Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:05):
Tonight some headlines we've found that tell you to make
some moves that could wreck your retirement. We've got our
take and a deep dive into backdoor roth conversions, and
of course much more. You're listening to Simply Money, presented
by all Worth Financial I Meani Wagner along with Steve Ruby. Okay,
anyone who's listening from USA today, we're apologizing in advance,
(00:26):
but maybe you owe the rest of us in apology
as well, because we came across not one, not two,
but three headlines in USA today that we would say, hmm,
this is almost terrible information. And so it's our job
to keep you from making mistakes which you cannot recover from.
And if you were to read any of these headlines
(00:47):
or take the advice of any of these articles, we're
afraid you could end up in a really bad situation.
Let's get into this.
Speaker 2 (00:55):
These articles were sequential as well, Like they were all
right there right in a row.
Speaker 3 (01:00):
So it was just a series of bad decisions.
Speaker 1 (01:02):
In the first wort and the worstest, Yeah.
Speaker 2 (01:06):
Here's how you just destroy all hope of retirement. So
you know, the first one it was literally tired titled
how to withdraw money.
Speaker 3 (01:14):
From your four oh one k early.
Speaker 2 (01:17):
So you know, you see this and you figure it
would maybe switch gears and say this is something that
you don't want to do. But it really leans into
the perceived benefits in quotations of actually tapping into four
one K money early. You know, it explains that while
there are penalties and taxes involved for taking early withdrawals,
it doubles down as you begin to read that article.
Speaker 1 (01:40):
Yeah, well, here's the line from it that is absolutely ridiculous.
The author states, wouldn't it be nice to tap into
that money when you need it?
Speaker 3 (01:49):
What?
Speaker 1 (01:49):
No, Actually, it's a terrible idea. In your future self,
who is probably wanting to retire someday, would be telling
you this is a terrible idea. There's nothing nice about it.
I got to tell you, I'm a supporter of once
that money goes into the four one k, it shouldn't
go out, and I think, if anything, we should provide
protections that we can't get our hands on that money.
(02:11):
And as I look at these headlines, what they sum
up to me is here are some terrible decisions you
can make if you have a total and utter lack
of planning when it comes to your money, right, because
why do you need to withdraw money from your four
to one K early? You know, I mean the first
thing that we would say what you need is an
emergency fund.
Speaker 2 (02:32):
Yeah, absolutely, I mean this is it blows my mind
that this is actually something that was published. Again, sorry
if you're listening to USA today, but it really is
kind of ridiculous because it talks about once your your
withdrawals approved and completed, the money is transferred from your
four to one K to you and you don't have
to repay the funds. So it's almost acting like there's
(02:52):
no real consequences here. It would be nice if you
could tap into that money and it was magically replenished
and there was no consequences, But really you're taking from
your own financial future. There can be some obvious major
pitfalls and doing so.
Speaker 1 (03:07):
Well, and there's taxes and there's penalties. But then it
goes on to say, oh, actually there's a way you
can get around those taxes. You can take a withdrawal
as long as you pay that money back within sixty days. Well,
why would you a want to do that? Well, they
give you an example. So you've got a short term
need and you just know cash is coming in. For example,
(03:28):
tax bill is due now, but you've got a bonus
scheduled for next month. Did this author never see Christmas vacation?
Speaker 3 (03:35):
Wait?
Speaker 1 (03:35):
What if the bonus doesn't come and instead you're enrolled
in the Jelly of the Month club. Now you've taken this.
Now you've taken their withdrawal, and there's no money left
to put back into that account. I just think these
are very shortsighted ways in decisions that you can make
about your money. Don't let this one at all.
Speaker 2 (03:53):
It talks about hardship withdrawals, taking a four to one
k loan. It's then setting up a healock, then adjusting
your budget, then using your personal things.
Speaker 1 (04:00):
It's a little backwards old.
Speaker 2 (04:01):
It's one hundred percent backwards. You start with the emergency fund,
like you said a few minutes ago. Yeah, And to
top it off, it says, you know if you don't
have an emergency fund.
Speaker 3 (04:10):
The next article how to use your wroth Ira as.
Speaker 2 (04:14):
An emergency fund. I can't even read that that that
that without laugh.
Speaker 1 (04:19):
Yeah, and it says the distinctive feature here allows you
to access those wroth Ira contributions anytime and for any reason,
including in a financial emergency. If you are putting money
into an IRA or two A four oh one K,
it is earmarked for your retirement. And you know, this
is part of the financial planning process, and it's honestly
one of the first conversations I have when I'm working
(04:41):
with people. You know, the first thing that you need
to be doing is building an emergency fund, because we
know it's not if something unexpected happens, it's really when,
and it can be your car breaking down, it can
be your h VAC unit, it can be it's finally
raining and all of a sudden there's a leak in
the roof, whatever it is. We know that unexpected bills
come along over time, and some of them, unfortunately, have
(05:02):
terrible price tags attached to them. And if you don't
have that emergency fund, most people turn to one of
two places, your credit card or then you're going to
rack up twenty plus percent in interest likely right, and
you're not going to be able to pay it off
and maybe that first month and then second people turn
to retirement accounts. And so this is why, you know,
we constantly focus on having that emergency fund. There's nothing
(05:23):
sexy about it. You know it's not growing yet twelve
percent a year, but man, when you need it, it
is there. And then you're not using your wroth IRA
as an emergency fund.
Speaker 2 (05:35):
Yeah, let's remember IRA stands for individual retirement.
Speaker 1 (05:38):
Accounts, yes, not emergency fund.
Speaker 3 (05:40):
Yeah, there's a keyword in there, retirement.
Speaker 2 (05:43):
You are supposed to be setting aside this money aside
for retirement, and believe it or not, Uncle Sam gives
us some pretty fantastic benefits of roth IRA's tax free
gains for the rest of your life. There are some
caveats there, but when you're tapping into this money that
will grow tax free for you are not only hurting
the compounding interests, but you're lacking diversification of taxes in retirement.
(06:07):
So roth irays are not emergency funds.
Speaker 1 (06:11):
You're listening to simply money presented by all Worth Financial
I Memi Wagner along with Steve Ruby this latest batch
of headlines. Sorry for those who love USA today yesterday,
maybe it was just an off day, but what we
came across and the personal finance section was not one,
not two, but three terriable articles giving you advice that
is the exact opposite of what you would get if
(06:32):
you ever walked through the doors of all Worth. Right,
And that's why I think the show is so important
because we just try to give you this perspective, and
the perspective is of how to build wealth over the
long term as a long term investor. Okay, And so
we said one article was bad, the next one was worse,
and the third was like the worstest stuff the worst
And this is disadvantages of wrath iirays what to know
(06:55):
before you invest. And listen to this the start of
the article. Wroth irays are like the cool kids at
the investing party. Everyone seems to love them. Why, Okay,
we're not talking about crypto right, We're not talking about
non fungible tokens or meme stocks. This is a legitimate
way to invest. And we would say there are a
(07:15):
lot of advantages.
Speaker 3 (07:17):
To a wroth Yeah. I mean it's just silly to me.
Speaker 2 (07:22):
Pitfalls of wroth irays. I mean it says that it
might be a disadvantage to high earners. Yes, sure, if
you are in a very very high tax bracket today,
you might find yourself in a position where you're not
even able to contribute to a roth ira directly. But
that is not a pitfall that we all suffer from.
(07:44):
We're not all earning so much money that we can't
easily contribute to a roth iray. So I don't even
know why you would write this article and then give
that as a pitfall.
Speaker 1 (07:54):
I had a twenty six year old in my office
yesterday and it became this session where it was like
if Amy was talking to her twenty six year old self, right,
and I was like, you should be putting every dime
of what you're making into the every time that goes
into that floor one case, should be in the WROTH
part of it, right, because you're likely in a lower
(08:15):
tax bracket now. But you know, I also hear people
saying all the time, you know, you could be in
your peak earning years, and then a ROTH doesn't make
sense because maybe you're in a lower tax bracket when
you get to retirement, yes, but say you're in your forties,
so that's maybe twenty years of growth right in that
WROTH account once you pay the taxes that you're never
gonna have to pay that you're never gonna have to
pay taxes on. So you know, full disclosure here, I'm
(08:37):
in my forties. I'm putting money into a WROTH. I
like the flexibility of paying taxes now. I don't know
where they're going to go in the future. Maybe when
I'm in retirement, maybe I'll be in a lower tax bracket.
But what I'm looking at as far as Congress right now,
is it our current tax structure rate set to sunset
at the end of twenty twenty five, will likely be
in a higher tax bracket next year. I like a WROTH,
(08:59):
and I think for so want to make this sound like, oh,
it's this cool new thing, and we're going to tell
you that the truth about it is incredibly misleading.
Speaker 2 (09:07):
The true I know, yeah, I mean, everybody's financial situation,
needs and goals are different, their opinions, their viewpoints about
taxes in the future. If we wanted to speculate a
little bit, then beyond twenty twenty six, we're looking into
the twenty thirties, when there's going to be entitlements and
issues with Social Security. My hunch's taxes are probably going
to go up further. We are, yeah, we are at
(09:30):
historically low tax rates. But you know, even if you
are a high earner, a roth IRA isn't some kind
of a special club. Here there's a hierarchy that I
take folks through that I work with and ask me
the question where should I save my next dollar? If
taxes today are a concern, then then you fill up
your tax advantage buckets first, like your four oh one K.
