National 401k Day!

Episode Transcript

Speaker 1 (00:00):
And our phone lines are open for you. If you've
got a question for our retirement planning professionals from Coss Financial,
telf for number to get on the air six oh
eight three two one thirteen ten. That's six oh eight
three two one thirteen ten. Love to have you join
us this morning, whether you got a question about our
topic or any retirement related question. Love to have you
join us on the program, don't forget. You can learn

(00:20):
more about Coss Financial on their website Coss financial dot com.
That's Coss Klaas Financial dot com. Great website to learn
more about cost Financial, learn about their separate divisions, learn
about the team there. You can also sign up for
the weekly Market Pulse newsletter. That's say a weekly email
that comes to your inbox. It'll snapshot of what's been
going on in the markets. Also link to the most

(00:40):
recent podcast. Again that available to you at Cossfinancial dot com.
They're telephon number six oh eight four four two five
six three seven. No charge for that initial gets no
you appointment at Coss Financial. It will be complementary to
you again their number six oh eight four four two
five six three seven and joining us this morning. CJ
Closs and Forrest Ross of Coss Financial CJ. How you

(01:01):
doing this morning?

Speaker 2 (01:02):
I'm doing great, Sean, how are you?

Speaker 1 (01:04):
I'm doing really good. Great to talk with you, for Ust,
Great to have you back.

Speaker 3 (01:07):
How you doing good morning, I'm doing well.

Speaker 1 (01:09):
It's so great to talk with both of you. And
you guys pointed out tomorrow, September fifth is National four
to oh one kDa. I'm gonna guess there's a big
party at Class Financial with cake and uh and I'm
looking for my invite as soon as we get off
the show, because I'm a big fan of cake and
ice cream. But uh, National National four oh one KD

(01:30):
is tomorrow, so we're going to talk about Oh what
a great tool four oh one k is and uh
And of course obviously we talk with you guys at
Class Financial. A big part of what you do is
help folks with that and a great opportunity elso if
you've got a question, get you on the here six
o' eight three two one thirteen ten. That's six o'
eight three two one thirteen ten. Other great thing we
do on this program, it's the Class Quiz Question of
the week, your chance to win a fantastic prize. This week,

(01:52):
our friends from Class Financial have provided a twenty five
dollars gift card to the Cheesecake Factory. We'll tell you
a little bit later on in the program how you
can win that little tip. Pay close attentions program because
almost every show, the question and answer come up during
our conversation. And before we start talking about national four
to ROH one K day, let's actually look back at
last week's program get the Class Quiz question and answer

(02:14):
there as well.

Speaker 2 (02:16):
Yeah, so thanks to everyone for listening, and congrats to
our winner from last week, which was Carolyn of Waterloo.
Carolyn correctly answered last week's question, which was in twenty
twenty five, the average accumulated debt Americans OH is over
one hundred and five thousand dollars and this was a

(02:37):
truer false question and Carolyn correctly answered that question as true.
So make sure you pay close attention this week because
we'll have another question at the end of the show
and you could be a winner like Carolyn.

Speaker 1 (02:49):
Very very cool and again that coming up a little
bit later in the program, your chance to win the
twenty five dollars gift card to the cheesecake Factory. As
much today we're going to be talking about a really
powerful actually arguably I think I didn't even know that's
arguably the most just we probably put a full stop
there most powerful retirement tool available, which is of course
your four oh one K. Tomorrow, as mentioned is National

(03:09):
four oh one K Day, So it's the perfect time
to talk about ways to maximize your plan and avoid
common mistakes, isn't it. CJ.

Speaker 2 (03:19):
Yeah, so you know, every day is a great day
to discuss this topic. But yes, it's obviously very timely
with tomorrow being September fifth, which is National for one
K Day, so it's the perfect time to talk about
how to maximize your plan and avoid some common mistakes.
That's the reason why we have Forrest ross On with
us today. He's our director of retirement Services here at

(03:40):
COSS Financial and so Forrest, where should people begin when
it comes to getting the most out of their FORUR
one K plan?

