Simply Money presented by Allworth Financial

Episode Transcript

Speaker 1 (00:00):
Make us your number one preset for instant access.

Speaker 2 (00:03):
It's my go to.

Speaker 1 (00:05):
Fifty five KRCD talk station.

Speaker 3 (00:13):
Tonight the Cost of Freedom, What financial independence really means
In twenty twenty five, you're listening to Simply Money, presented
by Allworth Financial on Bob Sponseller along with Brian James.
It's the fourth of July, Brian, and let's face it,
if people are listening to this show on the fourth
of July, they're probably way too focused on their money.

(00:36):
But let's talk about it amid all the fireworks and
cookouts and everything else going on. Tonight's show is about
a different kind of freedom, not national independence, but financial independence.

Speaker 2 (00:48):
And for those who have accumulated a large.

Speaker 3 (00:51):
Chunk of wealth, independence doesn't necessarily mean I hope I
can retire someday.

Speaker 2 (00:57):
It means you've already built something.

Speaker 3 (00:58):
Now the question because how do you protect it and
use it to live with purpose?

Speaker 4 (01:04):
Yeah, Bob, So we come on usually right before that
Reds game, so hopefully everybody's out there getting the barbecue
ready and crack open a cold one and get some
financial advice right before we relax for.

Speaker 2 (01:14):
A nice long weekend.

Speaker 4 (01:15):
So but anyway, let's talk about financial freedom, right, this
is the season of freedom. We're all waving the flags,
you know, for political freedom, and we got that two
hundred and fifty years ago. That's why we have this holiday.
But the next level is financial freedom. So what does
it actually mean. Well, I'd like to think of it
in terms of there's really four elements to this.

Speaker 2 (01:34):
Financial freedom basically.

Speaker 4 (01:35):
Means, at the most basic level is that that my
ship floats, I can cover my basics somehow without working.
I can pay my bills, and I don't have to
get out of bed every day on somebody else's schedule.
And another way people view it as it's just flexibility
of lifestyle. Do I get to do the traveling that
I want? Do I have the hobbies in a family
time on my terms, not on the free time that
is dictated by someone else, including maybe an employer or

(01:58):
you know, sometimes other other impacts as well. Another big
element to feeling like you have financial freedom is the
ability to build your own legacy, meaning I've got more
than enough to float my ship. Therefore I can give
meaningfully to my own kids, to charities or to causes
or other people that I really want to support. I've
gotten my own nut covered. Therefore I can help others.
And then really what really means And this is the

(02:19):
one that catches people off guard. It's not always good
news is freedom of time. I don't have to get
out of bed to go do anything that anybody else
wants me to do. I can do whatever I want
to do. That sounds lovely, but I can I always.
I talk about this in financial planning meetings all the time.
Everybody should spend some time thinking about what that actually means.
It sounds fantastic on those days where it's cold and
miserable outside you got to get out of bed at

(02:40):
six in the morning and head into that job. But
all of a sudden, you know, when you're retired and
you've earned the right to have freedom of time, those
februaries can get really, really long. Freedom of time is
something it's a responsibility. You should think about exactly what
you want to do with that.

Speaker 3 (02:53):
Well, and Brian, as you list off these four levels
of how we define financial freedom from planning standpoint, it
reminds me of a meeting I had yesterday with a
brand new client coming on board, and we hit all
four of these areas, and this couple walked in, and
I think they were expecting. They first just wanted to know, Hey,

(03:14):
do we have enough money to retire? And I think
they knew the answer was yes. They're both very smart people.
They've been responsibly saving for years and yeah, I was
very quickly able to answer that question by running some numbers.

Speaker 2 (03:26):
Yes, you got enough money. That's not why they came
in to see us, you know.

Speaker 3 (03:30):
The husband then went into, well, the real issue, Bob,
is my wife and I can't agree on how to
use the money.

Speaker 2 (03:38):
You know, she wants to.

Speaker 3 (03:39):
Give more money away to charity and give more money
to the kids. I want to look at doing a
second house in Tennessee or Florida or wherever it is.
This gentleman, you know, he said, hey, I still enjoy
my job. I don't plan on retiring anytime soon. And
the wife's looking over like, yeah, but you don't want
to work seventy hours a week.

Speaker 2 (03:58):
So they're looking at flex ability and options.

Speaker 3 (04:01):
And at the end of the meeting, you know, we
got all the numbers out of the way, and he
looks at me and says, what should we be doing
right now?

Speaker 2 (04:08):
And I said, what you should be.

Speaker 3 (04:10):
Doing right now is go home and have some conversations
and pray about it and dream a little bit, write
down some things that are really meaningful to both of
you if you take money out of the equation, and
then come back and talk to me, and then let's
get into how many of those things we can actually do,
and tweak some numbers around the edges, and let's come
up with something that's going to give you some peace

(04:32):
as you head into the you know, last thirty or
thirty five years of your life. That's what that meeting
looked like. And I think we'll get there and they'll
end up having more freedom, even though they have enough money,
they'll end up having more freedom than they have today.
That sounds like it probably sounds like a lot of
meetings you have Brian.

