October 24, 2025 • 41 mins
On this episode of Simply Money presented by Allworth Financial, Bob and Brian explain why riding recent market highs could lead to costly mistakes—and what to do instead. They share year-end tax strategies, rebalance tips, and the smart way to donate appreciated stock. Plus, should annuities be the default in your 401(k)? A high-income caller gets expert advice on the Roth vs. pre-tax debate—and learns about a powerful savings tool few people know. And don’t miss the hidden retirement “sweet spot” that could save you big on taxes.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Y'all are FACEDRC.
Speaker 2 (00:10):
Tonight while using the recent pass to chase returns could
be a dangerous proposition. You're listening to Simply Money, presented
by all Worth Financial on Bob Sponseller along with Brian James.
Last week, we told you that the bullmarket we're in
hit its three year anniversary this month. And if you're periodically,
(00:30):
you know, watching your net worth and watching it grow
and grow, maybe you've got lots of peace of mind
right now, and hopefully for good reason. If we could
end the year right now, right now today, this would
be a very rare occurrence. If the S and P
five hundred were to finish the year with double digit games,
it would mark only the eleventh time we've experienced double
(00:52):
digit games three years in a row in the last
hundred years.
Speaker 3 (00:56):
Brian, I'm sorry, so we've had a heck of a
run here since twenty twenty two. That was the last
time that people really had a good, solid panic that
lasted a long time, little bumpy earlier this April, but
that kind of came and went relatively clickly.
Speaker 1 (01:10):
Twenty two was no fun.
Speaker 3 (01:11):
We started down from day one and then we bottomed
out just before Halloween.
Speaker 1 (01:15):
In October and then it's been kind of off to
the races ever since.
Speaker 3 (01:18):
So hopefully you are someone listening to us who didn't
panic and stayed invested and just kind of shrugged your
shoulders and said, this is no fun. This thinks I
hate it, but I've seen it before, and now this
game works well. The game worked again. So if the
SMP ends up twenty percent or more this year, it
would only mark the second time of gains for twenty
percent or more for three consecutive years. The only other
(01:39):
time that happened was the late nineties. That was the
original Internet bubble, in the original technology wave there. So
in twenty three and twenty four puts some numbers to this,
S and P was up twenty four percent and twenty
three percent around this time. In twenty twenty three, it
was only up by twelve percent for the year, meaning
in the in the that final stretch run of the
(01:59):
year that we got an enormous a rate of return
in twenty twenty three to finish out the year. So
don't count out twenty twenty five, just yeat, we may
get to that twenty percent number.
Speaker 1 (02:07):
Who knows, all.
Speaker 2 (02:08):
Right, Brian, these numbers can't stay this high forever, right,
I mean, the long term average return of the S
and P five hundred is somewhere around ten percent annually.
Speaker 4 (02:18):
We've been doing so much better than that.
Speaker 2 (02:21):
We've got to get a reversion to the means sometime
very soon, right, I mean, I'm sure people are out
there thinking that. So walk us through what not to do.
If you're thinking and feeling those kind of things right now.
Speaker 3 (02:33):
Well, don't think that there is a there's a roadmap
that says if a happens, then do B.
Speaker 1 (02:37):
It doesn't work that way. The market does not cooperate.
Speaker 4 (02:40):
As such.
Speaker 3 (02:41):
It's easy to look at these numbers and just declare that, hey,
this is just a spreadsheet, it's just math. Investing is way, way,
way more art than science, despite the presence of numbers
to make us think otherwise.
Speaker 1 (02:51):
So what should we not do?
Speaker 4 (02:52):
Well?
Speaker 3 (02:52):
Something we talk about all the time, BOB, is recency
bias that can trigu you into thinking that those double
digit returns are the new normal. This happens if you're
looking at your four oh one K, for example, and
you're picking investments, and you go, you don't really know
what I'm doing, but this one, this fund sure did
do well last year.
Speaker 1 (03:06):
I'll just choose that.
Speaker 3 (03:08):
That's like assuming that the same team that won the
Super Bowl of the World Series last year is going
to do it again. It just never works that way.
Those those those repeats are just not the norm.
Speaker 4 (03:17):
Does that mean the Reds might win a World Series sometimes?
Speaker 3 (03:20):
Well, that's one that I think is a little more,
a little more reliable, the fact that the red Let's
go this way, the fact that the Reds didn't win
the World Series this year is indicative of the fact
that they probably won't next year either, So that it
does go.
Speaker 1 (03:32):
Recency bias does work in some ways anyway.
Speaker 2 (03:34):
No, you make you make a good point because people
especially looking at four oh one K options and all
that that's just the natural tendency. You look at what's
returned really high the last few years and you overallocate
to those options, and that can be you know, that
can cause some problems.
Speaker 3 (03:51):
Correct, and that's not the right way to do it,
right That that's indicative of not knowing how to build
a portfolio or not understanding acid allocation and risk.
Speaker 2 (03:58):
Uh.