Speaker 3 (03:48):
Thank you, CJ and Sean, and good morning everyone. And
it's interesting that today when you look at employers that
provide retirement plans to their employees, about seventy percent of
Americans have some kind of retirement plan available through their employer.
So it's really prouded that if you have one of

(04:10):
these offered to you, that you take some time and
find out about it. You know, what are the rules
around that plan? When am I eligible? What can I
put in? When can I enroll? But also even more
important than those things is is my employer giving me
a match if I contribute some of my own money

(04:30):
to the four oh one K plan and if they
are find out what that amount is and try to
maximize it. It really is one of the most powerful
things that you can't take advantage of in your four
oh one K plan is getting that employer match and
maximizing it. And let me just give you a quick example.

(04:51):
So let's say that I'm making sixty thousand dollars a
year and my employer has a match where they will
match one hundred percent of the first four percent of
my pay that I put into the plan. So again,
if I'm making sixty thousand dollars a year, I contribute
four percent, that equals two four hundred dollars a year

(05:15):
that I would be putting in. Then my employer would
match that dollar for dollar with another two four hundred
dollars for a total of forty eight hundred dollars going
into my four to H one k plane each year.
So again that employer match like is so powerful when
we look at the opportunity to help you grow your retirement.

Speaker 1 (05:39):
Nest Egg talking this morning with CJ. Class and Forrest Ross.
They are our retirement planning professionals from Class Financial. Pretty
amazing stuff when it comes to the four to ROH
one k. Of course, tomorrow is national four to roh
one k today, So obviously there are options out there
and things that people need to need to know about.
What about some of those choices in our retirement plans,

(06:00):
things like where to defer our contributions.

Speaker 2 (06:03):
To Yeah, good question, Sean. So another key decision you'll
need to make is choosing between traditional and WROTH contributions
and understanding the tax impact of those decisions. So here's
a quick breakdown. Traditional four to one ks or four
to oh three b's or four forty seven plans are

(06:24):
pre tax contributions. We call them traditional because this is
the original way that employer sponsor retirement plans were established.
It was a way to reduce your taxable income. So
we call them traditional because they've been around the longest.
But if you think if I earn one hundred thousand
dollars and I put five thousand dollars into a traditional
four to one K four oh three B. What I'm

(06:46):
actually doing is only getting taxed on ninety five thousand
dollars because that five grand was pre tax, so it
lowered your taxable income. Now, when you do that into
the traditional side of the bucket, the good news is
you save taxes today, meaning the money you put in
is pre tax, and then it grows tax deferred and
it has compound interests accumulated with it, meaning it grows

(07:08):
you don't pay tax, it grows no tax. But when
you get to retirement in that traditional pre tax bucket
and then you go to pull that money out to
live off of, well, then it becomes income taxable at
that time, whereas WROTH four to h one K or
four H three B contributions are post tax contributions. So,
again using my same example, I earn one hundred thousand

(07:29):
dollars and I put five thousand dollars into my four
to oh one K, but I do it through the
Wroth bucket. Well, I'm still going to pay tax on
the full hundred thousand dollars because I'm not putting it
in on a pre tax basis, so I don't save
any money today on taxes. But here's the key. That
five grand that goes in that is post tax. The
growth on that is tax free. So same concept here

(07:53):
at compounds. It compounds of compounds. And then when I
get into retirement and I go to pull money out
of the Wroth side of my bucket, there's no tax.
There's no tax on my original contributions because obviously I
already paid taxes on that, but there's also no tax
on the growth as long as I leave it in
there till age fifty nine and a half. Now, of course,

(08:15):
you know, people go, oh, well that sounds better. I'll
I'll just do all Wroth. You know if tax free
sounds better than tax deferred. Wow, I wish it was
that simple, everybody, But it's actually not. You want to
tell what it really is evaluating, and that's going to
sound complex, But what you really have to evaluate is
what is your current highest marginal income tax bracket compared

(08:37):
to what you expect your future marginal income tax bracket
to be in retirement. That is the calculation you should
be doing to decide between pre tax and WROTH. And
here's the kicker. Everybody nobody knows the answer to that question.
And therefore anybody who says pre tax is better or
WROTH is better, you can just kind of look at