You could do all pre tax in your four to
(09:51):
one K. Maybe if you have an HSA you can
max that out, and then we pivot to the WROTH.
Then we pivot to the ROTH IRA to diversify that
future tax liability bit. And we're actually going to talk
about ROTH conversions later and backdoor contribution. So you know
that's certainly part of the topic of conversation when it
comes to where to save the next dollar. Not Hey,
here's the disadvantages, So steer clear of roth iras you know,
(10:13):
this sequence of articles that we came across with USA
today really mind boggling to see this.
Speaker 1 (10:20):
Well, and if you were to read these three articles, right,
so you're taking money out of your four one K,
then you're taking money out of your IRA, and then
you're not saving in a ROTH whatsoever. Okay, So when
you get to retirement and you've got like two hundred
dollars in those retirement accounts because you've been taking money
out of them the whole time. Keep in mind, then,
depending on what tax backet you're in, if it's all
(10:41):
in a tax deferred account, now you owe taxes on
that money. Right, And to be fair, even if you've
been a great saver and you've got a million dollars
in that four one K, if that money's tax deferred,
you know you're going to owe a large portion of
that to Uncle Sam. And I'm a huge fan of
kind of diversifying your tax burden so that when you
get to retirement you have choices. Right, you've got some
(11:03):
money in a tax deferred account, but also some money
in a WROTH account, and I would also see some
money in a taxable account where you're likely going to
pay long term capital gains on that money. It gives
you so much more flexibility and retirement. So if you're
being smart and you're building a long term diversified portfolio,
those different tax treatments become incredibly important too. So articles
(11:25):
that tell you that a roth is a terrible thing,
it just doesn't make sense to me. It's just terrible advice.
Here's the all Worth advice, our advice. Don't withdraw money
from your four one k do talk with the certified
financial planner about the potential benefits of a wroth conversion
in putting money into a wroth account. Later, we're actually
going to discuss something called a backdoor wroth conversion. But first,
(11:48):
the irs just revealed the tax brackets for twenty twenty five.
We'll get into how that impacts you. Next. You're listening
to Simply Money, presented by all Worth Financial here on
fifty five KRC, the talk station. You're listening to Simply
Money if some of my all Worry Financial I mean
Wagner along with Steve Ruby. If you can't listen to
(12:09):
Simply Money every night, you don't have to miss the
thing we talk about. We've got a daily podcast for you.
Just search Simply Money. It's right there on the iHeart
app or wherever you turn to to get your podcasts,
and straight ahead at six forty three how to take
advantage of a wroth ira even if you can't do
it directly. We'll explain what we're talking about in just
a few minutes. Okay, So, if you're one of those
(12:30):
people who the Federal Reserve, our nation central bank, lowers
interest rates, for the first time in four years, and
you're immediately thinking what should I do? What should I do?
Now I have money in a higher yield savings account,
Maybe should I move it immediately? Okay, we would say,
take a deep breath, breathe. This will be one of
(12:50):
the rates that will likely fall in short order. But
by short order we're not saying.
Speaker 2 (12:55):
Today, yeah, I mean yes, the rates of your highyield
savings accounts of new CDs and treasuries that they are
going to fall. That that's a natural effect that happens
when the fedlower's interest rates. But it's not that the
sky's not falling there. It's not going to happen overnight.
There's no need to act very very quickly here. If
you have intermediate or short term cash in that highyield
(13:18):
savings account, it's probably still a good place to have
it parked at this point in time, if you know
you're going to be spending those dollars sometime in the
next couple of years.
Speaker 3 (13:27):
I would say, you know.
Speaker 1 (13:28):
My concern was this kind of false sense of security
that we've had over the past couple of years, when
you could make five percent on you know, money that
was just sitting there parked and savings. So, you know,
for those who are a little bit risk averse and
not comfortable with the markets. You know, I heard stories
of people pulling money out of you know, retirement accounts
and things like that, parking it in cash. You know,
(13:51):
that's the false sense of security that hey listen over
the long term, right, we just know that these even
high yield savings accounts likely can't outpace and FLA. So
to your point, Steve, what you have to understand is
when are you going to need this money. And if
it's money that you need in the short term, say
an emergency fund or the near term a down payment
(14:11):
or help with your kids college tuition next year, that
does belong out of the market, and you will still
have a little bit of time to maybe make more
than point zero zero zero six percent like we were
making before on this money. So you know, I think
it will fall in short order, but you do have
a little bit of time though. If you need that
(14:32):
money in the short term, that's still where it belongs, right.
Speaker 2 (14:35):
Yeah, we're kind of on the flip sid where I've
been yelling at people for years to move their short
term positions from their traditional savings accounts paying point zero
one percent into some kind of a high yield savings
not into the markets, or the opposite, not taking money
out of the markets and moving it into high yield
savings accounts. And now we're kind of on the flip
side of that, where yes, the rates that you're receiving
(14:58):
in the highield savings account the is going to go down.
That doesn't mean that you need to move your short
term emergency fund into long term investments.
Speaker 3 (15:04):
That's where you could run into some problems.
Speaker 1 (15:06):
All right, switching gears now to everybody's favorite topic, taxes.
Oh yeah, we have some updated information for you, a
lot of numbers, but these are important. This has to
do with your projected tax rates for twenty twenty five, right,
So these tax rates are changing a little bit. So
you know, if you are in the twelve percent tax bracket,
(15:28):
you're making somewhere between twenty three thousand and ninety six thousand,
nine hundred and fifty dollars bumps up to the twenty
two tax bracket, if you're making over that ninety six
nine fifty to two hundred and six thousand, seven hundred.
If you're somewhere between that two oh six and three
ninety four, you're in the thirty two percent tax bracket
(15:49):
on up from there. That congratulations, yeah, above that you're
doing okay, and you probably don't have to worry about taxes, Okay, Listen,
it's just important to know where you are right, what
your tax rate is, how that works. But we would
see more importantly than that, and I think when people
think about taxes a lot of time you think about
tax preparation. That's what you do right when you when
(16:12):
you're filing your taxes in April. But there's some tax
planning strategies that we would say should be taking place
ye around Now's a great time to look at these things.
And this is really a strategy to try to keep
more money in your pocket and not give as much
to Uncle Sam.
Speaker 2 (16:27):
Yeah, cfps and CPAs they're oftentimes working with their clients
to find ways to reduce taxes now and in the future.
And again that's not just taxifying. That's strategies while you're
still working, while you're retired. There's different things that we
can implement. And why we talk to you about these
these different tax brackets is because, for example, if you're
(16:47):
teetering on one tax bracket and another. Then you can
conceivably lower your marginal your highest marginal tax rate by doing,
for example, pre tax inside of retirement accounts. So the
more money you can tribute to pre tax retirement accounts,
the lower your income will be overall. But it is
potentially a tool to kick yourself into a lower marginal
(17:09):
tax rate. That conversation usually comes up when somebody asks,
should I be doing pre tax or WROTH in my
four to one K? And it really depends. Ideally we
can find a sweet spot where you're doing enough pre
tax if you're on the cusp of a marginal tax
bracket to kick yourself to a lower one and then
do ROTH after the fact.
Speaker 1 (17:28):
Yes, And now that tees me up for my favorite
thing to talk about when it comes to taxes.
Speaker 3 (17:33):
I'm going to talk about hssays Nope.
Speaker 1 (17:35):
You're not, because I'm talking about them because they are
my favorite thing. Triple tax advantage, nothing like it. Okay,
So this is if a high deductible healthcare plan makes
sense for your family, right, You've got to figure that out.
But if it does a health savings account you put
the money in tax free, it goes once again tax
free and if you take it out for qualified medical expenses,
(17:56):
you literally never pay taxes on a dollar of that money.
There's nothing like this. And I think you know, several
several years ago, even when I just first got into
this business, people weren't talking about HSA so much. And
maybe it's because I've talked about them so much until
I'm blue in the phase. But I'm starting to see
more and more people taking advantage of them. And when
I say taking advantage of them, a really great thing
(18:18):
to do is to build up a pretty robust, robust
emergency fund, so you pay your medical expenses as they
go out of that emergency fund. The money in that
HSA is invested and it becomes a retirement account for
healthcare expenses.
Speaker 2 (18:33):
And we know those are going to be through the roof,
and you got to make sure you are actually investing
with those dollars.
Speaker 3 (18:37):
Some people don't realize that that's even an option.
Speaker 1 (18:39):
There's not sitting in cash.
Speaker 3 (18:41):
Fssays and HSA is.
Speaker 2 (18:43):
The HSA is actually that long term retirement account because
that balance rolls over. What about tax loss harvesting? If
you have a taxable account, a joint account with your spouse,
whenever you place trades in that account or an advisor
place trades in that account for you. If there are earnings,
then those are tax either at long term capital gains
or short term which is ordinary income. Keep in mind,
(19:04):
if you're realizing losses in that account during times of volatility,
you can use those losses to offset gains and even
have unlimited carry forward, capturing three thousand dollars of losses
against your ordinary income taxes every year that you fought.