Speaker 3 (03:59):
You know, it's one thing to say I just want
to be super aggressive, but one thing you might be
doing right now. If you've done that is a lot
of people are sitting on just the S and P
five hundred. I sat down with a prospective client yesterday
who has on her stock portfolio is nothing but the
S and P five hundred, and that's okay, except that
she's leaving a lot on the table. That means there's
(04:19):
no mid cap stocks, no small caps for those the
go go markets, there are no international stocks. International stocks
right now Bob are up thirty percent for the year.
But if you're somebody who's subscribed to the I don't
need anything but the US, you're missing out on that.
You're leaving return on the table. So understand the components
of a portfolio and don't assume that I just need
to have one of these things. And you need to
make sure you understand the different waitings of the various
(04:41):
holdings you might have in there.
Speaker 2 (04:42):
All right, here's another thing not to do is make
decisions based on headline news. Fears of a market correction
are always out there, and let's face it, there's always
uncertainty out there in the world. Shoot, we're in the
middle of earning season, we're in the middle of the
government shut down. Have you know, ongoing negotiations on tariffs
(05:03):
and deal dealings with China. I mean there's umptyen different
stories you can hear every day, which would cause you
to conclude, Man, I just need to get out of
this market, sell everything, and sit you know.
Speaker 4 (05:16):
In cash.
Speaker 2 (05:17):
That's kind of the opposite, you know, reaction to what
we just talked about, in terms of recency bias. Just
think fear, you know, have you not participate in the
market whatsoever?
Speaker 4 (05:28):
Right?
Speaker 1 (05:28):
And remember headlines were scary a year ago.
Speaker 3 (05:30):
If you don't believe me, go back and google headlines
from October twenty third, twenty twenty four.
Speaker 1 (05:35):
Go see if you find anything to be positive about.
Speaker 3 (05:37):
Had you reacted to that, you could we could have
told the same story exactly a year ago, scary headlines
and at that time the market had been up twenty
plus percent two years in a row, and that this
would be the exact same story. Had you reacted to
that and said, oh, it's a bubble, we got to
back off, We got to take some risk off the table.
What you would have given up so far what has
been a fifteen percent return in twenty twenty five.
Speaker 1 (05:58):
So don't fall victim to that.
Speaker 2 (06:00):
Another thing not to do is overreact to volatility, because
it's not a matter of if it's when we get
some volatility in the market. As a reminder, on average,
the market corrects, you know, roughly thirteen fourteen percent a
year every year on average. So right now, Brian, if
the market were to go down three four, five six percent,
(06:23):
the headlines I the headlines would be enormous.
Speaker 4 (06:26):
They would strike fear.
Speaker 2 (06:27):
People would be thinking that we're going to have a
great depression, when in fact it's normal. Volatility is normal,
so it's not sell everything. You know, to your point,
now is a great time when the market's up to
rebalance and have a responsible review of your portfolio, to
just reset your asset allocation to where it needs to
(06:49):
be per your financial plan if you have one, and
your proper risk tolerance level.
Speaker 3 (06:55):
I think it's a great point and another thing to
think about it. As we talk about frequently, this is
the time to do those things that you always got it.
You know, if I have money, I'll do that one day.
When I have this money, I want to support this charity,
or I want to do something for my kids, or
I want to do this.
Speaker 1 (07:06):
That or the other.
Speaker 3 (07:07):
Well, guess what you got the money now with a
with an eighty seven percent return since October of twenty two.
If you stayed invested, then you should have a lot
more money than you've ever had in your life. Take
if you are concerned, if you find yourself being worried
about the portfolio or worried about the markets or whatever,
take some of this a windfall type money that the
market has given you and do those things. If your
(07:29):
plan worked on the assumption of you could have done
it three years ago, well now you've got even more money,
So take a look at that. Also, look at your
concentrated stock positions for example, you may still have you
may have too much in any of these things. There
are a lot of places, and when the market has
gone on a huge run like this, you might have
a position or two in there that has gotten a
lot big than you ever wanted it. And it looks
great right now because it's giving you a gigantic dollar
(07:50):
amount on your statements. But at the same time, remember
that one company, that one holding can take a hit.
The market doesn't tend to like to cooperate on things
like that, and then that's going to drag you your
numbers down as you are now you're going to be
kicking yourself because you didn't take the money while it
was on the table.
Speaker 2 (08:05):
Another thing to do, perhaps between now and the end
of the year, is if you have some of these
lump some expenditures coming up, let's say a bathroom remodel
or a new vehicle purchase or something like that, where
you're going to need a lump some amount of cash,
now's the time, you know, in a tax efficient manner,
to maybe trim some of these gains and put that
(08:26):
money to the side rather than just leave it to
chance and pull the money out, you.
Speaker 1 (08:31):
Know, the week before you need it if.
Speaker 2 (08:33):
The market's down. Case in point, I had a review
meeting with a client last week. We ran some we
did some in depth tax analysis, and bottom line, they
are planning some home remodeling in the first quarter of
twenty twenty six. We were able to pull six thousand
dollars out of their IRA now and Brian, we were
(08:53):
able to do that at a zero percent tax rate.
And it was all because we had a discussion about it.
I knew what their plans were for next year, and
I'm like, hey, look, let's pull some of this money
out now while we can pay no taxes, sell at
a market high, and they love the idea and we
executed it on it.