(08:59):
them and say, wow, Wow, I didn't know you knew
the future. Obviously that's sarcastic. But what we're getting at
here is anybody who says they know what's going to
be better, they don't. They're making educated guesses about the future,
which is often what we have to do as financial planners. Now,
there's some pro tips to be aware of here. Pro
tip number one would be listen, if you're younger and

(09:20):
your overall taxable income is low, or maybe you're paying
like little to no federal income tax, you probably are
going to want to do all WROTH contributions because you're
paying little to no income taxes. Anyways, you might as
well get all the tax free growth and then have
no tax in the future. Conversely, if you're just getting
out of med school to your first job, maybe your surgeon,

(09:40):
and you're starting to make four hundred thousand dollars a year,
you might be young, but listen, your highest marginal income
tax bracket could be thirty two to thirty five percent,
you probably are going to want to do mostly pre tax.
Save that thirty two to thirty five push it out
into the future when you're in retirement and you know,
not pay tech or pay lower income tax bracket in
the future. And finally, for those of you who go, well,

(10:04):
I'm not either of those extremes CGM, somewhere in the middle,
we'll consider splitting your contributions a portion into ROTH, a
portion into pre tax. You know, a lot of people
know about the idea of diversifying your investments, but what
about diversifying your future tax risk. So there's a couple
of pro tips around pre tax versus ROW.

Speaker 1 (10:22):
Really great guidance and a lot of great information this
week as we talk with our retirement planning professional CJ.
Closs and Forrest Ross. Of course they come to us
from Claus Financial. I hope you had a chance check
out the website classfinancial dot com. That's Class k l
aa S Financial dot com. If you haven't been there yet,
when you get into the office, you can check them
out online. Of course, got your smartphone, they're available there

(10:43):
as well. Class Financial dot Com telephone number. Speaking of
your smartphone, six oh eight four four two five six
three seven. No charge for that initial get to know
your appointment tech clause financial. It will be complementary to
you again. They're number six oh eight four four two
five six three seven. We'll continue our conversation with CJ
and Forrest. We will do that next as Money in
Motion with COSS Financial continues right here. Thirteen Den Wiba

(11:05):
talking this morning with our retirement planning professional c J.
Coss and Forest Ross. They come to us from class
Financial online colssfinancial dot com. That's COSS k l AA
S Financial dot com. Tell phone number six oh eight
four four two five, six three seven. No charge for
that initial get to know your appointment at COSS Financial.
It will be complementary to you again. Their number six

(11:26):
soh eight four four two five six three seven. Speaking
of numbers, tomorrow is nine five. That's September fifth, National
four oh one kDa try to figure out why it's tomorrow,
and then I thought, well, maybe it is like a
working nine to five kind of thing, or I thought
well April first might work better for it. But nevertheless,
it is tomorrow nine five, all right, ninth, Yeah, that's
ninth month. Yeah, ninth ninth fifth four oh one kDa

(11:47):
talking this morning about four oh one ks, and you know,
we kind of set up the importance of putting money
into your four oh one k. What's kind of that
next step then to build your four oh one k
over time?

Speaker 3 (11:59):
Forest, Yeah, that's a great question. And what we would
suggest is try to increase what you're putting in a
little bit every year if you can. Statistics would say
that really to have a good mess egg when you're
ready to retire, you should regularly be saving between ten
to twelve percent of your pay into your retirement account.

(12:23):
And that doesn't include the employerment, that's just your contributions.
And you know, most people can't afford to do that
right away, right out of the gate, right, So our
recommendation is is if you could just try to increase
what you're putting in one percent every year, you know,
time it when you get your pay raise or you know,
and if you do it in small, little incremental steps
at one percent a year increases you know, you don't

(12:46):
feel like quite as much in your in your take
home pay, and it's a little bit easier to digest
and account for. So really try to get to that
ten to twelve percent amount over time is our recommendation.
One of plans these days, we'll have auto escalation features
built into them as well to help you do those
type of increases. And then also if you're able to