Speaker 1 (19:17):
And it's also important to know on that W four
what should you put in So right, claiming one will
reduce your tax withholding, you're going to get more money
in each paycheck. On the other hand, claiming zero is
going to increase your tax. Withholding, it indicates you what
the maximum in taxes taken out of your paycheck. Right,
what is your goal? And we would say your goal
at the end of every year is not to get
(19:38):
a ton of money back, right, because that's just the
government regifting your money after they held it for the
past year. Here's the all Worth advice. Work with a
qualified tax pro and financial planner that can use strategies
to lower your income and minimize your tax burden coming
up next, workplace flexibility. Is it a thing of the past.
We'll show you what some new research suggests. Next, you're
(20:00):
listening to Simply Money, presented by all Worth Financial. Here
in fifty five KRC the talk station. You're listening to
Simply Money, presented by all Worth Financial, Ammi Wagner along
with Steve Ruby. It was a phrase that became really
popular and a way of thinking that became really popular
during the pandemic. For the first time, many of us
(20:21):
really started to believe in finding that ultra rare work
life balance, right. It became a thing that we could
all sort of look for and talk about, and coming
out of the pandemic, it was kind of on us,
the employers to look for and ask for, the employees
to look for and ask for what we were looking
for in the workplace. Is that changing right, this quest
(20:43):
for work life balance? Is it around to stay or
is it going out the window? Joining us tonight with
her perspective on this, Julie Balkie, of course, Julie on
the Job, always fantastic perspective on what we can be
expecting in the workplace. Julie, I kind of want to
start with where we are now because there is kind
of a shift in the labor force and it went
(21:04):
from employees having a lot of power and now I'm
not sure where we are. So can we still be
I don't know if I would say demanding, but seeking
out work life balance and putting that on the top
of the list of things that are really important to us. Yeah.
Speaker 4 (21:18):
So think about pre COVID days as the pendulum was
completely swung one way, which is work is eight to
five in office. Then we go through COVID where like
literally no one or hardly very few people were in
a location physically, so that pendulum was way swung the
other way. And where we are right now is the
pendulum is finding its resting space between those two. We
(21:41):
are never going back to eight to five in office
model being preferred being the majority of how we work.
We're just not going back. And you can quote me
on that all you want, because I'm very confident good
that organizations have seen the benefits of offering some sort
of flexible work. And flexible is the key word here
(22:01):
because that can mean all kinds of different things. In fact,
eighty two percent of large US companies offer some flexibility,
and so it's you know, it's anything from hybrid to
various days, like you might work a four day work
week and then a five day and then back to four,
maybe off on Fridays or not off on Fridays, but
(22:22):
everybody works from home on Fridays or so some variation
of anything that's not eight to five in office is
really where we're going to land and where we are
landing because employers are they're seeing that toothpaste is not
going back in the tube.
Speaker 2 (22:38):
So you talk about this being a pendulum, does that
mean that things are changing to bring it back closer
to pre COVID climb frames? Is that flexibility reducing for workers?
Speaker 4 (22:50):
Well, if you think about the other side of that pendulum,
was everybody works from home because you're not allowed to
come in the office, and so where it was like
one hundred percent or close to one hundred percent, depending
on your job, you were working not in the office.
And what happened was as we started to I don't
get to the point where it was safe to come
back in the office, and there were since false starts
(23:11):
in there like okay, everybody back, oh never mind, you know,
we went back and forth a little bit. But once
the okay the big part of the danger has passed
everybody back in the office. That's what employers tried to do.
Employers tried to take that pendulum back to where it was,
and they found that that there was a great resistance
of that. And a lot of that is because it's generational.
(23:33):
The younger generation said, yeah, we're not doing that. We've
proven that we can work well from home. And a
lot of older generations were the same way. They're like, yeah,
we kind of like the flexibility to live all sectors
of our lives. And so you had these Elon Musk,
Jamie Diamond from JP Morgan, all these heavy hitters came out,
started pounding the desk and expected the current workforce to
(23:56):
jump and come back. And they looked behind him and
nobody was follow on them, and so they had to
really walk that back. So if companies are trying to
get back to at eight to five, it ain't happening.
In very rare cases will that happen. And certainly not
all jobs lend themselves to work at home, but most
jobs do lend themselves to some sort of flexibility, maybe
(24:19):
shift flexibility, you know, those sort of things. And so
employers are finally getting with the program and saying, Okay,
we recognize that we are not going to retain We're
not going to attract the best talent, and we're not
going to retain the great talent we already have because
people have made it very clear that they're not going
(24:40):
back to the way it was. Your best people are
the ones with the most options, and they will be
the ones using that leverage to find what they want
someplace else.
Speaker 1 (24:48):
You're listening to simply Money presented by all Worth Financial.
I mean you Wagner Long with Steve Ruebey as we
have Julie Balki, Julia and the Job on the show
tonight talking about what many of us have really come
to appreciate jobs, which is a little bit of flexibility.
Is this here to stay? Is this changing? Julie. I'm
so glad actually that you're on today, particularly because over
the weekend I was talking to some friends who different
(25:11):
kinds of workplaces but were being pushed to come back in.
One had three days a month where they could work
from home. That was going away. Another had I think
it was like, yeah, only three days a month that
they could work from home, and that was going away.
And then someone else where there was maybe two weeks
in the office or one week in the office a month,
(25:33):
and now that was increasing by a week. And so
I started to we started to have this conversation of
as we talk about the labor market, the cracks and
the labor market. You know, it used to be a
year ago, if I wasn't getting the flexibility that I needed,
I could go somewhere confidently across the streets. And as
we have less and less options, I'm just wondering whether
(25:56):
that flexibility could go by the wayside. And what I
hear you saying is no, there's enough research at this
point that most employers see the benefit of this, regardless
of the fact of whether they feel like people need
this job, so they're going to stay anyway, They're still
going to give them flexibility.
Speaker 4 (26:16):
And you know, let's not everybody wants to work from home.
Not everybody feels like they're at their best. They don't
maybe they don't have that kind of setup, and so
the and and in some they want an office, and
in some companies maybe based on what they do, they
really do need to be in an office. But to say,
I think if you, if your friends look at that
and say you know what, this two weeks in the
(26:38):
office is not going to work for me. You have
to have the courage to go find something that will.
And you know, I don't think it's fair to say
we have so many less options now. I mean, yeah,
I mean the top board the workforce has changed somewhat.
But if you if that's really important to you, if
you're you were living your best life when you had
to be in the office one week a month and
(27:00):
every other sector in your life was moving smoothly, and
you were happier and healthier and getting better sleep, and
you need to honor that and believe that you have
enough to offer that you can go find that someplace else.
Because it's funny because I think employers like keep turning
up the heat like, Okay, you know, we're back in
the office.
Speaker 3 (27:19):
Blah blah blah.
Speaker 4 (27:20):
And the problem problem is there is no widespread data
that says that people are more productive in the office.
Think about when you were in an office five days
a week, how much screwing around did you do? Maybe
not you, but the people around you who came to
shoot de breeze waste your time. So it's not like
(27:40):
working in the office with some sort of productivity nirvana
that everybody loved and everybody was happy and no people's lives.
It's so the world we live in right now. It
is so hard to live with some sort of hard
eight to five leave out seven every morning because technology
really puts us on the clock, even softly. Twenty four
(28:02):
to seven.
Speaker 1 (28:02):
Yeah, yeah, in that shift of being accessible twenty four
to seven gives employees, I think the ability or the
confidence to say, Okay, you can access me any time,
but I'm not going to be in the office all
the time. Julie Buci and Julie on the job with
lots of interesting updates on. Even as we might see
a shift in the workforce, the shift and flexibility going
(28:26):
away probably isn't going to happen. Some version of flexibility
is likely here to stay. You're listening to Simply Money
presented by all Worth Financial here on fifty five KRC
the talk station. You're listening to Simply Money and presented
by all Worth Financial, I mean Wagner along with Steve Ruby.
Do you have a financial question you need a little
(28:47):
help with You and your spouse aren't on the same page,
or maybe it's keeping you up at night there's a
red button you can click them while you're listening to
the show. It's right there on the iHeart appicord. Your question,
it's coming straight to us. You know, earlier in the
show we talked about out a number of ways to
lower your tax burden. We're just going to stick with
that taxes theme here and we're going to focus on
the wroth ira. Right. The beauty of the wroth is
(29:09):
when it comes time to take out those distributions, to
take out that money and retirement, you don't have to
pay taxes on it. And we would say that's the
point of working with a fiduciary financial planner. Right, there's
ways to contribute to a wroth even if you make
too much money. A lot of people don't either know
that this exists or they don't fully understand how it works.
Speaker 2 (29:29):
I think the understanding part is probably where a lot
of folks come up short. And you know, sitting down
and working with a planner that can help you navigate
decisions around where to save your next dollar is a
huge benefit. There's other benefits beyond tax free growth as well.