Speaker 4 (09:12):
I mean six thousand. There is a lot of money,
but it's not the point though. It's it's the you
don't want to pay taxes on it.
Speaker 3 (09:18):
Right, It's the window of time that you help them identify. Look,
this is no, this is not a huge amount of money,
but if we take it out next year, you're gonna
have to. We're gonna have take out seven. So you
can give the irs a thousand and you'll keep your six.
Speaker 1 (09:29):
But this year you're in a.
Speaker 3 (09:31):
Window where you are your your income is lower than
it's been in years. And this isn't this is a
temporary situation. A lot of people go through this uh
as shortly after retirement, where the salaries are gone. Maybe
you're living off of your savings, or you're spending down
assets you already have, which you know, which generally isn't
a taxable situation. If you're using money that's sitting in
the bank spending down cash, uh then that's a year
(09:52):
where you have a zero percent bracket. That literally does
happen to people. That is not a time to spike
the football. If you don't take advantage of it and
perform proactively some taxable transactions, then you're missing an opportunity.
So what I'm getting at is do the things that
you know are going to be pricey tax wise, do
them in the best time to do it. And that
would be roth conversions or as you mentioned, Bob, if
(10:13):
we need to take a good chunk out of an
I or if we wanted to do do that in
these years, even if the bill's not gonna come due
until next year, you might not be doing the thing
until twenty twenty six. Well carve out the cash now
in a better tax window and sit on it's take
it in the money market. Let it spit out a
little bit of interest until that bill comes due next year.
But all you're doing is you're adjusting your timeframes. You
are time shifting your IRA distributions.
Speaker 2 (10:36):
One last thing we want to cover here is perhaps
if you're charitably inclined and you do regular charitable giving,
accelerate some charitable giving now between now and the end
of the year. And Brian, you talk about this strategy
all the time. You know we both love to use
donor advise funds. But you talk about bundling, you know,
maybe two three years worth of charitable giving using some
(10:58):
appreciated stock positions, because let's face it, the standard you know,
deduction amount is up now, you know, at a high
level where a lot of people can't even take advantage
from a deduction standpoint on their charitable giving. Well, using
some appreciated positions and bundling, you know, two to three
years worth of giving might accomplish, you know, moving over
(11:20):
that standard deduction throat, and even if it doesn't, you're
one hundred percent avoiding the capital gains taxes at a
market high on these appreciated positions. That's another thing to
really take a look at between perhaps now in.
Speaker 1 (11:34):
The end of the year, absolutely and one of the
to clarify there.
Speaker 3 (11:38):
So what we're talking about there is if you're in
a situation where you're in a higher bracket, I would
not want to do a donor advice fund any year
where I'm already in a low bracket because you've got
nothing to deduct against. But no, but it's a great
point for those people in the opposite side of things.
So if you maybe this is a big year where
you know you sold a business, or maybe you've inherited
a sizable IRA or something and it's spitting out taxable
distributions where you can carve out some of that money.
(12:00):
All you're doing is you're benefiting a charity that you
probably already were anyway. This is not a quick you know,
check this box and get a deduction. This is if
you're already donating money, do it in a different manner.
Pull several years into one year and take that deduction
this year, and you'll probably be better off in the long run.
Speaker 2 (12:16):
Here's the all Worth advice after a historic market run,
don't just ride the wave, use it, rebalance harvest games
and do some strategic planning while the market is high.
Coming up next, what is what if your four toh
one K could guarantee a paycheck for life? Next we're
digging into whether annuities should be the default position in
(12:39):
defined contribution plans. You're listening to Simply Money, presented by
all Worth Financial on fifty five KRC the talk station,
breaking story coming out of City Hall today.
Speaker 5 (12:50):
Use you need it.
Speaker 6 (12:53):
What I was hearing locally nationally everywhere in between fifty
five KRC D.
Speaker 7 (13:00):
Station 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 2 (13:19):
You're listening to Simply Money, present up by all Worth
Financial on Bob Sponseller along with Brian James. If you
can't listen to Simply Money every night, subscribing get our
daily podcasts. And if you think your friends or family
or neighbors could use some financial advice, tell them.
Speaker 4 (13:33):
About us as well.
Speaker 2 (13:34):
Just search Simply Money on the iHeart app wherever you
find your podcast. Straight Ahead at six forty three, we'll
talk about the retirement sweet spot that you might not
know about. There's an opinion piece in the Wall Street
Journal that caught our attention. It was written by Olivia Mitchell,
a professor of insurance and risk Management and business economics
(13:56):
and Policy. Wow, that's a big department at the wart
Morton School of the University of Pennsylvania. That's a big school,
so she covers a lot of areas where she also
directs the Pension Research Council. The contention that she makes
in this article, Brian is that making an annuity the
default option in four to one K plans could shift
(14:19):
more savings into guaranteed lifetime income solutions, and I guess
help more people, much like now the default option in
many four to one K plans or these target date
funds that we talk about all the time.
Speaker 4 (14:33):
Let's get into this a little bit.