Speaker 4 (04:50):
Bob getting a little angry here because I think you're
stealing my clients. I'm pretty sure I had that conversation
four times.

Speaker 3 (04:55):
Last week because and I'm well, we met with Brian,
and Brian tried to sell us a big indextinuity.

Speaker 2 (05:02):
So now we're coming to you. No, I'm joking.

Speaker 4 (05:05):
Good, I didn't see that company. Yes, no, that's not
something that we do. But no, I think the real
point here is that people come in, the question always
comes up, well, how do it great?

Speaker 2 (05:19):
I understand my own situation.

Speaker 4 (05:20):
You've shown that to me with this financial plan, but
how do we compare to other people?

Speaker 2 (05:23):
So I think it's really about.

Speaker 4 (05:25):
And that's not so much about keeping up with the
jones is it's just wanting to know because there's a
lot of horror stories out there, are we going to
be one of those horror stories? So in your case,
and I'm sure you did this, this is the way
I would have handled it. You know, all those goals
they have, giving to charity, giving to family, supporting people
we care about, and plus making ourselves happy, building the
second home and all that stuff, those are all good goals.
Not a single one of them is a negative thing.

(05:47):
But their question isn't really which of these should we do?
It's how much of each of these can we get
away with without menching up our plan. So that's the
whole idea of building a financial plan. Figure out how
you're going to cover your basics and then figure out
what the surplus is and you can have a clear,
clean conversation with your loved spouse about exactly what you
want to do.

Speaker 2 (06:05):
With that surplus.

Speaker 4 (06:06):
And first of all, I hope these folks went home
and had a nice glass of wine, and I hope
it was a good conversation because that's something to be celebrated,
not stressed about. We worked hard for thirty forty years,
we can call our shot. We get to do what
we want. Yes, it's going to be hard to figure
out what it is that we want, but the fact
that we get to do it is something to be
celebrated and not stressed.

Speaker 3 (06:23):
You're listening to simply Money presented by all Worth Financial
on Bob Sponsorer in Law with Brian James.

Speaker 2 (06:28):
Yep.

Speaker 3 (06:28):
That meeting yesterday I had did have a good outcome,
and I could tell this couple has a very strong marriage.
They communicate well together, they work as a team. So
it was one of the one of the more enjoyable
meetings I've had in a while. But another topic that
came up, and one that we want to talk about
and do talk about with clients all the time, is
what's your investment risk tolerance and what's your current allocation.

(06:51):
These folks have just had their head down accumulating, accumulating, accumulating,
and one hundred percent of their portfolio is invested in
the stock market, and the husband and wife have different
views of how much how what their risk tolerance truly
is from a financial standpoint, and we're going to be
digging into that topic as well, just to make sure

(07:13):
that we don't allow market volatility, you know, that sequence
of return risk that we talk about all the time.
We don't get into a situation where we allow market
volatility to potential derail their long term financial plan when
it comes time to turn this big pile of money
into an actual paycheck every month.

Speaker 4 (07:33):
Yeah, that's an important part to look at, right. It's
one thing to get the numbers together and to throw
it all into a piece of software and that kind
of thing that tells you gives you a green light
and says everything is going to be fine.

Speaker 2 (07:42):
We have to stress test your portfolio.

Speaker 4 (07:44):
Ask anybody you know in your circle who retired in
twenty twenty one, what happened to him that first year
of retirement. Twenty twenty two was one of the worst,
the five worst years we ever saw in the S
and P. Five hundred, even though we don't really think
of it that way because it didn't come along with
a scary story but anybody retired in twenty twenty one
immediately saw their their wealth dropped by a decent chunk,
although briefly, because we got it back in twenty three

(08:06):
and twenty four.

Speaker 2 (08:06):
And that's generally what happens.

Speaker 4 (08:08):
Whenever we have a massive downturn, we do get a
bigger upswing, But that doesn't mean it's not terrifying to
go through it. We learn to root for this volatility
to you know, over time while we're accumulating, because we know,
after we've been and you've seen this in the last
five years, if the market takes a big hit, then
eventually it's going to swing back the other way, because
that's just how the herd thinks, and we learn exactly,
you know, how how impactful that upswing can be. But

(08:30):
when it happens during retirement, when you've convinced yourself that
this is all I'll ever have and I really have
to protect it, it can make your brain think differently
than you have thought in decades, and you have to
be prepared for that. So this is why it's very
important to understand exactly what your portfolio could do, not
only in the good times you've seen that, but what
might it do in the bad times, and most importantly,
how will I react to it?

Speaker 2 (08:50):
Will I panic or will I be okay? Well, and
the other.

Speaker 3 (08:54):
Big thing folks need to think about and plan for.
And this came up in that meeting I had yesterday
as well well. Once we walked through some initial numbers,
the husband looked at me and he's like, I get it.
I know we have enough money. He's like, Bob, what
I need you to tell us is how do we
take this retirement income? And what he was talking about
there is tax efficiency. And these folks had their after

(09:18):
tax account was loaded with mutual funds, and I had
looked at their actual tax return from twenty twenty four
and I showed them the actual numbers declared capital gains
taxes they had to pay on gains that were not optional.
I mean, they're going to have to pay these games
because they own mutual funds. And we're able to talk
about how this business has evolved over the last five, ten,

(09:42):
fifteen years to be able to get much more tax
efficient with non IRA non four oh one K dollars.
That was a real eye opener to them as well.