Keep in mind that your roth ira is there's no
required minimum distributions so when you turn seventy three, which
is the current rmd AH, you're not forced to do
(29:52):
distributions from that account because you own no taxes on it.
That's what rmds are. That's Uncle Sam trying to squeeze
some money out of you while you're still alive. Now,
keep in mind there are income limits. If you earn
too much money, you're not able to contribute directly to
the wroth ira.
Speaker 3 (30:10):
However, there is a loophole. It's also the back door wroth.
Speaker 1 (30:15):
Well, and I hear that a lot of people times.
You know, people will be like, I can't put money
into a wroth I make too much. If you're a
single filer and you make more than one hundred and
forty six thousand dollars, and that means you can't make
a full contribution. There's also a partial contribution kind of
limit there. If you're a married couple and you're filing jointly,
you got to make less than two hundred and thirty
thousand to put money into that wroth ira. But it
(30:36):
really isn't a complicated thing that you can do this
backdoor wroth conversion. You're essentially opening two accounts at the
same time, right, that makes the most sense. You open
that traditional IRA and then you open a wroth ira.
The money goes into that traditional account first, which again
you don't pay taxes on when the money goes into
(30:58):
that account. Then that money moves from that account to
the wroth that you just open. You pay the taxes
on it at the point that it goes from the
one account to the other one, and then you've essentially
put money into a wroth ira even though you make
more than those income limits.
Speaker 2 (31:15):
Yeah, so it is. It sounds confusing the first time
you do it. Yeah, but if you're implementing this strategy
year over year, you just think of it as your
you're not doing a contribution to your roth ira. You're
doing a conversion. So you're actually contributing to the traditional ira.
It's not a deductible contribution in this situation like it
normally is, because your income limits are too high. And
then you just take those after tax dollars and funnel
(31:38):
them on through into your wroth ira. Well, they will
then grow tax free for the rest of your life.
So you've you've gone through the back door to make
that wroth contribution, you know.
Speaker 1 (31:48):
And I think the difference is, you know, we've got
so many people talking about Wroth conversions right now. You know,
the current tax brackets set to sunset at the end
of twenty twenty five, So I just think that brings
up a lot of conversations about Wroth conversions. I want
to think about this this way. It's to your point.
A Roth conversion, just the steps happen almost simultaneously. It's
like boop poop, right from one to the other immediately.
Speaker 3 (32:09):
It even makes sound when you do it.
Speaker 1 (32:11):
Yeah, boo poop. That's what happens in your account. But
that's technically how it works. And it's funny because I
remember years ago, I had a friend, super super smart.
She's actually in the financial industry herself, doesn't meet with
clients or anything like that, but she was making the
point she's, you know, very well compensated, and she couldn't
make you know, a Roth IRA contribution. I was like, well,
(32:32):
you can do a backdoor Wroth and she was like
what he knew? And I explained it to her. She's
been doing backdoor Roth conversions, you know, back door Roth
contributions since that time, you know, trying to get some
money into a ROTH account.
Speaker 4 (32:45):
You know.
Speaker 1 (32:45):
And also a great kind of benefit of having money
into a ROTH is you know, to your point, you
don't have to take required minimum distributions when you hit
that age of seventy three, which she gives you a
lot more flexibility. What if you're never going to need
to take those distributions, Well, you've paid taxes on that money.
So then when your heirs are going to inherit it,
you've already paid the taxes for them. And if you
(33:07):
think about, Okay, you know, my kids when I'm passing
away could likely be in their highest you know, earning years,
and if they're going to then you know, inherit money
for me, it could bump them up into a higher
tax bracket. This is a way not only to take
care of yourself now, give yourself more flexibility, but also
maybe take care of your kids in the future.
Speaker 2 (33:25):
Yeah, and some challenges that folks can run into. If
you already have pre tax dollars in a rollover or
traditional IRA, then that kind of removes your ability to
do these WROTH back door conversions. Unless you're sitting down
and working with a CPA that can help you map
it out, it gets a little bit sticky. So to speak,
(33:47):
when when you have those pre tax dollars, it converts
some of them. We don't need to get into what
actually happens. I guess it's just if you already have
pre tax dollars in a traditional or a rollover IRA,
then you don't want to do the Wroth backdoor conversion.
Speaker 3 (34:01):
So please talk to a CPA.
Speaker 2 (34:03):
Please talk to a CFP, somebody that can help you
navigate the ins and outs of actually doing backdoor conversions
and whether or not they make sense for you. Now,
I do want to pivot for a few minutes here
and talk about something called a mega Wroth backdoor conversion.
This is becoming more and more popular in the in
this day and age where if you have a four
(34:25):
to oh one K and it offers an after tax
spillover feature, then once you hit that traditional limit that
we see in our four to oh one ks, for
somebody that's under the age of fifty, it's twenty three
thousand dollars. If you turn fifty this year or or
already older, it's thirty thousan five hundred. There is a
much higher limit that looks at the amount of money
(34:47):
that can enter a four toh one K in a
given year, that's almost seventy thousand dollars and that's a
combination of your pre tax and or WROTH plus company
contributions and or match, and then you have your after
tax non wroth. You can oftentimes take that after tax
non wroth and convert it into a roth ira either
inside your four oh one K or by taking the
money out. Yes, the stuff is a little bit confusing,
(35:09):
but this is a massive benefit for high earners that
are looking at ways to save more money. And if
you already have after tax money inside of your four
oh one K for some reason, then you should probably
sit down and call somebody that can help you talk
about converting it, because those after tax non wroth you're
not getting tax free gains until you actually convert them
(35:30):
to ROTH.
Speaker 1 (35:31):
A lot to think about here, but again, you have
probably more opportunities that you know, and I think just
for a number of DIYers, this can be incredibly confusing,
and this might be the time to take the step
toward working with someone who can help you figure out
how to maximize things like a backdoor WROTH conversion. Here's
the all Worth advice. It's the kind of strategy that
a qualified financial pro really understands and can help you
(35:52):
with a kind of advice could save you thousands of
dollars and come and handy in the long run. Coming
up next, Steve Ruby has a gem of advice to share.
You're listening to Simply Money presented by all Worth Financial
here in fifty five KRC the talk station. You're listening
to Simply Money presented by all Worth Financial. I mean
(36:14):
me Wagner along with Steve Ruby, who has a gem,
a financial gem to share with us. Nate, we just
really like that Ruby gem correlation.
Speaker 3 (36:24):
But it's wonderful, isn't it.
Speaker 1 (36:26):
It's so good, it's so good, so smart our producer
Jason Scott, so smart. But you're also pretty smart, and
you've got some You've got a gem to share with us.
Speaker 2 (36:35):
Yeah, I mean we bark about the importance of the
emergency fund in case life throws at your curveball. Now,
you know, in my household, we're fortunate enough that my
wife stays at home. I have a daughter. My wife
stays at home. We don't really have the structures in
place to all of a sudden not have that stay.
Speaker 3 (36:52):
At home parent.
Speaker 2 (36:53):
But my wife had knee surgery about three weeks ago,
and what has happened is we now can quantify the
value that she brings to the table monetarily by looking
at my credit card statement and how much I'm using
door Dash. Oh my god, I'm not saving those numbers
or I'm not sharing those numbers, but they are ridiculously high.
Speaker 3 (37:11):
So two pieces of advice.
Speaker 2 (37:12):
Make sure you have that emergency fund in place, because
even though I'm not out of work here, there's still
an added expense in my household all of a sudden,
because you know, I work a lot and it's hard
for me to slip away and cook dinner for the family.
So yes, I'm leaning on door dash a little bit
too much, and we're seeing the monetary value that the
stay at home parent actually brings to the table conceivably. Yes,
(37:35):
I could delete door dash and find a way to
step up to the plate here, but there's also that
emergency fund in place that I can tap into to
compensate for the fact that my wife isn't able to
do the things that she normally is able to do.
Speaker 1 (37:46):
What I hear you saying is that when the Ruby
household actually relies on Steve Ruby, everything goes off the.
Speaker 3 (37:53):
Rail falls apart. Yeah, there's dirty dishes laundering.
Speaker 1 (37:56):
I can't even imagine the scene and the house for
when she is better. But yeah, you know, I think
this brings up a great thing. You know, often these
conveniences cost us money, and we don't really think through
those things. And you know, door dashing or uber eats
or whatever once every once in a great while can
be a great convenience. But you have to be paying
attention to those fees and how quickly they add up.
(38:18):
And I also love the fact that you have really
come to value what your wife kind of brings to
the table in maybe a brand new way.
Speaker 3 (38:26):
Thank you, Thank you.
Speaker 1 (38:27):
I'm sure she appreciates that too, she does. Thanks for listening.
Tune in tomorrow. We're going to help you take advantage
of retirement savings. If you're in your highest earning years.
You've been listening to Simply Money, presented by all Worth
Financial here in fifty five KRC, the talk station
Tonight some headlines we've found that tell you to make
some moves that could wreck your retirement. We've got our
take and a deep dive into backdoor roth conversions, and
of course much more. You're listening to Simply Money, presented
by all Worth Financial I Meani Wagner along with Steve Ruby. Okay,
anyone who's listening from USA today, we're apologizing in advance,
(00:26):
but maybe you owe the rest of us in apology
as well, because we came across not one, not two,
but three headlines in USA today that we would say, hmm,
this is almost terrible information. And so it's our job
to keep you from making mistakes which you cannot recover from.