Speaker 3 (14:35):
I want I want to clarify one thing because for
a lot of time and I think perhaps we're maybe
a little guilty of this. We warn about annuities all
the time because they can be extremely lucrative for the
person selling them in the form of a commission those
kinds of things. That is a real thing, that is
a real problem you have to be careful of. But
that's not going to happen in a four to one K.
These are not your commission based type annuities. These are
These would just be investment options like any other in
(14:58):
the four oh one K. You're not gonna worry some
much about upfront commissions or lock up periods, those kinds
of things. And I suppose that's possible, but I'd be
shocked if Arisa allowed that to happen. Any case, annuity
does not always mean commission. It's something to think about.
But anyways, so for today what we're talking about. The
argument for it is this, if you're about to go
into retirement and you want to lock in that floor
of income, you can carve out part of it to
(15:20):
put in the annuities and keep the rest of your
portfolio invested for growth. An annuity gives you that fixed
cost layer of your income so that your growth assets
are more free to take some risk. Now, whenever we
say fixed costs, whenever we're talking about annuities, this will
necessarily and in a guaranteed manner, lower your rate of
return over time if you otherwise were invested in a
growth portfolio.
Speaker 1 (15:41):
That makes logical sense, but something to be aware of.
Speaker 3 (15:43):
Some people can be disappointed that, well, if I'm going
to lock in and take this guarantee now, it doesn't
do as much in the go go markets. Of course,
not because you put that guarantee in place. It doesn't
make it a bad thing. That's just something to be
aware of. So do the math, figure out what you're
comfortable with. I want X amount of dollars per year
that I can count on that I don't have to
worry about to cover my most basic living expenses, and
then that means the rest of my portfolio can swing
(16:04):
up or down. I won't enjoy the down markets, but
I will understand how they work because I because I've
learned my history. But and I will be happy in
the notion that I've got my income covered otherwise for
my basic expenses.
Speaker 2 (16:15):
All right, Brian, I'm gonna switch gears on you a
little bit here, because what you're talking about right now
is people that will actually do some financial planning, run numbers, figure.
Speaker 4 (16:24):
Out what they need leap.
Speaker 2 (16:26):
Well, I think you are in this sense, and I'm
just hearkening back to the days where I've talked about
this before. I used to be the advisor to you know,
three or four pretty large four or one K plans.
So I'd go in and do the semi annual or
annual discussion with all of the employees in the company,
and Bryant, you get this deer in the headlights look
(16:49):
from a lot of them. You know, they have no
idea what we're even thinking about right now when it
comes to asset allocation, picking funds, what have you. At
the end of the day, they they want to work
and they want to have their paycheck continue. And I
think I think the reason that the argument is being
made for the fixed income annuity kind of strategy by
(17:11):
ms Mitchell is a lot of these folks, you know,
in an ideal world, we'd go back to the defined
benefit pension world where you work thirty or forty years
and you know you're going to get a paycheck and
you know what it's going to be. I think there
is a place for this for folks that can't afford
or don't have you know, advisors like you that can
(17:31):
walk them through all these you know, all these different
UH planning strategies and options.
Speaker 4 (17:37):
What do you think about that?
Speaker 2 (17:38):
Because when you put if you make this the default
option in a four to one K plan to the
point you've already made, you're permanently locking into lower returns. Yeah,
you might have a guaranteed income at some point, but
it's that check is going to be a lot less
than if you had just put it in a stock
index fund or a target date fund, you know, seven
(18:00):
eighty percent weighted to stock. That's kind of where I'm
coming from.
Speaker 4 (18:03):
Here, Bob.
Speaker 3 (18:04):
I'm gonna be super blunt. I hate this as the
default option. I really hope that is not what comes
to be. And the reason I say this is because
it wasn't that long ago that the default option became
target date funds. And the reason for that was so
many people out there just they just filled out the
paperwork when they hired into their company, and the default
fund was just a money market fund, and then ten
literally ten fifteen years later they would start to understand,
(18:27):
you know what the four O one K is for,
and all of a sudden they realized it's been sitting
in a savings account for fifteen years. During that time,
it should have been their most aggressive investing times ever.
So I do not like this as the default. I
think it brings us back to the notion that I
don't have to think someone will just hand me a
paycheck when I retire. Well, an annuity is guaranteed to
be a source of income, and that is not a
(18:48):
bad thing, but it's also guaranteed to be less than
a growth portfolio. You shouldn't have a guaranteed stream of
income type of a tool when you're in your twenties
and thirties. Let it grow. The guaranteed income parts should
come much much later in life.
Speaker 4 (19:01):
All right.
Speaker 2 (19:01):
So if we've made Brian King for a day, forget
about you know, the Wharton School of Business and all that.
If you were the King, you know of Arisa in
designing retirement plans, what would you put in as the
default option for folks that don't fill out a form
and select their own investment options.
Speaker 1 (19:22):
I like the plan we have now. I was really happy.
I don't remember when that was.
Speaker 3 (19:25):
That's by fifteen years ago, maybe longer than that, when
when they changed to the default option needs to be
some kind of reasonable target date fund that forced people
to even if you weren't going to put any effort
at all, at least you had something.
Speaker 1 (19:36):
Somebody made a decision that based on.