Speaker 4 (09:50):
Yeah, and so I want to take it back to
remembering what the day is about. Here we're talking about freedom.
It is the fourth of July. Happy fourth everybody out there.
So here's another piece of all this, you know, the
financial freedom is it means one thing in the run
up to retirement. The day you retire, those first few weeks,
that's you know, that's financial freedom. You just get to
and bask in the glow of being able to decide
what you want to do that day. But eventually it's

(10:12):
about flexibility. So lots of clients will retire and then
they'll go back to a part time consulting gig because
maybe they weren't, you know, weren't quite ready to go.
A lot of my friends at the GE there and
even Dale tend to do this, and that's almost there's
a well worn path between General Electric and that consulting group.
Most people, those engineers. That's that's the assumption. I'm going
to back off a little bit, and it really does
work out well. People get to baby step into retirement,

(10:35):
you know, not as many you know, requirements of my
time and my energy and so forth. But I'm not
done yet either, and that's a great way to kind
of slowly wind down. I rarely recommend unless somebody is
completely miserable. I rarely recommend the cold Turkey retirement where
you just shut it all down and you're just finished.

Speaker 2 (10:51):
Here's the all Worth advice.

Speaker 3 (10:53):
Make sure your money is aligned with that long term
retirement vision. Coming up next, what Warren Buffett just did
with his money that could teach us a thing or two,
and how your kid's summer job could lead to a
six figure roth Ira. You're listening to Simply Money, presented
by Allworth Financial on fifty five KRC the talk station.

Speaker 1 (11:14):
Soak in fifty five KARC.

Speaker 5 (11:16):
Allworth Financial a registered investment advisory firm. Any ideas presented
during this program are not intended to provide specific financial advice.
You should consult your own financial advisor, tax consultant, or
a state planning attorney to conduct your own due diligence.

Speaker 3 (11:37):
You're listening to Simply Money presented by Allworth Financial. I'm
Bob Sponsorer along with Brian James. Are you a financial
wizard or are you just winging it? We're going to
play financial Planning Factor fiction at six forty three. All Right,
Brian Warren Buffett, the Oracle of Omaha, is once again
showing us what it means to put your money where

(11:57):
your mouth is. He's donated rough six billion dollars in
Berkshire Hathaway Stock to five charitable foundations, including the Bill
and Melinda Gates Foundation, and four others that are tied
to his family.

Speaker 4 (12:12):
So Warren Buffett a pretty smart guy, obviously one of
the great investors of our time. So his total giving
over his lifetime now exceeds sixty billion dollars. And he's
always been very clear with his family, and they're not
getting much. They're definitely not going to be the oligark
At billionaires inheriting the entire thing. He's already given away
most of his fortune several times. I believe he hasn't

(12:32):
quite bankrupted himself, but he does tend to give the
lion's share away.

Speaker 2 (12:36):
So you might not.

Speaker 4 (12:37):
Have billions or millions to give away, but if you're
listening to the show, you know there's a good chance.
People who seek out financial education and listen to shows
like this tend to be in pretty okay shape. And
I can tell that by the people who walk in
the door every day, you know, looking for making sure
that they're optimizing the right way. So you yourselves may
have these kind of questions, So what do I want
my money to do when I'm going So Warren Buffin's

(12:58):
very strategic about this, strategic with his investments. He's strategic
with what he gives away. So he gives.

Speaker 2 (13:03):
Shares, not cash.

Speaker 4 (13:05):
Right, He's not liquidating many shares of Apple or whatever
stock he owns and then giving cash away. He is
donating shares directly. This is a very important thing to
be able to do to understand, because if you have
an embedded gain right, a lot of people will while
I want to give to my church, to this charity,
so I got to go find the cash. I will
have my financial advisor sell off some shares and stick
it in my bank, and then I will write a check.

Speaker 2 (13:26):
Well, that's a mistake.

Speaker 4 (13:27):
Just donate the shares directly, because that way you get
to avoid the taxes. As long as that charity on
the receiving end is a five oh one C three,
they're not paying taxes either, so they're just going to
sell it immediately, and they know exactly how to do this.
They'll they'll tell you how to wire it over and
give you the DTC number, the account number, all that
fun stuff. It'll probably be in a brochure with their
logo on it. But the whole point is you get

(13:47):
to avoid paying taxes to the IRS and benefit your
charity well.

Speaker 3 (13:52):
And this is also a good time to bring up
that qualified charitable distribution for those that are facing large
required minimum distributions as a reminder, once you hit age
seventy and a half, you don't have to wait till
seventy three when the rmds kick in. Starting at seventy
and a half, you can take IRA money and use
that to make your charitable contributions. In every single penny

(14:14):
that goes to the charity directly from your IRA doesn't
even hit your tax return. The other thing I love
about mister Buffett is he has involved his family. Four
of the five foundations he is supporting are led by
his children or their spouses.