(13:11):
try to get up to the maximum contribution amounts that
are allowable. So if you're under the age of fifty
in twenty twenty five, the maximum amount that you can
put into your four to one K plan this calendar
year is twenty three thousand, five hundred dollars. Then if
you're over the age of fifty, you're allowed an additional

(13:33):
seven thousand, five hundred dollars for a total of thirty
one thousand dollars that you could put into your plan.
New this year in twenty twenty five is an extra
special enhanced Ketchup contribution brought to us through legislation called
Secure Act two point zero, where if your age sixty

(13:54):
sixty one, I'm sorry, if your age, yeah, sixty sixty one,
sixty two, or sixty three, those four years you have
a special enhanced Ketchup contribution of eleven thousand, two hundred
and fifty dollars. So again, if you're one of those
four years, you could save up to twenty thirty four thousand,
seven hundred and fifty dollars into your four oh one

(14:16):
K plane in twenty twenty five, and then once you
turn sixty four, it reverts back to the other seven thousand,
five hundred dollars ketchup contribution. So it's kind of confusing,
but just know that if you're over the age of fifty,
you do have some additional contributions that can make over
the standard twenty three thousand, five hundred dollars limit.

Speaker 1 (14:39):
It's pretty amazing, as we talked this morning with Forrest
Ross and CJ Closs of Coss Financial, pretty amazing when
you think about this stuff as well, and regardless of
your age and where you are in your career, it's
definitely an important conversation to we have and something to
be aware of as well. As we talk with CJ
and Forrest o't forgetting it. Gets know them, mean, gets
know everybody at Coss Financial online, the website coss financial

(14:59):
dot com. That's Closs klaasfinanci dot com. They're telling pH
number six so eight four four two five six three seven.
So once you've kind of decided on and figured out
how much you want to contribute at the at the
start of the year, and which investments you've you've chosen
should be then revisiting during the year or what's kind
of the guidance on that CJ.

Speaker 2 (15:19):
Yeah, great question, Sean. So you will want to make
sure that you're reviewing your retirement contribution amounts midyear and
maybe do adjustments as needed, you know, things like did
you get a raise? Can you possibly increase your contributions
within that maximum amount that Forrest was talking about. Also,
you should review your investment mix regularly, so not only

(15:42):
how much are you contributing, is it pre tax versus
roth like we were talking about before, where am I
in those maximums? But also how am I invested inside
of my plan? Now I'm going to not get too
deep into this, but in previous shows we've talked about
target date funds, which of course are are industry loves acronyms,
so you've just anything that I say you can turn

(16:03):
into an acronym. So target date funds, which are known
as TDFs for short. These target date funds the ideas
that you put money into the fund that is closest
to the date that you will retire. Think target date
twenty forty five something like that, and then that fund
automatically backs off your wrist the closer you get to that.

(16:26):
Now more to come on this in the future, but
the idea of this is if you don't put your
money into a target date fund, which a lot of
people do not, they will buy a stock fund or
an international stock fund. What becomes a problem with that
methodology if you're not careful, is if you do not
review your investment allocation and you're in all say US

(16:48):
or international stocks, and you start getting closer to retirement. Well,
remember those very things that were powerful and helped you
grow when you were young, which is great, could also
be the cause of forcing you to work longer if
they suddenly, you know, decline in value right before you
you were wanting to retire. So we would just suggest
about every you know, three to five years, take a

(17:11):
look at the underlying investment allocation of your retirement plan
to make sure that it still is meeting your needs.
And then again consider those target date funds as a
way of putting money in there so that if you
do fall asleep at the wheel and you do forget
to review your investments, at least those target date funds
will automatically rebalance you to become more conservative the closer

(17:33):
you get to that target year.

Speaker 1 (17:35):
Really great tools this morning as we talk with CJ.
Closs and Forrest Ross. Of course, tomorrow's number fifth is
national four roh one k da talking about the importance
of your four to ro oh one k of course,
if you ever have any questions, don't forget We do
this each and every Thursday morning and call in during
the show. Also, you can learn more about Coss Financial
on their website cossfinancial dot com. That's Coss k l
aa s financial dot com. And they're telephone number six

(17:58):
soh eight four four two five six seven. No charge
for that initial get to know you appointment tech Loss Financial.
It will be complementary to you again their number six
oh eight four four two five six three seven. There
are some mistakes, some folks make some pitfalls. We'll get
into that next as Money in Motion with Coss Financial
continues right here on thirteen ten, w IBI talking with CJ.