And if you were to read any of these headlines
(00:47):
or take the advice of any of these articles, we're
afraid you could end up in a really bad situation.
Let's get into this.
Speaker 2 (00:55):
These articles were sequential as well, Like they were all
right there right in a row.
Speaker 3 (01:00):
So it was just a series of bad decisions.
Speaker 1 (01:02):
In the first wort and the worstest, Yeah.
Speaker 2 (01:06):
Here's how you just destroy all hope of retirement. So
you know, the first one it was literally tired titled
how to withdraw money.
Speaker 3 (01:14):
From your four oh one k early.
Speaker 2 (01:17):
So you know, you see this and you figure it
would maybe switch gears and say this is something that
you don't want to do. But it really leans into
the perceived benefits in quotations of actually tapping into four
one K money early. You know, it explains that while
there are penalties and taxes involved for taking early withdrawals,
it doubles down as you begin to read that article.
Speaker 1 (01:40):
Yeah, well, here's the line from it that is absolutely ridiculous.
The author states, wouldn't it be nice to tap into
that money when you need it?
Speaker 3 (01:49):
What?
Speaker 1 (01:49):
No, Actually, it's a terrible idea. In your future self,
who is probably wanting to retire someday, would be telling
you this is a terrible idea. There's nothing nice about it.
I got to tell you, I'm a supporter of once
that money goes into the four one k, it shouldn't
go out, and I think, if anything, we should provide
protections that we can't get our hands on that money.
(02:11):
And as I look at these headlines, what they sum
up to me is here are some terrible decisions you
can make if you have a total and utter lack
of planning when it comes to your money, right, because
why do you need to withdraw money from your four
to one K early? You know, I mean the first
thing that we would say what you need is an
emergency fund.
Speaker 2 (02:32):
Yeah, absolutely, I mean this is it blows my mind
that this is actually something that was published. Again, sorry
if you're listening to USA today, but it really is
kind of ridiculous because it talks about once your your
withdrawals approved and completed, the money is transferred from your
four to one K to you and you don't have
to repay the funds. So it's almost acting like there's
(02:52):
no real consequences here. It would be nice if you
could tap into that money and it was magically replenished
and there was no consequences, But really you're taking from
your own financial future. There can be some obvious major
pitfalls and doing so.
Speaker 1 (03:07):
Well, and there's taxes and there's penalties. But then it
goes on to say, oh, actually there's a way you
can get around those taxes. You can take a withdrawal
as long as you pay that money back within sixty days. Well,
why would you a want to do that? Well, they
give you an example. So you've got a short term
need and you just know cash is coming in. For example,
(03:28):
tax bill is due now, but you've got a bonus
scheduled for next month. Did this author never see Christmas vacation?
Speaker 3 (03:35):
Wait?
Speaker 1 (03:35):
What if the bonus doesn't come and instead you're enrolled
in the Jelly of the Month club. Now you've taken this.
Now you've taken their withdrawal, and there's no money left
to put back into that account. I just think these
are very shortsighted ways in decisions that you can make
about your money. Don't let this one at all.
Speaker 2 (03:53):
It talks about hardship withdrawals, taking a four to one
k loan. It's then setting up a healock, then adjusting
your budget, then using your personal things.
Speaker 1 (04:00):
It's a little backwards old.
Speaker 2 (04:01):
It's one hundred percent backwards. You start with the emergency fund,
like you said a few minutes ago. Yeah, And to
top it off, it says, you know if you don't
have an emergency fund.
Speaker 3 (04:10):
The next article how to use your wroth Ira as.
Speaker 2 (04:14):
An emergency fund. I can't even read that that that
that without laugh.
Speaker 1 (04:19):
Yeah, and it says the distinctive feature here allows you
to access those wroth Ira contributions anytime and for any reason,
including in a financial emergency. If you are putting money
into an IRA or two A four oh one K,
it is earmarked for your retirement. And you know, this
is part of the financial planning process, and it's honestly
one of the first conversations I have when I'm working
(04:41):
with people. You know, the first thing that you need
to be doing is building an emergency fund, because we
know it's not if something unexpected happens, it's really when,
and it can be your car breaking down, it can
be your h VAC unit, it can be it's finally
raining and all of a sudden there's a leak in
the roof, whatever it is. We know that unexpected bills
come along over time, and some of them, unfortunately, have
(05:02):
terrible price tags attached to them. And if you don't
have that emergency fund, most people turn to one of
two places, your credit card or then you're going to
rack up twenty plus percent in interest likely right, and
you're not going to be able to pay it off
and maybe that first month and then second people turn
to retirement accounts. And so this is why, you know,
we constantly focus on having that emergency fund. There's nothing
(05:23):
sexy about it. You know it's not growing yet twelve
percent a year, but man, when you need it, it
is there. And then you're not using your wroth IRA
as an emergency fund.
Speaker 2 (05:35):
Yeah, let's remember IRA stands for individual retirement.
Speaker 1 (05:38):
Accounts, yes, not emergency fund.
Speaker 3 (05:40):
Yeah, there's a keyword in there, retirement.
Speaker 2 (05:43):
You are supposed to be setting aside this money aside
for retirement, and believe it or not, Uncle Sam gives
us some pretty fantastic benefits of roth IRA's tax free
gains for the rest of your life. There are some
caveats there, but when you're tapping into this money that
will grow tax free for you are not only hurting
the compounding interests, but you're lacking diversification of taxes in retirement.
(06:07):
So roth irays are not emergency funds.
Speaker 1 (06:11):
You're listening to simply money presented by all Worth Financial
I Memi Wagner along with Steve Ruby this latest batch
of headlines. Sorry for those who love USA today yesterday,
maybe it was just an off day, but what we
came across and the personal finance section was not one,
not two, but three terriable articles giving you advice that
is the exact opposite of what you would get if
(06:32):
you ever walked through the doors of all Worth. Right,
And that's why I think the show is so important
because we just try to give you this perspective, and
the perspective is of how to build wealth over the
long term as a long term investor. Okay, And so
we said one article was bad, the next one was worse,
and the third was like the worstest stuff the worst
And this is disadvantages of wrath iirays what to know
(06:55):
before you invest. And listen to this the start of
the article. Wroth irays are like the cool kids at
the investing party. Everyone seems to love them. Why, Okay,
we're not talking about crypto right, We're not talking about
non fungible tokens or meme stocks. This is a legitimate
way to invest. And we would say there are a
(07:15):
lot of advantages.
Speaker 3 (07:17):
To a wroth Yeah. I mean it's just silly to me.
Speaker 2 (07:22):
Pitfalls of wroth irays. I mean it says that it
might be a disadvantage to high earners. Yes, sure, if
you are in a very very high tax bracket today,
you might find yourself in a position where you're not
even able to contribute to a roth ira directly. But
that is not a pitfall that we all suffer from.
(07:44):
We're not all earning so much money that we can't
easily contribute to a roth iray. So I don't even
know why you would write this article and then give
that as a pitfall.
Speaker 1 (07:54):
I had a twenty six year old in my office
yesterday and it became this session where it was like
if Amy was talking to her twenty six year old self, right,
and I was like, you should be putting every dime
of what you're making into the every time that goes
into that floor one case, should be in the WROTH
part of it, right, because you're likely in a lower
(08:15):
tax bracket now. But you know, I also hear people
saying all the time, you know, you could be in
your peak earning years, and then a ROTH doesn't make
sense because maybe you're in a lower tax bracket when
you get to retirement, yes, but say you're in your forties,
so that's maybe twenty years of growth right in that
WROTH account once you pay the taxes that you're never
gonna have to pay that you're never gonna have to
pay taxes on. So you know, full disclosure here, I'm
(08:37):
in my forties. I'm putting money into a WROTH. I
like the flexibility of paying taxes now. I don't know
where they're going to go in the future. Maybe when
I'm in retirement, maybe I'll be in a lower tax bracket.
But what I'm looking at as far as Congress right now,
is it our current tax structure rate set to sunset
at the end of twenty twenty five, will likely be
in a higher tax bracket next year. I like a WROTH,
(08:59):
and I think for so want to make this sound like, oh,
it's this cool new thing, and we're going to tell
you that the truth about it is incredibly misleading.
Speaker 2 (09:07):
The true I know, yeah, I mean, everybody's financial situation,
needs and goals are different, their opinions, their viewpoints about
taxes in the future. If we wanted to speculate a
little bit, then beyond twenty twenty six, we're looking into
the twenty thirties, when there's going to be entitlements and
issues with Social Security. My hunch's taxes are probably going
to go up further. We are, yeah, we are at
(09:30):
historically low tax rates. But you know, even if you
are a high earner, a roth IRA isn't some kind
of a special club. Here there's a hierarchy that I
take folks through that I work with and ask me
the question where should I save my next dollar? If
taxes today are a concern, then then you fill up
your tax advantage buckets first, like your four oh one K.