Speaker 2 (14:30):
So that's a true legacy.

Speaker 3 (14:32):
A lot of communication, a lot of education, and actually
getting his family involved in those charitable endeavors. That's what
we're talking about when we talk about passing down values,
not just dollars and cents.

Speaker 4 (14:46):
And I want to throw out another concept here regarding
how can I efficiently give money to these charities and things,
and you don't have to have a bunch of lawyers
and a bazillion dollar foundation in order to have these
types of conversations. If you want to keep it simple, well,
you can do something called a donor advised fund, which
will functionally about the will allow you to have these
conversations with family. So a donor advised fund basically means

(15:09):
that you can donate a fixed, large sum of money,
and that's different for everybody, right. So in other words,
if I, you know, if I give my church five
hundred bucks a month, and I'll do that every year
for the next however many years, that's six thousand bucks
a year. If I'm going to do that, I know,
for the next ten years, then maybe I could do
sixty thousand dollars. We're not talking about millions of dollars
into a donor advice fund, but it is a one

(15:30):
time a donation that you would make to this fund.
You still control this fund, you still see it on
your statements, that all comes to you. It looks just
like an account that anybody that you might have, your IRA,
your other investments in that you're keeping for yourself. But
the difference is you get to take a deduction potentially
because you can put enough money into fund whatever donations
you know you're going to be making anyway, you could

(15:51):
put years worth of those in and as a lump
sum you get a full deduction, and that can outpace
the standard deduction. So if you feel like you, if
you're somebody who feels like well, I would like to
donate to charity, but I would really like to have
the tax benefit again, but you lost it in twenty
seventeen when the standard deduction went up. Well, this Donor
Advice Fund could allow you to get back into the mix.
And here's the important part. That doesn't go directly to

(16:13):
the charity immediately. You still control how and when those
dollars are doled out to whatever charity you want. The
IRS views it as a completed gift. You cannot get
those dollars back. They do not belong to you anymore,
but you do get to control. As you become a
quote unquote advisor, you advise a third party that I
believe I recommend that we donate X amount of dollars

(16:35):
to this church, this charity, or whatever. They will make
the final determination. This is an important step because that
means you don't have control of the money. That's how
the irs is okay with the deduction on this, you
have given it away. But the important part is the
church will have no idea or the charity will have
no idea that you've put sixty thousand dollars away for them.
They're still going to see that same five hundred bucks
a month for the next ten years. But you got
a deduction this year, and it's one pile of money

(16:57):
that you can talk to your kids and your family
about charitage. Do we want to benefit now with this
pile that we've already set aside.

Speaker 3 (17:03):
You're listening to simply money presented by all with financial
I'm Bob Sponseller along with Brian James. Let's switch gears
here to something that doesn't get talked about enough, and
that's the custodial roth ira. Brian, if your kids or
grandkids are out there scooping ice cream or mowing lawns
or lifeguarding this summer, here's a surprising tip. Their paycheck

(17:25):
could unlock one of the smartest long term financial moves
you can help them make, and that is that custodial
roth ira.

Speaker 2 (17:32):
Let's get into it. This is how it works.

Speaker 3 (17:34):
As long as your child or grandchild has earned income,
they can contribute to a roth ira up to seven
thousand dollars for twenty twenty five. But because they're likely
not making a whole lot of money and not paying
much of any an income tax, the wroth is a
perfect way to put away long term money. The money
grows tax free, very little taxes if any are paid,

(17:56):
and withdraws in retirement also tax free. And if your
team isn't eager to hand over their whole paycheck, parents
can match it. Grandparents can match it. It's a great
incentive tool to get folks started on responsibly saving and
compounding money for retirement. So for example, if they throw

(18:16):
in two thousand dollars, you could put in another two
thousand dollars on their behalf, as long as that total
contribution doesn't exceed the lower of what their actual earned
income is or that seven thousand dollars threshold.

Speaker 2 (18:31):
It's a wonderful tool.

Speaker 4 (18:32):
Bob, I want to throw in another little tidbit here.
There is a new way you could do this. We
frequently get questions, well, I just had my first grandchild,
a newborn, and how do I set up a roth ira?
For them, while the earned income thing is going to
get in the way. The thing you'll find online is
if this child can model, they'll take somebody will take
pictures and blah blah blah, they earned money. Well that's
not realistic, but there's a way to get around that

(18:53):
now though. You can actually set up a five to
twenty nine plan, name that child as a beneficiary, and
down the road when they do have earned income. There's
a new law that came in place in twenty twenty
four that allows you to use up to thirty five
thousand dollars as wroth Ira contributions. So if you do
the quick math, you could put twelve thousand dollars away
right now. If it earns six percent average until that

(19:14):
child is eighteen, that'll become thirty five thousand dollars, and
then from there you can use it as that child's
annual wroth Ira contributions, which could literally mean sixty five
years worth of tax free growth.