(18:18):
Kloss and Forrest Ross our retirement planning professionals from COSS Financial.
The website Coss Financial dot com that's Coss klaas Financial
dot com Delphy number six, So eight four four two
five six three seven no charge for that initial get
to know you appointment tech loss financial it will be
complementary to you. Talking four oh one k is this
week got a great some great information about about of

(18:40):
course saving and of course also great information about about
monitoring and keeping an eye on your on your contributions
throughout your working career. But what about some of the
some of the pitfalls and some of the mistakes folks
may be making when it comes to their retirement plans.
And how should we react today in regards to things
like market volt utility and those things when it comes

(19:01):
to our retirement plans for us.

Speaker 3 (19:03):
Yeah, so this is really important to think about as well.
And a big mistake or a pitfall that we see
people making is taking early withdrawals from their plan or
even taken a loan against the fourah one K account.
And I'll just give you a quick example on early
withdrawals in that if you change employers, don't just take

(19:26):
the money take the cash out of your four oh
one K account if you leave an employer, instead roll
it over to an IRA account or your new employer's
four oh one K plan or retirement plan and let
it keep growing and keep contributing to it, because if
you make the mistake of cashing out your account when
you change employers, first of all, it's probably going to

(19:50):
be taxable income to you in the year that you
take that cash distribution. In number two, if you're younger
in the fifty nine and a half, you're also going
to have an additional ten percent penalty on top of it.
So that's a big hit to take, and we really
don't recommend people do that unless you have no other choice. Again,
if you leave employment with your employer and you have

(20:10):
a four one K account with them, roll it over
to an individual EI area account or your new employer's plan.
That's really the best thing to do so that you
can keep building and saving and continue to grow your
retirement mestic and in terms of loans, a lot of
employer four oh one K and retirement plans do you
allow for you to take a loan against them, but

(20:34):
you're paying that loan back with interest and you're really
hindering the growth of your account. So again that really
should be a last resort in terms of where you
want to go. If you get into a financial difficulty. Instead,
what we would really recommend a better solution would be
is to keep a separate, separate emergency fund so that

(20:56):
way you have someplace to go if you get into
a difficulty suation instead of having to tap into your
flow and can't count. In terms of market volatility, I
think a mistake that people can fall into there is
they tend to panic if the markets go down. I
mean markets don't go straight up, right, I mean they're

(21:16):
going to go up and down as we go through
economic cycles and as we go through time, and sometimes
people can panic a little bit if the markets start
to go down. And a good example of this was
what happened during COVID. If you remember back in March
of twenty twenty, when COVID was still was first hitting us,
the markets went down very very quickly, and a lot

(21:38):
of people were worried about what's going to happen. We've
never been through this before, and they panicked and pulled
their money out of the market at exactly the wrong time.
And then when the markets bounce back, they really missed
out on a lot of that game, and so really
get in the habit of just riding out the waves

(21:59):
or the ups and downs of the market when it
comes to your retirement account. Because this money, use it
for tomorrow, it's not for next year. Usually it's for
ten or fifteen or twenty years down the road. So
so just get used to kind of letting it ride
and don't worry about the ups and downs of the market.
You know.

Speaker 1 (22:17):
One of the terms for us, I hear you guys
use is that dollar cost averaging, which is which is
a really really important, really important thing to keep in
mind too as you as you're mentioning there's through the
ups and downs and other things. We talked this morning
with Forrest Ross and CJ. Closs, our retirement planning professionals
from Class Financial website Class financial dot com. That's Coss
k l A A s Financial dot com tel for

(22:38):
number six so eight four four two five six three
seven and CJ. I'll I'll let you wrap you a
lot of great information this week. As always, Uh, I'll
let you kind of give us the bottom line this morning.