Speaker 3 (19:38):
Your age, here's how aggressive you should be with your
portfolio versus making it a widow's and orphan's portfolio by
sticking it in the money market.
Speaker 4 (19:45):
Uh.
Speaker 3 (19:45):
Because I'm twenty years old and didn't want to read
the paperwork, so I thought that was a good plan.
I don't want to see us leave it.
Speaker 2 (19:50):
All right, take that Wharton School of Business, all right,
here's the all Worth advice. With the right strategy, you
can build refuly up or retirement income without locking your
money away. We had a call or ask if he
should switch his four to one k from Roth to
pre tax. But the real answer may be something you've
never even heard of. We'll break that down and explain
(20:12):
why it could be a huge opportunity for some of you.
You're listening to Simply Money presented by all Worth Financial
on fifty five KRC the talk station.
Speaker 1 (20:21):
Your countries are going to hell. Something is happening.
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Would be Trump assas and Ryan Ruth guilty.
Speaker 2 (20:27):
Trump shutdown, Antifa, check in all day, it's all the
way something I forgive him.
Speaker 1 (20:33):
Fifty five KRZ the talk station, another group.
Speaker 7 (20:37):
This is fifty five KRC and iHeartRadio station.
Speaker 2 (20:45):
You're listening to Simply Money presented by all Worth Financial
on Bob Sponseller along with Brian James. Do you have
a financial question you'd like for us to answer. There's
a red button you can click while you're listening to
the show right on the iHeart app. Simply record your
question and it will come straight to us. And speaking
of questions, we've actually got a live caller tonight. John
(21:06):
has called in and John, thanks for joining us tonight.
What's on your mind and how can we help.
Speaker 6 (21:12):
You perfect no appreciate you guys helping me on Love
the Show. My question is really related to four oh
one K contributions. So just a little bit of context.
My wife and I both max are four to one
K contributions. We are in the highest tax bracket so
and that's you know, above thirty seven percent. Both my
(21:34):
wife and I contribute to a ROTH contribution and we
have been for years, and so my question is, you know,
I know the debate of whether it should be pre
tax or ROTH, but we just always wanted to, you know,
have as much savings and WROTH as we possibly can,
and we're both very good savers, and so just wanted
(21:56):
to get your guys's perspective on if we should switch
to a pre tax for one k try contribution and
then you know, obviously get some tax savings, or if
we're kind of okay contributing into it to a ROTH
for a.
Speaker 1 (22:10):
One k Okay, Yeah, that great detail there, John.
Speaker 3 (22:13):
So a quick question for you is you didn't bring
this up, so I assume that otherwise cash flow is okay.
You're not really worried about getting the bills paid in
all that, You're just trying to find the most efficient way,
most fficient place for that surplus income to land.
Speaker 4 (22:25):
Do I have that?
Speaker 1 (22:26):
Correct?
Speaker 5 (22:26):
That's correct.
Speaker 6 (22:27):
We still save regularly into a taxable brokerage account as well.
So if we were to switch into a change this
to a traditional and get more tax savings, I would
probably just save that into a into a taxable brokerage
account to be honest.
Speaker 3 (22:42):
Okay, gotcha. Well that's a great, great situation. So congratulations
for putting yourself there. You have a lot of opportunities
ahead you. So the first thing that comes to mind is,
first off, I'll say, here's my personal perspective. So I'm
fifty one, and I spent the first several decades of
my career shoving money into my pre tax four oh
one K cuz that's all there was. And as I
sit here and do my job that I've been doing
(23:04):
for about thirty years now, that's what I run across
people with an enormous amount of money on the pre
tax side, and maybe a little bit of roth because
they came to it later.
Speaker 1 (23:11):
It simply wasn't an opportunity.
Speaker 3 (23:13):
It was really really only became an option to do
inside of a four oh one K. I would say,
starting twenty ten and later, because that is a plan
by planned decision. Your employer, your company has to decide
to allow ROTH contributions to the four oh one K,
and they have to pay lawyers to redo a document
that governs the whole plan. So that's why it didn't
become available on day one, like when roth iras came
(23:34):
available to everyone. So that's that's kind of what I'm
kind of guessing that maybe a little bit of what
you're facing too. But you're right, Yeah, the pre tax
side is great. Of course, it sounds like you're in
a bracket where you're in about the highest bracket there is,
so pre tax savings would be lovely and I think
probably makes some sense there.
Speaker 1 (23:50):
Now you mentioned Roth contributions.
Speaker 3 (23:52):
You are I want to clarify you are specifically referring
to ROTH contributions to the four oh one K.
Speaker 1 (23:56):
You're not doing roth iras outside, correct.
Speaker 6 (24:00):
We do we contribute to a traditional IRA and then
do the back door for both myself and my wife.
Speaker 3 (24:06):
Okay, well you just said the key word there because
this is when I read When I when I heard
your question and kind of what we were going to
be talking about, my mind went straight to something that
I super, super super hope you can do. Have you
ever heard of a mega back door four oh one
K roller.
Speaker 6 (24:22):
I've heard of it. I'm not sure if my employer
allows it or not, but be helpful to get some
some additional background for sure.