Speaker 3 (19:25):
All right, every Sunday you'll find our all Worth Advice
in the Cincinnati Inquire here's a quick preview of what'll
be in the paper this weekend. Gene from Burlington asks.
He says, hey, I've got a gold ETF and a
friend said that it gets taxed at a higher tax rate.
This can't possibly be true, can it? And the answer
is yes it can. Gold ETFs are taxed as collectibles,

(19:48):
meaning they can be subject to that higher maximum long
term capital gain rate of twenty eight percent. And it
all depends on your personal tax situation, but yes, it
is true gold ETFs can taxed at a higher rate
than other capital gain assets. Coming up next, all Worth
Chief Investment Officer Andy Stout is in to help those
who want to maximize the amount they've got in their

(20:10):
five twenty nine plans for their kids or grandkids. You're
listening to Simply Money, presented by Allworth Financial on fifty
five KRC the talk station.

Speaker 5 (20:20):
The following this is fifty five KARC, an iHeartRadio station.

Speaker 3 (20:30):
You're listening to Simply Money presented by Allworth Financial. I'm
Bob Sponsler along with Brian James and our chief investment
officer here at Allworth, Andy Stout, joins us again to
talk about five twenty nine plans, a super important topic
that I know a lot of folks are interested in. Andy,
explain to us what five twenty nine plans are and

(20:51):
perhaps a couple of stories and ideas on where they
really work best for folks.

Speaker 6 (20:57):
So five twenty nine plans. It's a really good tool
to help you help your kids essentially, or help maybe
a niece, nephew, a grandkid, a neighbor's kid if you're
really close with your neighbor. But in playing English, it's
a special savings account for education purposes, and it's run

(21:20):
by the state, so each state has their own. What
you do is you invest dollars after tax dollars and
what happens is those earnings grow tax free and they'll
come out tax free as long as you use the
money for approved cost like tuition or books. And this

(21:40):
is not just colleges. You can use it at colleges
for sure, but you can also use it. You know,
in this greater Cincinnati area there's a lot of private schools.
You can use it for private school tuition there as well.
Now one thing is that you also, you know, you
stay in charge of the investments. You can choose the
investments and switch moneys between one family member to another

(22:04):
family member. You can even if you happen to save
too much in these five twenty nine plans. You can
even roll it out into a roth IRA if it's
not needed for school. So you have lots of options there.
And the big takeaway is you start saving early for
college for someone that you care about or someone you

(22:26):
want to help. So in my own personal life, I
have two kids. One is a daughter at the University
of Tennessee, another is a senior in a local high
school here. And one thing that I have been doing
along with my wife and just our financial planning that

(22:46):
we do, is that, you know, we talk about being
ready for college because those college bills are huge. I
mean you look at an in state school, I mean
even these in state schools can be like thirty thousand.
You go out of state, you know, fifty to eighty thousand,
and they're they're tough. It's a lot of money. One

(23:06):
thing to help with that is just socking away, you know,
one hundred and fifty bucks a month, you know, starting
at a very early age for the kids, because then
you get time on your side, because yeah.

Speaker 4 (23:18):
As our chief investment officer, obviously you're in charge of
worrying about what we own and when, and that's what
that's your day job. You have a whole team underneath
you that worries about that. Five twenty nine's though, were
a little bit different. A lot of them have limitations
in terms of how often you can invest what you
invest in. So how do you navigate You mentioned, obviously
you've got these for your own kids. I'm sure you
would want to do things a little differently if those

(23:38):
were you know, those restrictions were removed. So how do
you navigate that knowing what you know about investments, given
the fact that those can be a little bit limited.

Speaker 6 (23:46):
So, you know, I set it up just from a
point diversification standpoint, because when you think about how the
investments are you know, offer to you, some states have
a pretty good offering you, Ohios isn't bad in all honesty.
Other states I've seen are pretty poor. So when you
look at that, you know you want to build it

(24:07):
out to be pre diversified. You want exposure to different
areas of the market because you don't want to put
all of your eggs into one basket, and you want
to I mean, I don't want to stut and make
this sound you know, too easy, but you kind of
want to just set it and forget it because time
is on your side. I mean, there's always going to
be something to worry about, whether it be the trade war,

(24:28):
whether it be you know, whatever is concerning you, inflation, COVID,
financial crises, and armageddons. But when you look at it
over a period of time, starting early from when you
start to save, hopefully close to birth, then you can
weather those storms. And what happens is you have a

(24:52):
little bit of a nest egg built up to help
that person was cool. I mean, maybe you've saved enough
for half a semester or a full year, depending on
where they go.

Speaker 2 (25:03):
Maybe you've been able to save a little bit more.
You know.

Speaker 6 (25:05):
The question is, though, how much do you save? How
much do you put aside? Because there's no one perfect answer,
because the cost of college is you know, it's rising obviously,
and it doesn't appear to be following anytime soon, unfortunately,
and unfortunately for me, especially with a senior in the
mix looking to go somewhere. So we'll see where he

(25:26):
ends up. But regardless, you know, I do feel a
little bit better knowing that I've put some money aside
that will cover those costs. It's almost like it's like
money that's not there right now, because when I think
about it. I don't really think about it because it's
just there, sitting over an account, growing tax free, and
when I need it, it's going to be there. But
I don't really think of it as kind of part
of my net worth because I know I'm going to

(25:46):
use it really soon and it just provides some peace
of mind.