You could do all pre tax in your four to
(09:51):
one K. Maybe if you have an HSA you can
max that out, and then we pivot to the WROTH.
Then we pivot to the ROTH IRA to diversify that
future tax liability bit. And we're actually going to talk
about ROTH conversions later and backdoor contribution. So you know
that's certainly part of the topic of conversation when it
comes to where to save the next dollar. Not Hey,
here's the disadvantages, So steer clear of roth iras you know,
(10:13):
this sequence of articles that we came across with USA
today really mind boggling to see this.
Speaker 1 (10:20):
Well, and if you were to read these three articles, right,
so you're taking money out of your four one K,
then you're taking money out of your IRA, and then
you're not saving in a ROTH whatsoever. Okay, So when
you get to retirement and you've got like two hundred
dollars in those retirement accounts because you've been taking money
out of them the whole time. Keep in mind, then,
depending on what tax backet you're in, if it's all
(10:41):
in a tax deferred account, now you owe taxes on
that money. Right, And to be fair, even if you've
been a great saver and you've got a million dollars
in that four one K, if that money's tax deferred,
you know you're going to owe a large portion of
that to Uncle Sam. And I'm a huge fan of
kind of diversifying your tax burden so that when you
get to retirement you have choices. Right, you've got some
(11:03):
money in a tax deferred account, but also some money
in a WROTH account, and I would also see some
money in a taxable account where you're likely going to
pay long term capital gains on that money. It gives
you so much more flexibility and retirement. So if you're
being smart and you're building a long term diversified portfolio,
those different tax treatments become incredibly important too. So articles
(11:25):
that tell you that a roth is a terrible thing,
it just doesn't make sense to me. It's just terrible advice.
Here's the all Worth advice, our advice. Don't withdraw money
from your four one k do talk with the certified
financial planner about the potential benefits of a wroth conversion
in putting money into a wroth account. Later, we're actually
going to discuss something called a backdoor wroth conversion. But first,
(11:48):
the irs just revealed the tax brackets for twenty twenty five.
We'll get into how that impacts you. Next. You're listening
to Simply Money, presented by all Worth Financial here on
fifty five KRC, the talk station. You're listening to Simply
Money if some of my all Worry Financial I mean
Wagner along with Steve Ruby. If you can't listen to
(12:09):
Simply Money every night, you don't have to miss the
thing we talk about. We've got a daily podcast for you.
Just search Simply Money. It's right there on the iHeart
app or wherever you turn to to get your podcasts,
and straight ahead at six forty three how to take
advantage of a wroth ira even if you can't do
it directly. We'll explain what we're talking about in just
a few minutes. Okay, So, if you're one of those
(12:30):
people who the Federal Reserve, our nation central bank, lowers
interest rates, for the first time in four years, and
you're immediately thinking what should I do? What should I do?
Now I have money in a higher yield savings account,
Maybe should I move it immediately? Okay, we would say,
take a deep breath, breathe. This will be one of
(12:50):
the rates that will likely fall in short order. But
by short order we're not saying.
Speaker 2 (12:55):
Today, yeah, I mean yes, the rates of your highyield
savings accounts of new CDs and treasuries that they are
going to fall. That that's a natural effect that happens
when the fedlower's interest rates. But it's not that the
sky's not falling there. It's not going to happen overnight.
There's no need to act very very quickly here. If
you have intermediate or short term cash in that highyield
(13:18):
savings account, it's probably still a good place to have
it parked at this point in time, if you know
you're going to be spending those dollars sometime in the
next couple of years.
Speaker 3 (13:27):
I would say, you know.
Speaker 1 (13:28):
My concern was this kind of false sense of security
that we've had over the past couple of years, when
you could make five percent on you know, money that
was just sitting there parked and savings. So, you know,
for those who are a little bit risk averse and
not comfortable with the markets. You know, I heard stories
of people pulling money out of you know, retirement accounts
and things like that, parking it in cash. You know,
(13:51):
that's the false sense of security that hey listen over
the long term, right, we just know that these even
high yield savings accounts likely can't outpace and FLA. So
to your point, Steve, what you have to understand is
when are you going to need this money. And if
it's money that you need in the short term, say
an emergency fund or the near term a down payment
(14:11):
or help with your kids college tuition next year, that
does belong out of the market, and you will still
have a little bit of time to maybe make more
than point zero zero zero six percent like we were
making before on this money. So you know, I think
it will fall in short order, but you do have
a little bit of time though. If you need that
(14:32):
money in the short term, that's still where it belongs, right.
Speaker 2 (14:35):
Yeah, we're kind of on the flip sid where I've
been yelling at people for years to move their short
term positions from their traditional savings accounts paying point zero
one percent into some kind of a high yield savings
not into the markets, or the opposite, not taking money
out of the markets and moving it into high yield
savings accounts. And now we're kind of on the flip
side of that, where yes, the rates that you're receiving
(14:58):
in the highield savings account the is going to go down.
That doesn't mean that you need to move your short
term emergency fund into long term investments.
Speaker 3 (15:04):
That's where you could run into some problems.
Speaker 1 (15:06):
All right, switching gears now to everybody's favorite topic, taxes.
Oh yeah, we have some updated information for you, a
lot of numbers, but these are important. This has to
do with your projected tax rates for twenty twenty five, right,
So these tax rates are changing a little bit. So
you know, if you are in the twelve percent tax bracket,
(15:28):
you're making somewhere between twenty three thousand and ninety six thousand,
nine hundred and fifty dollars bumps up to the twenty
two tax bracket, if you're making over that ninety six
nine fifty to two hundred and six thousand, seven hundred.
If you're somewhere between that two oh six and three
ninety four, you're in the thirty two percent tax bracket
(15:49):
on up from there. That congratulations, yeah, above that you're
doing okay, and you probably don't have to worry about taxes, Okay, Listen,
it's just important to know where you are right, what
your tax rate is, how that works. But we would
see more importantly than that, and I think when people
think about taxes a lot of time you think about
tax preparation. That's what you do right when you when
(16:12):
you're filing your taxes in April. But there's some tax
planning strategies that we would say should be taking place
ye around Now's a great time to look at these things.
And this is really a strategy to try to keep
more money in your pocket and not give as much
to Uncle Sam.
Speaker 2 (16:27):
Yeah, cfps and CPAs they're oftentimes working with their clients
to find ways to reduce taxes now and in the future.
And again that's not just taxifying. That's strategies while you're
still working, while you're retired. There's different things that we
can implement. And why we talk to you about these
these different tax brackets is because, for example, if you're
(16:47):
teetering on one tax bracket and another. Then you can
conceivably lower your marginal your highest marginal tax rate by doing,
for example, pre tax inside of retirement accounts. So the
more money you can tribute to pre tax retirement accounts,
the lower your income will be overall. But it is
potentially a tool to kick yourself into a lower marginal
(17:09):
tax rate. That conversation usually comes up when somebody asks,
should I be doing pre tax or WROTH in my
four to one K? And it really depends. Ideally we
can find a sweet spot where you're doing enough pre
tax if you're on the cusp of a marginal tax
bracket to kick yourself to a lower one and then
do ROTH after the fact.
Speaker 1 (17:28):
Yes, And now that tees me up for my favorite
thing to talk about when it comes to taxes.
Speaker 3 (17:33):
I'm going to talk about hssays Nope.
Speaker 1 (17:35):
You're not, because I'm talking about them because they are
my favorite thing. Triple tax advantage, nothing like it. Okay,
So this is if a high deductible healthcare plan makes
sense for your family, right, You've got to figure that out.
But if it does a health savings account you put
the money in tax free, it goes once again tax
free and if you take it out for qualified medical expenses,
(17:56):
you literally never pay taxes on a dollar of that money.
There's nothing like this. And I think you know, several
several years ago, even when I just first got into
this business, people weren't talking about HSA so much. And
maybe it's because I've talked about them so much until
I'm blue in the phase. But I'm starting to see
more and more people taking advantage of them. And when
I say taking advantage of them, a really great thing
(18:18):
to do is to build up a pretty robust, robust
emergency fund, so you pay your medical expenses as they
go out of that emergency fund. The money in that
HSA is invested and it becomes a retirement account for
healthcare expenses.
Speaker 2 (18:33):
And we know those are going to be through the roof,
and you got to make sure you are actually investing
with those dollars.
Speaker 3 (18:37):
Some people don't realize that that's even an option.
Speaker 1 (18:39):
There's not sitting in cash.
Speaker 3 (18:41):
Fssays and HSA is.
Speaker 2 (18:43):
The HSA is actually that long term retirement account because
that balance rolls over. What about tax loss harvesting? If
you have a taxable account, a joint account with your spouse,
whenever you place trades in that account or an advisor
place trades in that account for you. If there are earnings,
then those are tax either at long term capital gains
or short term which is ordinary income. Keep in mind,
(19:04):
if you're realizing losses in that account during times of volatility,
you can use those losses to offset gains and even
have unlimited carry forward, capturing three thousand dollars of losses
against your ordinary income taxes every year that you fought.