Speaker 3 (24:29):
Yeah, you bet, absolutely So this could be a fantastic
opportunity or for you or it's going to be a
big tease because you'll find out you can't do it.
But at the very least it's worth looking into. So
let me kind of walk in through the details here
at the end of this if you look of First
of all, let me ask you a quick question. Can
I ask how old you are or if you're over
under fifty? Yeah, I'm thirty eight thirty eight, all right,
so you you got some time to go. So the
(24:50):
reason I asked is because if you're over fifty, you'll
be able to do a little more in terms of catchups.
But for now, we'll just we'll keep it as it
is where we are right now. But the just what
I'm about to say is that you could potentially, if
the planets line up correctly for you, which we're about
to walking through, you could potentially be putting a way
up to sixty nine thousand dollars as somebody who is
(25:10):
under fifty into your four oh one k. So there
are a lot Most people are familiar with the two
flavors of tax treatment inside right, we can do WROTH
or we can do pre tax.
Speaker 1 (25:21):
You've been talking about that already on this call.
Speaker 3 (25:22):
There is a third flavor called after tax, which is
a little bit of both of them. You can choose
and sometimes they call it a voluntary contribution. There's lots
of weird IRS risso words attached to it. But you
put the money in, you do not get a deduction.
That's the after tax part, and if you leave it
as such, if you leave it as an after tax contribution,
any growth that occurs will happen on the pre tax side,
(25:46):
So it's kind of in that case, it's kind of
the worst of both worlds. You put the money in
and you don't get any deduction for having done so,
and the growth is creating a little more of an
ordinary income taxable overhang over time, So putting it in
as an after tax contribution is not the that's the
first step. The second step is an IRS rule that
went into place in twenty fifteen that basically said that
(26:07):
you are allowed to roll over any after tax contributions
directly into a WROTH. So when you combine your normal
twenty three thousand dollars that you can put in, that's
the limit for everybody. You can choose WROTH or pre
tax on that your company may throw in a match.
We have to account for that too. If your company
does profit sharing, it doesn't match or whatever. Let's all
make up a number. Let's pretend that that's an extra
(26:29):
twenty thousand dollars. So now we're at forty three. That
means in that particular case, you can choose to put
in another twenty six thousand in the after tax bucket
and then immediately convert that to wroth.
Speaker 1 (26:40):
Does that make sense?
Speaker 5 (26:41):
So far it does? It does.
Speaker 3 (26:45):
So here's the rub your plan itself. So every plan
is a different animal, right. A plan four to one
K plan is actually a trust that comes with an
instruction manual called a summary Plan description. And these are
probably documents that very few people ever bother to go
and read unless you're a financial nerd like Bob and I.
But what that will dictate is do you have the
ability to make that kind of contribution? First, that's the
(27:05):
first requirement. Second, it has to be able. You have
to be able to make a rollover of it. Sometimes
they'll allow you to do a rollover within the plan.
There are you know, the catillac of this whole thing
is a you know, Fidelity sometimes offers these plans where
you can set this up to happen how automatically. In
other words, the conversion happens as soon as you get
paid the next day, and it just jumps through all
the hoops automatically.
Speaker 1 (27:26):
I think I've seen one of those in my life.
Speaker 3 (27:28):
Other plans will allow you to do it, but it's
a much more manual process, involving paperwork and actual wet signatures.
Speaker 1 (27:34):
So and then the final that if you can keep
it in the plan.
Speaker 4 (27:38):
That's great.
Speaker 3 (27:39):
It's also possible that your custody and your four O
one K may require that you roll it into a
wroth ira, which you've already got out there. So in
this case you could just dump it into your own
your wroth iras as they stand, this would be worth
looking into for this would be separate, of course, for
both you and your wife. It is a per company,
per decision whether they're going to allow these types of
bells and whistles, but I'm hearing about them more and more,
(28:01):
so I would look into that just to see if
that's even an option for you. I know that's not
a direct. If you can do that, then what I
would do is, yeah, go ahead and flip the other
side to pretext. You're gonna high bracket, so take whatever
you can get, do the twenty three pre tax, and
then do the rest of it on the rock side.
Speaker 5 (28:18):
Okay, yeah, that makes a lot of sense.
Speaker 2 (28:20):
So John, the key is to get that summary Plan
description document. You know, they they're required to give that
to you. Just contact your HR department, have them email
that to you. If you did that, you know, first
thing in the morning, you'd probably have it by lunchtime.
Speaker 4 (28:36):
I got a couple other questions for you. Do you
and your wife have children?
Speaker 5 (28:40):
We do? We have? Okay, two children? Yeah, yeah, both
under six.
Speaker 4 (28:45):
How long do you plan on working?
Speaker 2 (28:47):
Sounds like you and your wife have you know, very
high incomes and your wonderful savers. What are your plans
for retirement? When do you plan to stop working? And
then what are your plans in terms of dividing up
your wealth down the road between your kids? And perhaps
other family members and perhaps charities. What are your thoughts
(29:08):
on how long you plan to work and how you
see dividing up, you know, the wealth that you're doing
a great job of building.