Speaker 2 (22:50):
Yeah, thanks Sean. So you know your retirement plan at
at work, your employer sponsored retirement plan, whether that be
a four oh one K of four oh three, be
a simple IRA at set by Ray four fifty seven
four one, or whatever they call your employers fontor retirement plan.
It is truly one of the most powerful tools for

(23:10):
your future financial independence, and we would just suggest use
it with intention, maximize your match, increase your contributions over time,
set up auto escalations, and keep your investments aligned with
your goals, and ride through some of those waves. As
Forrest was talking about, listen, we have found through being

(23:32):
in business for fifty years in this space of retirement planning,
that it often is not the separation between those who
have a lot at retirement and live comfortably in retirement
versus those who do not is often not what you
would think it is. What people think it is is
really smart people who earn a lot of money. That's

(23:56):
often not the case. It's often of those people, regardless
of their education level or of their income level. Did
they start early and make it automatic? Let me repeat that,
did they start early and did they make it automatic?
There is a lot of power in just starting to

(24:17):
save early, making it automatic, auto escalating your contributions, putting
it into a target date fund that automatically rebalances for you,
setting it and forgetting it and investing for forty years.
I mean, Forrest can attest all almost all of the
research that we see, not to mention with our own
experience for the last fifty years, would support this ideal

(24:39):
of just do the simple things right. So that's the
whole point of our show today is just to encourage
you really engage those employer sponsored retirement plans, follow some
of these instructions, and then obviously if you end up
needing help with anything like that, you can reach out
to our office and we can talk to you about
ways to kind of enhance that overall strategy.

Speaker 1 (24:58):
It's always a really good day. You mentioned starting early,
and it's never too late as well. To start that
conversation and start to start those positive good habits. It
benefits you greatly, especially as you look towards retirement. Great
day to start up. Set up that appointment at Cost Financial.
Don't forget that initial one. It's not going to cost you.
A thing I got to do is pick up phone,
give the call six oh eight four four two five
six three seven. I got no charge for the initial

(25:20):
get to know you appointment at Lost Financial. It will
be complimentary to you. They're number six oh eight four
four two five six three seven the website cost Financial
dot com. That's cost k l a a s Financial
dot com. We don't have a money in Motion listener
question corner question this week, but if you do have
a question, I know, on I've called radio shows, I
get nervous. I know sometimes folks are hesitant to call in.

(25:41):
They don't want to be live on the air. As
welcoming and as fun as it is, I get it.
A cool feature in our great resource our friends at
cost Financial provide is an opportunity to email your question
in info at Cossfinancial dot com. That's I n FO
at Cossfinancial dot com. If you've got a question, whether
it's right now or something pops in your head in
the middle of the night, you can email at info

(26:01):
at Cossfinancial dot com and we'll answer it right here
on the program. Speaking other great things right here on
the program, the class quiz quesch leak. It is time
now for that your chance to win a twenty five
dollars gift card to Cheesecake Factory. It works like this
and just a moment I'll ask you the class quiz
question leak. You then have thirty minutes from the in
today's program to call the Cost Financial Office right here
in Madison at six oh eight four four two five

(26:21):
six three seven. If you are the first call with
correct answer, win this week's prize, which is a twenty
five dollars gift card to cheesecake factory. This week's Gloss
Quiz question week is this. If you are fifty five
years old and twenty twenty five, what is the maximum
amount you can put away into your four oh one
K plan at work? Is it twenty three thousand dollars

(26:43):
or three thousand, five hundred dollars. Telephone number six oh
eight four four two five six three seven. First call
with correct answer win that twenty five dollars gift card
to the cheesecake factory. Don't forget as well. That's Loss
Financial Office right here in Madison. That number six oh
eight four four two five six three seven. And the
website Closs Financial dot com. That's Coss k l A
A S Financial dot com. CJ. Forrest. It's great chatting

(27:06):
with both of you, guys. Have a great Dan and
we'll talk soon.

Speaker 3 (27:08):
Thanks, thank you so much.

Speaker 1 (27:10):
Take care, guys. News comes your way next year at
thirteen ten WU I B I