Speaker 1 (19:17):
And it's also important to know on that W four
what should you put in So right, claiming one will
reduce your tax withholding, you're going to get more money
in each paycheck. On the other hand, claiming zero is
going to increase your tax. Withholding, it indicates you what
the maximum in taxes taken out of your paycheck. Right,
what is your goal? And we would say your goal
at the end of every year is not to get
(19:38):
a ton of money back, right, because that's just the
government regifting your money after they held it for the
past year. Here's the all Worth advice. Work with a
qualified tax pro and financial planner that can use strategies
to lower your income and minimize your tax burden coming
up next, workplace flexibility. Is it a thing of the past.
We'll show you what some new research suggests. Next, you're
(20:00):
listening to Simply Money, presented by all Worth Financial. Here
in fifty five KRC the talk station. You're listening to
Simply Money, presented by all Worth Financial, Ammi Wagner along
with Steve Ruby. It was a phrase that became really
popular and a way of thinking that became really popular
during the pandemic. For the first time, many of us
(20:21):
really started to believe in finding that ultra rare work
life balance, right. It became a thing that we could
all sort of look for and talk about, and coming
out of the pandemic, it was kind of on us,
the employers to look for and ask for, the employees
to look for and ask for what we were looking
for in the workplace. Is that changing right, this quest
(20:43):
for work life balance? Is it around to stay or
is it going out the window? Joining us tonight with
her perspective on this, Julie Balkie, of course, Julie on
the Job, always fantastic perspective on what we can be
expecting in the workplace. Julie, I kind of want to
start with where we are now because there is kind
of a shift in the labor force and it went
(21:04):
from employees having a lot of power and now I'm
not sure where we are. So can we still be
I don't know if I would say demanding, but seeking
out work life balance and putting that on the top
of the list of things that are really important to us. Yeah.
Speaker 4 (21:18):
So think about pre COVID days as the pendulum was
completely swung one way, which is work is eight to
five in office. Then we go through COVID where like
literally no one or hardly very few people were in
a location physically, so that pendulum was way swung the
other way. And where we are right now is the
pendulum is finding its resting space between those two. We
(21:41):
are never going back to eight to five in office
model being preferred being the majority of how we work.
We're just not going back. And you can quote me
on that all you want, because I'm very confident good
that organizations have seen the benefits of offering some sort
of flexible work. And flexible is the key word here
(22:01):
because that can mean all kinds of different things. In fact,
eighty two percent of large US companies offer some flexibility,
and so it's you know, it's anything from hybrid to
various days, like you might work a four day work
week and then a five day and then back to four,
maybe off on Fridays or not off on Fridays, but
(22:22):
everybody works from home on Fridays or so some variation
of anything that's not eight to five in office is
really where we're going to land and where we are
landing because employers are they're seeing that toothpaste is not
going back in the tube.
Speaker 2 (22:38):
So you talk about this being a pendulum, does that
mean that things are changing to bring it back closer
to pre COVID climb frames? Is that flexibility reducing for workers?
Speaker 4 (22:50):
Well, if you think about the other side of that pendulum,
was everybody works from home because you're not allowed to
come in the office, and so where it was like
one hundred percent or close to one hundred percent, depending
on your job, you were working not in the office.
And what happened was as we started to I don't
get to the point where it was safe to come
back in the office, and there were since false starts
(23:11):
in there like okay, everybody back, oh never mind, you know,
we went back and forth a little bit. But once
the okay the big part of the danger has passed
everybody back in the office. That's what employers tried to do.
Employers tried to take that pendulum back to where it was,
and they found that that there was a great resistance
of that. And a lot of that is because it's generational.
(23:33):
The younger generation said, yeah, we're not doing that. We've
proven that we can work well from home. And a
lot of older generations were the same way. They're like, yeah,
we kind of like the flexibility to live all sectors
of our lives. And so you had these Elon Musk,
Jamie Diamond from JP Morgan, all these heavy hitters came out,
started pounding the desk and expected the current workforce to
(23:56):
jump and come back. And they looked behind him and
nobody was follow on them, and so they had to
really walk that back. So if companies are trying to
get back to at eight to five, it ain't happening.
In very rare cases will that happen. And certainly not
all jobs lend themselves to work at home, but most
jobs do lend themselves to some sort of flexibility, maybe
(24:19):
shift flexibility, you know, those sort of things. And so
employers are finally getting with the program and saying, Okay,
we recognize that we are not going to retain We're
not going to attract the best talent, and we're not
going to retain the great talent we already have because
people have made it very clear that they're not going
(24:40):
back to the way it was. Your best people are
the ones with the most options, and they will be
the ones using that leverage to find what they want
someplace else.
Speaker 1 (24:48):
You're listening to simply Money presented by all Worth Financial.
I mean you Wagner Long with Steve Ruebey as we
have Julie Balki, Julia and the Job on the show
tonight talking about what many of us have really come
to appreciate jobs, which is a little bit of flexibility.
Is this here to stay? Is this changing? Julie. I'm
so glad actually that you're on today, particularly because over
the weekend I was talking to some friends who different
(25:11):
kinds of workplaces but were being pushed to come back in.
One had three days a month where they could work
from home. That was going away. Another had I think
it was like, yeah, only three days a month that
they could work from home, and that was going away.
And then someone else where there was maybe two weeks
in the office or one week in the office a month,
(25:33):
and now that was increasing by a week. And so
I started to we started to have this conversation of
as we talk about the labor market, the cracks and
the labor market. You know, it used to be a
year ago, if I wasn't getting the flexibility that I needed,
I could go somewhere confidently across the streets. And as
we have less and less options, I'm just wondering whether
(25:56):
that flexibility could go by the wayside. And what I
hear you saying is no, there's enough research at this
point that most employers see the benefit of this, regardless
of the fact of whether they feel like people need
this job, so they're going to stay anyway, They're still
going to give them flexibility.
Speaker 4 (26:16):
And you know, let's not everybody wants to work from home.
Not everybody feels like they're at their best. They don't
maybe they don't have that kind of setup, and so
the and and in some they want an office, and
in some companies maybe based on what they do, they
really do need to be in an office. But to say,
I think if you, if your friends look at that
and say you know what, this two weeks in the
(26:38):
office is not going to work for me. You have
to have the courage to go find something that will.
And you know, I don't think it's fair to say
we have so many less options now. I mean, yeah,
I mean the top board the workforce has changed somewhat.
But if you if that's really important to you, if
you're you were living your best life when you had
to be in the office one week a month and
(27:00):
every other sector in your life was moving smoothly, and
you were happier and healthier and getting better sleep, and
you need to honor that and believe that you have
enough to offer that you can go find that someplace else.
Because it's funny because I think employers like keep turning
up the heat like, Okay, you know, we're back in
the office.
Speaker 3 (27:19):
Blah blah blah.
Speaker 4 (27:20):
And the problem problem is there is no widespread data
that says that people are more productive in the office.
Think about when you were in an office five days
a week, how much screwing around did you do? Maybe
not you, but the people around you who came to
shoot de breeze waste your time. So it's not like
(27:40):
working in the office with some sort of productivity nirvana
that everybody loved and everybody was happy and no people's lives.
It's so the world we live in right now. It
is so hard to live with some sort of hard
eight to five leave out seven every morning because technology
really puts us on the clock, even softly. Twenty four
(28:02):
to seven.
Speaker 1 (28:02):
Yeah, yeah, in that shift of being accessible twenty four
to seven gives employees, I think the ability or the
confidence to say, Okay, you can access me any time,
but I'm not going to be in the office all
the time. Julie Buci and Julie on the job with
lots of interesting updates on. Even as we might see
a shift in the workforce, the shift and flexibility going
(28:26):
away probably isn't going to happen. Some version of flexibility
is likely here to stay. You're listening to Simply Money
presented by all Worth Financial here on fifty five KRC
the talk station. You're listening to Simply Money and presented
by all Worth Financial, I mean Wagner along with Steve Ruby.
Do you have a financial question you need a little
(28:47):
help with You and your spouse aren't on the same page,
or maybe it's keeping you up at night there's a
red button you can click them while you're listening to
the show. It's right there on the iHeart appicord. Your question,
it's coming straight to us. You know, earlier in the
show we talked about out a number of ways to
lower your tax burden. We're just going to stick with
that taxes theme here and we're going to focus on
the wroth ira. Right. The beauty of the wroth is
(29:09):
when it comes time to take out those distributions, to
take out that money and retirement, you don't have to
pay taxes on it. And we would say that's the
point of working with a fiduciary financial planner. Right, there's
ways to contribute to a wroth even if you make
too much money. A lot of people don't either know
that this exists or they don't fully understand how it works.
Speaker 2 (29:29):
I think the understanding part is probably where a lot
of folks come up short. And you know, sitting down
and working with a planner that can help you navigate
decisions around where to save your next dollar is a
huge benefit. There's other benefits beyond tax free growth as well.
Keep in mind that your roth ira is there's no
required minimum distributions so when you turn seventy three, which
is the current rmd AH, you're not forced to do
(29:52):
distributions from that account because you own no taxes on it.
That's what rmds are. That's Uncle Sam trying to squeeze
some money out of you while you're still alive. Now,
keep in mind there are income limits. If you earn
too much money, you're not able to contribute directly to
the wroth ira.