Speaker 2 (25:49):
There, all right.

Speaker 3 (25:50):
So in other words, you're not out there daytrading your
five twenty nine plans for your kids. You've you've put
a responsible acid allocation plan into effect, and you it
sounds like you and your wife have been contributing a
little bit of money to these for years and years
and years on a discipline basis, and that's the way
you win. That is that summing it Summing it up

(26:12):
pretty correctly, Andy.

Speaker 6 (26:14):
I think you hit the nail on the head there.

Speaker 2 (26:16):
All right, Good stuff, Andy, thanks for joining us today.

Speaker 3 (26:19):
You're listening to Simply Money presented by all Worth Financial
on fifty five KRCV talkstation.

Speaker 1 (26:25):
The following Welcome.

Speaker 3 (26:27):
To here, Californians leaving California, they better not come to
my street.

Speaker 1 (26:31):
Fifty five KRC the talk station.

Speaker 3 (26:40):
You're listening to Simply Money, presented by all Worth Financial
on Bob sponseller along with Brian James. You have a
financial question you'd like for us to answer, there's a
red button you can click right there on the iHeart
app while you're listening to the show.

Speaker 2 (26:54):
Simply record your question and it'll come straight to us.

Speaker 3 (26:58):
All right, money nerds and armchair advisors out there, it's
time to play financial planning fact or fiction, and Brian,
I'm going to serve you up a softball question right
off the bat here factor fiction. If you're wealthy, you
don't need to worry about required minimum distributions factor fiction.

Speaker 4 (27:18):
That is a big fat fiiction with a capital F,
because if you're wealthy, you probably it's probably a bigger problem.

Speaker 2 (27:24):
Now, that doesn't mean that that you can't avoid them.

Speaker 4 (27:27):
So what we're talking about was required minimum distributions or rmds.
What this means is that you've put money into your
IRA or your four oh one K or four or
three B whatever retirement plan you have through your advisor
and the irs basically says the gravy train has come
to has come to a stop when you once you
reach either age seventy three or seventy five, depending on
when you were born. But now you just have to

(27:48):
start paying taxes on it. It's not super painful, but
just to give us some scale, what you do is
you take the twelve thirty one balance of the end
for the end of the prior year, and it's going
to be somewhere in the park of four maybe five percent.
That's the amount you have to take out as income,
and you pay taxes on that. There really is that
we get. We get questions all time, how can I
avoid these taxes? Well you can't. That's kind of the point.

(28:10):
If these taxes could be avoided, everyone would do so,
and nobody would ever pay taxes on their iras.

Speaker 2 (28:15):
That's not going to happen.

Speaker 4 (28:16):
But the way to plan for it is well in
advance of our MD age. You need to be looking
at things like roth conversions. And the window to do
that might be when you are you know, when you
have retired but not yet turned on your SOB security.

Speaker 2 (28:28):
Maybe at some point when you're in a lower bracket.

Speaker 4 (28:30):
That's when you want to be not taking advantage and
enjoying the fact that you're paying no taxes.

Speaker 2 (28:35):
That's not the best alternative.

Speaker 4 (28:37):
A lot of times it's to go ahead and take
some taxation on these r and ds or I'm sorry,
on these traditional iras pre tax dollars, so that you
can reduce but not avoid your rm ds later, All right, Bob,
your turn.

Speaker 2 (28:48):
Right back at you. Fact or fiction.

Speaker 4 (28:50):
Sequence of return risk can be mitigated if you have
a cash bucket strategy during the early years of retirement.

Speaker 2 (28:56):
What do you think that's a fact?

Speaker 3 (28:58):
And let's just define what we mean by seek quints
of return risk. That's the volatility risk that's embedded in
any portfolio that's invested in assets that can move up
and down in value temporarily, things like stocks and bonds.

Speaker 2 (29:11):
So you know, we talk about this all the time.

Speaker 3 (29:14):
It's important to have a cash flow strategy, not just
a bucket of assets, to help mitigate that sequence of
return risk. Because if we have a market, you know,
significant market decline early you know, in your retirement years,
and you're permanently pulling money out to live on, that
money obviously can never go back into the portfolio and recover.

(29:36):
So it's important to have different buckets of money, non
volatile buckets of money to help cushion that blow and
make sure that we can weather any short term financial
storm and still have a long term retirement cash flow
strategy that factors in future volatility in terms of returns.
All right, Brian, factor fiction, High dividend paying stock are

(30:00):
always the best option for income focused investors.

Speaker 2 (30:03):
Factor fiction.

Speaker 4 (30:05):
I knew this was fiction as soon as I saw
the word always in it. So I am not a
fan of the words always and never, because that leads
us to what we call rules of thumbers. Our old
friend Ed Fink used to call them rules of dumb
There are there are a couple, but there are generally
nothing out there is the exact right answer for everybody
at all times.