Speaker 6 (29:15):
Yeah, lots of good questions. I would say my wife,
similar age is probably would like to retire sooner rather
than later, in the next couple of years if possible,
and I would probably work, would like to work into
my mid fifties. Probably sixty would be a base case
(29:36):
for retirement. So that's kind of the go ahead plan
I think. Look honestly, in terms of distribution of wealth,
you know, hopefully we continue to save like we're doing
and have a good nest egg. I think, just the
way I was raised, I don't plan on, honestly leaving
(29:56):
a lot for my kids, not not not zero. But
our plan is to have a really nice retirement, spend it,
you know, go on iceaycations, you know, potentially buy a
second home. You know, it probably gives them to charity.
But just enjoy the savings that we did, and you know,
enjoy the time and experiences with my kids. But I
(30:17):
don't I don't plan to leave a lot.
Speaker 5 (30:19):
For my children.
Speaker 2 (30:21):
Fantastic the reason behind my questions is it might make
a lot of sense just to sit down with you,
with you and your wife, with a good fiduciary advisor,
and just map out some different scenarios, you know, as
far as how long you plan to work, what income
assumptions are, what you plan on spending when you do retire,
and just run some different scenarios based on what Brian
(30:44):
talked about, what's the what's the best way to do
this given your individual goals.
Speaker 4 (30:49):
Because if you.
Speaker 2 (30:50):
Can have some a pile of money in all these
different buckets, that opens up a wonderful set of opportunities
for gifting to kids, gifting to charity, saving taxes. I'd
highly recommend you sit down with somebody and just start
mapping out some scenarios just so you know what the
opportunities are now, so you can get out in front
(31:13):
of this thing before you build up a massive tax
bill that you can't control once those require minimum distributions
rear their ugly head, you know, in thirty to forty
years from now.
Speaker 5 (31:25):
Yeah, that makes a lot of sense.
Speaker 6 (31:27):
I don't know a lot about those mandatory retirement distributions
quite yet.
Speaker 5 (31:32):
Just because I haven't you're out there yet. But it's
a very good point.
Speaker 1 (31:36):
You're doing a good job of handle.
Speaker 3 (31:37):
The best thing to do is not to have too
much on the pretext side that doesn't happen on the
wroth side. So if you do want to look into that,
you can find that summary plan description. You should be
able to find it in like a there should be
a documents section of your four oh one k It's
maybe a sectually never look in, but it'll have all
those governing documents.
Speaker 4 (31:52):
All right, Well, thank you for your time. It's wonderful
to have you on the show.
Speaker 2 (31:55):
You're listening to Simply Money, presented by all Worth Financial
on fifty five KRC the Talk Station.
Speaker 1 (32:01):
The Shumer shutdown, Trump shutdown, the Democrats will own it.
Portland is on fire, the Ice facility has been under siege.
Speaker 3 (32:09):
President's declared war on Chicago is a disaster.
Speaker 2 (32:13):
We deserve to be safe in our communities again.
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Thank America, Trump again. Israel and Hamas a peace deal
is closer than.
Speaker 4 (32:19):
Ever about every nation working on this deal.
Speaker 1 (32:22):
The events of the day, clear transparent information are heard
every day in real time. Fifty five KRC, the Talk Station,
are welcome to here. I do think he is too
old to run.
Speaker 7 (32:34):
In twenty twenty.
Speaker 4 (32:35):
Four fifty five KRC. The talk station.
Speaker 2 (32:43):
You're listening to Simply Money, presented by all Worth Financial
on Bob spond Seller along with Brian James. There's a
window in retirement where tax savings, roth conversions, and healthcare
premiums all aligne But Brian, most people miss it. Tonight,
we're going to try to help you find your retirement
sweet spot. And we're gonna paint a picture here with
(33:04):
an actual couple and talk about some potential strategies. So
let me paint a picture here. Say you retire at
sixty three, you delay Social Security until seventies seventy years old,
you require a minimum distributions don't kick in until late
seventy three.
Speaker 4 (33:19):
That gives you a ten year window.
Speaker 2 (33:21):
Where you can really take control of your taxable income.
That's what we're talking about here, the retirement sweet spot.
But you got to take advantage of what some of
the opportunities out there. Brian and I know this is
right in your wheelhouse as an excellent advisor. Walk us
through what we can be doing during that ten year sweepot.
Speaker 3 (33:42):
Yeah, this is a fun window where you can do
a lot of things. So roth conversions are the first
thing that come to mind. Low income equals low tax bracket.
And as we often say, that is not the time
to spike the football. It is not something to be
celebrated that you got yourself into a zero percent bracket.
Speaker 1 (33:56):
And that is possible, right, It is possible.
Speaker 3 (33:58):
To move your move your money around in a manner
that can give you zero percent bracket for a while,
but again, nothing to celebrate. That's the time to take
advantage of those low brackets, convert some of your pre
tax IRA money into WROTH instead of waiting for those
iras to continue to balloon until the IRS has a
gun to your head at age seventy three or seventy
five and starts making you take those require minimum distributions.