Speaker 3 (30:10):
However, there is a loophole. It's also the back door wroth.
Speaker 1 (30:15):
Well, and I hear that a lot of people times.
You know, people will be like, I can't put money
into a wroth I make too much. If you're a
single filer and you make more than one hundred and
forty six thousand dollars, and that means you can't make
a full contribution. There's also a partial contribution kind of
limit there. If you're a married couple and you're filing jointly,
you got to make less than two hundred and thirty
thousand to put money into that wroth ira. But it
(30:36):
really isn't a complicated thing that you can do this
backdoor wroth conversion. You're essentially opening two accounts at the
same time, right, that makes the most sense. You open
that traditional IRA and then you open a wroth ira.
The money goes into that traditional account first, which again
you don't pay taxes on when the money goes into
(30:58):
that account. Then that money moves from that account to
the wroth that you just open. You pay the taxes
on it at the point that it goes from the
one account to the other one, and then you've essentially
put money into a wroth ira even though you make
more than those income limits.
Speaker 2 (31:15):
Yeah, so it is. It sounds confusing the first time
you do it. Yeah, but if you're implementing this strategy
year over year, you just think of it as your
you're not doing a contribution to your roth ira. You're
doing a conversion. So you're actually contributing to the traditional ira.
It's not a deductible contribution in this situation like it
normally is, because your income limits are too high. And
then you just take those after tax dollars and funnel
(31:38):
them on through into your wroth ira. Well, they will
then grow tax free for the rest of your life.
So you've you've gone through the back door to make
that wroth contribution, you know.
Speaker 1 (31:48):
And I think the difference is, you know, we've got
so many people talking about Wroth conversions right now. You know,
the current tax brackets set to sunset at the end
of twenty twenty five, So I just think that brings
up a lot of conversations about Wroth conversions. I want
to think about this this way. It's to your point.
A Roth conversion, just the steps happen almost simultaneously. It's
like boop poop, right from one to the other immediately.
Speaker 3 (32:09):
It even makes sound when you do it.
Speaker 1 (32:11):
Yeah, boo poop. That's what happens in your account. But
that's technically how it works. And it's funny because I
remember years ago, I had a friend, super super smart.
She's actually in the financial industry herself, doesn't meet with
clients or anything like that, but she was making the
point she's, you know, very well compensated, and she couldn't
make you know, a Roth IRA contribution. I was like, well,
(32:32):
you can do a backdoor Wroth and she was like
what he knew? And I explained it to her. She's
been doing backdoor Roth conversions, you know, back door Roth
contributions since that time, you know, trying to get some
money into a ROTH account.
Speaker 4 (32:45):
You know.
Speaker 1 (32:45):
And also a great kind of benefit of having money
into a ROTH is you know, to your point, you
don't have to take required minimum distributions when you hit
that age of seventy three, which she gives you a
lot more flexibility. What if you're never going to need
to take those distributions, Well, you've paid taxes on that money.
So then when your heirs are going to inherit it,
you've already paid the taxes for them. And if you
(33:07):
think about, Okay, you know, my kids when I'm passing
away could likely be in their highest you know, earning years,
and if they're going to then you know, inherit money
for me, it could bump them up into a higher
tax bracket. This is a way not only to take
care of yourself now, give yourself more flexibility, but also
maybe take care of your kids in the future.
Speaker 2 (33:25):
Yeah, and some challenges that folks can run into. If
you already have pre tax dollars in a rollover or
traditional IRA, then that kind of removes your ability to
do these WROTH back door conversions. Unless you're sitting down
and working with a CPA that can help you map
it out, it gets a little bit sticky. So to speak,
(33:47):
when when you have those pre tax dollars, it converts
some of them. We don't need to get into what
actually happens. I guess it's just if you already have
pre tax dollars in a traditional or a rollover IRA,
then you don't want to do the Wroth backdoor conversion.
Speaker 3 (34:01):
So please talk to a CPA.
Speaker 2 (34:03):
Please talk to a CFP, somebody that can help you
navigate the ins and outs of actually doing backdoor conversions
and whether or not they make sense for you. Now,
I do want to pivot for a few minutes here
and talk about something called a mega Wroth backdoor conversion.
This is becoming more and more popular in the in
this day and age where if you have a four
(34:25):
to oh one K and it offers an after tax
spillover feature, then once you hit that traditional limit that
we see in our four to oh one ks, for
somebody that's under the age of fifty, it's twenty three
thousand dollars. If you turn fifty this year or or
already older, it's thirty thousan five hundred. There is a
much higher limit that looks at the amount of money
(34:47):
that can enter a four toh one K in a
given year, that's almost seventy thousand dollars and that's a
combination of your pre tax and or WROTH plus company
contributions and or match, and then you have your after
tax non wroth. You can oftentimes take that after tax
non wroth and convert it into a roth ira either
inside your four oh one K or by taking the
money out. Yes, the stuff is a little bit confusing,
(35:09):
but this is a massive benefit for high earners that
are looking at ways to save more money. And if
you already have after tax money inside of your four
oh one K for some reason, then you should probably
sit down and call somebody that can help you talk
about converting it, because those after tax non wroth you're
not getting tax free gains until you actually convert them
(35:30):
to ROTH.
Speaker 1 (35:31):
A lot to think about here, but again, you have
probably more opportunities that you know, and I think just
for a number of DIYers, this can be incredibly confusing,
and this might be the time to take the step
toward working with someone who can help you figure out
how to maximize things like a backdoor WROTH conversion. Here's
the all Worth advice. It's the kind of strategy that
a qualified financial pro really understands and can help you
(35:52):
with a kind of advice could save you thousands of
dollars and come and handy in the long run. Coming
up next, Steve Ruby has a gem of advice to share.
You're listening to Simply Money presented by all Worth Financial
here in fifty five KRC the talk station. You're listening
to Simply Money presented by all Worth Financial. I mean
(36:14):
me Wagner along with Steve Ruby, who has a gem,
a financial gem to share with us. Nate, we just
really like that Ruby gem correlation.
Speaker 3 (36:24):
But it's wonderful, isn't it.
Speaker 1 (36:26):
It's so good, it's so good, so smart our producer
Jason Scott, so smart. But you're also pretty smart, and
you've got some You've got a gem to share with us.
Speaker 2 (36:35):
Yeah, I mean we bark about the importance of the
emergency fund in case life throws at your curveball. Now,
you know, in my household, we're fortunate enough that my
wife stays at home. I have a daughter. My wife
stays at home. We don't really have the structures in
place to all of a sudden not have that stay.
Speaker 3 (36:52):
At home parent.
Speaker 2 (36:53):
But my wife had knee surgery about three weeks ago,
and what has happened is we now can quantify the
value that she brings to the table monetarily by looking
at my credit card statement and how much I'm using
door Dash. Oh my god, I'm not saving those numbers
or I'm not sharing those numbers, but they are ridiculously high.
Speaker 3 (37:11):
So two pieces of advice.
Speaker 2 (37:12):
Make sure you have that emergency fund in place, because
even though I'm not out of work here, there's still
an added expense in my household all of a sudden,
because you know, I work a lot and it's hard
for me to slip away and cook dinner for the family.
So yes, I'm leaning on door dash a little bit
too much, and we're seeing the monetary value that the
stay at home parent actually brings to the table conceivably. Yes,
(37:35):
I could delete door dash and find a way to
step up to the plate here, but there's also that
emergency fund in place that I can tap into to
compensate for the fact that my wife isn't able to
do the things that she normally is able to do.
Speaker 1 (37:46):
What I hear you saying is that when the Ruby
household actually relies on Steve Ruby, everything goes off the.
Speaker 3 (37:53):
Rail falls apart. Yeah, there's dirty dishes laundering.
Speaker 1 (37:56):
I can't even imagine the scene and the house for
when she is better. But yeah, you know, I think
this brings up a great thing. You know, often these
conveniences cost us money, and we don't really think through
those things. And you know, door dashing or uber eats
or whatever once every once in a great while can
be a great convenience. But you have to be paying
attention to those fees and how quickly they add up.
(38:18):
And I also love the fact that you have really
come to value what your wife kind of brings to
the table in maybe a brand new way.
Speaker 3 (38:26):
Thank you, Thank you.
Speaker 1 (38:27):
I'm sure she appreciates that too, she does. Thanks for listening.
Tune in tomorrow. We're going to help you take advantage
of retirement savings. If you're in your highest earning years.
You've been listening to Simply Money, presented by all Worth
Financial here in fifty five KRC, the talk station
Simply Money News
Popular Podcasts
Good Game with Sarah Spain
Good Game is your one-stop shop for the biggest stories in women’s sports. Every day, host Sarah Spain gives you the stories, stakes, stars and stats to keep up with your favorite women’s teams, leagues and athletes. Through thoughtful insight, witty banter, and an all around good time, Sarah and friends break down the latest news, talk about the games you can’t miss, and debate the issues of the day. Don’t miss interviews with the people of the moment, whether they be athletes, coaches, reporters, or celebrity fans.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations.
Crime Junkie
If you can never get enough true crime... Congratulations, you’ve found your people.