Speaker 2 (30:24):
So that's why I don't like always end never. Anyway,
high dividend.

Speaker 4 (30:27):
Paying stocks not a bad thing, but at the same time,
that's not the only thing option you ought to be
looking at because you still have to deal with inflation.
You know, when we retire, we want income right now,
that's kind of the whole point of having built that
nest egg. Dividend paying stocks can help there, but don't
lose sight completely of the growth side. We can't put
everything into stuff that only generates income because we will

(30:47):
spend that and we're not gonna have something continuing to grow.
Plus I'm thinking nowadays, Bob, I'm gonna throw this idea
out there, see what two think. But I think nowadays
dividends are not the same focus that they used to
be for those that are running these publicly traded companies.
I think, you know, in the sixty seventies and eighties,
that was kind of the thing, But now you see
a lot of the compensation plans are based on the

(31:08):
value of the stock, not the cash flow for the
people who are actually in control of these companies. So
we're out there trying to grow, We're trying to create
the new market and invent the new products and all
that kind of thing. So I don't think dividends are
exactly the same thing that they were twenty and thirty
years ago.

Speaker 3 (31:22):
I would agree with that, And it depends on the
company and the industry obviously, which is why to your point,
we don't like to use the word always, but as
kind of a rule of thumb, if you look at
some of these truly high growth, innovative companies that are
out there, the companies that are really moving the needle
here in terms of technology AI, the up and coming
kind of companies, they're paying out little to no dividends

(31:45):
because they're investing their capital back into their company and
generating earnings growth.

Speaker 2 (31:51):
So to your point, that's why we want.

Speaker 3 (31:52):
To have a well diversified portfolio of all kinds of
stocks working for you, not just dividend payers.

Speaker 4 (32:00):
All right, coming back your way, your turn here, the
step up in basis at death can significantly reduce capital
gains tax liability for airs, Bob.

Speaker 2 (32:08):
Is that fact or fiction?

Speaker 3 (32:09):
This is absolutely a fact, and it's a big part
of what we do when we look at a client's
overall coordinated financial plan, and you know, we run across
folks all the time that have these long time concentrated
stock positions with very low cost basis, and yes, people
are reticent to sell those because they don't want to
pay the capital gains taxes during their lifetime. And the

(32:32):
good news is if you can hold on to those
assets or stocks or whatever it be, you know until
you pass away, those capital gains evaporate and that cost
basis steps up and you can leave that asset to
your errors with no capital gains tax exposure. The only
caveat I would put on all that is make sure
your financial plan is stress tested to be able to

(32:55):
really buy and hold some of these assets, because if
you're just trying to let the tax tail wag the dog,
sometimes you can inject more volatility into your long term income,
your retirement income plan than you might have bargained for.
And then you got to you go back and do
some things you might not have planned or wanted or
you know, should have done years ago to diversify all right,

(33:19):
Brian factor fiction. A concentrated position in any single company
stock might be managed using a collar strategy to protect
gains while limiting downside risk.

Speaker 4 (33:30):
Yeah, this is a fact, and this might be something
something that people are hearing kind of for the first time.
So if you have a lot of stock from an
employer or maybe you inherited something something like that, then
you're that's a good thing, but you're a little at
risk too, because that company can do anything at any time.
A collar strategy basically puts a ceiling and a floor,
so you're limiting the upside, but you're also more importantly
limiting the downside. So that's a legit strategy to protect

(33:53):
yourself from that concentrated position.

Speaker 3 (33:55):
Well, and that's a strategy that we kind of dovetail
with what we just talked about. You know, if we
want to reduce risk and hold that a big chunk
of that concentrated position, that's where those collar strategies can
put some risk protection into place.

Speaker 2 (34:08):
So it's it's marrying one strategy with another.

Speaker 3 (34:10):
All right, Coming up next, Brian offers his bottom line
on I think he's going to share some actual war
stories here on five twenty nine plans. You're listening to
Simply Money, presented by all Worth Financial on fifty five
KRC the Talk Station. This just Iran his being thought
the world on the break of World War IIE.

Speaker 1 (34:32):
Protests here at home causing confusion and chaos.

Speaker 3 (34:35):
Here today because an unspeakable tragedy has unfolded in Minnesota.

Speaker 1 (34:39):
American politicians being murdered. Oh god, what is happening. At
the top of the hour, check in, we'll tell you
everything you need to know and born fifty five krs
the talk station.

Speaker 2 (34:55):
The money in my basement. Come on, Congress, stop wasting
our money.

Speaker 1 (34:59):
Talk at it here fifty five KRC the talk station.

Speaker 3 (35:07):
Moment, you're listening to Simply Money, present up by all
Worth Financial. I'm Bob spon Seller along with Brian James
and it's that time again, time for Brian's bottom line.

Speaker 2 (35:19):
Yeah, Bob, so today I got for us a little
bit of a tax hacked.

