their wealth for life. Again,

(48:19):
thank you for tuning in with me this morning. Hope
you enjoy the rest of year Sunday and have an
amazing week ahead. Thank you very much.