Speaker 4 (35:22):
There aren't many of these left, but now there's some
things you can do with five twenty nine plans that
I think can deliver on some things that people have
wanted to do for a while. So reminder, five twenty
nine plan is a way that has always been there
for the last twenty years or so as a way
to fund college in the future. Right, I have a baby,
I got eighteen years to start putting money away before

(35:43):
the college tuition comes due. Five towent nine plan allows
me to invest that and if I grow it to
whatever I grow to, those capital gains come out completely
income and capital gains tax free as long as it's
used for higher education purposes, which is room, tuition, board, laptop,
anything you can kind of throw under that.

Speaker 2 (36:00):
That's what it's been from the beginning.

Speaker 4 (36:01):
A lot of people were hesitant though, have been hesitant
because they'll say, well, I don't this is just a baby.
I don't know if this person's going to go to college,
or if they're going to get a full ride, or
maybe they won't need this money. So therefore I'm hesitant.
I don't want to put money in Will Secure. Act
two point zero had added the ability to take the
money and ultimately convert it to a roth ira. This

(36:22):
is a new rule that has come out in the
past couple of years where you can take if if
there's money left over for a beneficiary, you can take
those dollars and use them as con contributions toward wroth
iras for that same individual person. So this this takes
away the risk that I'm going to put money away
that may not be used because, no matter what, you're

(36:43):
either investing in this person's college education or you're investing
in their retirement, and from day one it would be
tax free. So if I put dollars in and or
the month the kid is born, that that money can
sit there until they're sixty some years old and begin
to come out tax free. Now, obviously this isn't this
isn't a free there's limits and all that kind of thing.

Speaker 2 (37:01):
So let's talk about some.

Speaker 1 (37:02):
Of the rules.

Speaker 2 (37:03):
The dollars have to have sat.

Speaker 4 (37:05):
In the five twenty nine plan for fifteen years, right,
that's a long time to commit. But at the same time,
if you're even remotely thinking about college for very young people.
Then that's that's what you're already taking advantage of. Anyway,
there's a lifetime transfer of thirty five thousand dollars per beneficiary.
And remember we're not talking about I sign a piece
of paper and it becomes magically poof, it's an ira,
it's a roth ira. That's not the case. It becomes

(37:27):
an annual contribution. So until you've spent that full thirty
five thousand dollars. So we need fifteen years and thirty
five thousand dollars. So here's the hack. People will come
and they'll say, you know what, I want to fund
this for my niece, my nephew, my kid, my whoever.

Speaker 2 (37:41):
I want to do a roth ira for him.

Speaker 4 (37:43):
Well, you know, the only way a baby is going
to have earned income is if they're models.

Speaker 2 (37:46):
And people mention this all the time.

Speaker 4 (37:48):
What we're gonna get into modeling, and then we'll take
pictures of this kid and we'll have money to put
in a wroth ira. You don't have to do that anymore.
What you could do is fund this fund of five
twenty nine intentionally. If you've did the seventy bucks a
month or twelve thousand dollars one time when the kid
is a newborn. If you do that for eighteen years,
seventy bucks a month, you'll have thirty five thousand dollars,

(38:09):
assuming about a six percent rate of return. And now
from that child's age eighteen going forward, they've got wroth
Ira contributions coming. So again, if you really want to
kind of hack this and take advantage of tax free
growth for somebody, even think about that Bob six, that's
sixty years worth of tax free growth. That is an
enormous pile of money that could start at seventy bucks
a month just to put away into a five twenty

(38:31):
nine with the intent of rolling it into that roth
Ira taking advantage of these rules. So I think this
is a This is a great way for people to
really remove the stigma that five twenty nine can only
be used for college.

Speaker 2 (38:44):
Therefore, that's too risky. I don't know if that's going
to happen.

Speaker 4 (38:46):
I don't want to take a I don't want to
take the risk that these dollars may not get used.

Speaker 2 (38:51):
Well, now you have an out. You can get that
into a roth Ira. Now there are some questions.

Speaker 4 (38:55):
Out there, right, So this is a brand new rule,
and really nobody has done this yet. There are some
questions out there. Does it if you change the beneficiary,
does that restart the fifteen year clock?

Speaker 2 (39:05):
Because you have that right.

Speaker 4 (39:06):
You can change the beneficiary from one kid to the next,
or a niece or nephew or whatever. And the IRS
hasn't been clear on this yet, so we'll get some
more clarity out there.

Speaker 2 (39:15):
Or what if you move it?

Speaker 4 (39:16):
What if you move the you know, the IRA is
a different custodian, maybe it's the Ohio Vanguard plan. You
move it somewhere else as a custodian, does that change
the fifteen year clock? No clear guidance on this, but
this is a space to pay attention to if you
are somebody who was worried about the future of a
very young person in your life.

Speaker 3 (39:32):
Now this is good stuff, Brian, and I'm actually starting
to get questions from clients about this, balancing out those
two options that you just talked about.

Speaker 2 (39:41):
You know, what should we do.

Speaker 3 (39:42):
Should we give that money as a raw IRA to
the one kid that's not going to need it, or
should we just change the beneficiary and use that for
college funds for our kids that are coming up and
going to college.

Speaker 2 (39:53):
Thanks for listening.

Speaker 3 (39:54):
You've been listening to Simply Money, presented by all Worth
Financial on fifty five KRCV