(34:19):
You're gonna go ahead and pay taxes now and move
it into a tax free bucket and let it grow
for a tax free forevermore in the WROTH side. So,
for example, you might target this is how you could
do the math. You might target the top of the
twenty four percent bracket, which for a married couple that's
close to four hundred thousand dollars. Knowing that otherwise if
you don't. You may permanently wind up in the thirty
two or thirty five percent bracket when rm d's and
(34:41):
Social Security kick in later. Another one, Bob, I'm gonna
throw this to you. Another one's capital gains harvesting. What
would you do there?
Speaker 4 (34:48):
Well, we talked about this earlier in the show. This
one doesn't get talked about enough.
Speaker 2 (34:52):
I mean, if your tax will income is low, or
you can purposely keep it low, believe it or not,
you could be in a zero percent long term capital
gains bracket. You know, you have to have married couple,
you know, income under ninety six thousand dollars, you know,
something around that level. We're talking about taxable income. This
is a great time to sell appreciated assets, take some gains, rebalance,
(35:15):
do that kind of stuff, and pay nothing in taxes.
Most people completely miss this, Brian, and I see this
way too often. Another one is health insurance planning. And
I saw this happen with a client last year. It
was remarkable how this worked. If you retire before sixty five,
you know, you might have to go to the Affordable
(35:36):
Care Act marketplace for health insurance between when you retire
and when Medicare kicks in, and what are the premiums
based on on the exchange you're modified adjusted gross income.
Speaker 4 (35:47):
Keep that income.
Speaker 2 (35:49):
Low enough and it could mean you qualify for significant subsidies.
We've seen families worth several million dollars qualify for thousands
of dollars in annual premium. Say things, I saw this
and helped the client do this last year, which you know,
I guess is why the country's thirty eight trillion dollars
in debt. But I digress people worth a few million
(36:12):
dollars getting free health care from the government. But you know,
we don't write the tax laws. We just help people
take advantage of them. But you got it. You gotta
do some planning and take a look at what's out there.
Speaker 4 (36:22):
Yep.
Speaker 3 (36:23):
So make sure you're not missing these easy ones. Let's
kind of summarize, right, don't wait too long to do
those ROTH conversions. If you get crushed by your rmds later,
there won't be anything to do about. I've had I've
had a lot of conversations lately with people saying, Hey,
I don't like these rm ds. How do I reduce
my taxes? Well, the answer is either start hemorrhaging money.
In a business that loses money all the time, or
maybe start making massive capital gains or charitable distributions. But
(36:46):
there's not a ton you can do to reduce the
taxes on those rm ds. They kind of are what
they are once you're in that stage.
Speaker 4 (36:52):
Here's the all Worth advice.
Speaker 2 (36:53):
The years between retirement and require minimum distributions are golden.
Use them to create tax free income, smooth out your
withdrawals and protect your future self from a government mandated
tax spike. The next time you make a big purchase,
should you pay cash or finance it? Some rules of
thumb that will talk about next you're listening to. Simply
(37:14):
Money was thated by Allworth Financial on fifty five KRC
the talk station.
Speaker 6 (37:19):
I'm super grateful that I was able to leave him financially.
Speaker 4 (37:23):
Giving thanks.
Speaker 5 (37:25):
It wasn't a good situation for me and my kids.
I just have you to think for that.
Speaker 3 (37:29):
For all the advice I fill myself, I wasn't going
to cry, and the guidance.
Speaker 4 (37:33):
To make good decisions.
Speaker 1 (37:34):
So you got control of your life and I gave
you choices.
Speaker 4 (37:36):
I'm proud of you. The Ramsey Show.
Speaker 3 (37:38):
It's definitely hard to get started, but once you get.
Speaker 1 (37:41):
Going as super duper easy to pack your lunch every
day and.
Speaker 7 (37:44):
Not drink Starbucks weekdays at seven on fifty five KRC.
Speaker 1 (37:49):
The talk station.
Speaker 2 (37:53):
You're listening to, Simply Money, is thated by Allworth Financial
Arm BOM sponsorller along with Brian James. When you're just
whether to pay cash or finance a big purchase, let's
say a home, a car, a kitchen remodel, The internet
tends to polarize. One camp shouts always pay cash. The
other swears never use your own money, use someone else's money.
(38:17):
But neither camp is living your actual life. The right
answer is where math in your reality actually meet?
Speaker 4 (38:24):
Brian.
Speaker 2 (38:24):
This is another one of those topics where you know
there is not just one black box answer. It's more
of an art than a science. But let's walk through
how we help people make these kind of decisions.
Speaker 3 (38:36):
Yeah, this is the old less filling tastes great argument
of financial planning, and I hear I can hear dads
and uncles arguing about this. You know, one size says
never have anybody and pull yourself up by your own bootstraps,
never owe anybody anything, and the other side says, do
the math figure out if the interest rate is really
going to hurt you in the long run versus what
else your cash could do. So here's how we kind
of break this down based on the kind of thing
(38:57):
you're needing to invest in. So, if you're buying a car,
well pay cash. If the APR is clearly higher than
what your cash might earn. If you're getting four percent
in the money market, and the APR on the loan
is seven percent, yeah that's easy.
Speaker 1 (39:09):
Pay that one off.
Speaker 3 (39:10):
You'll finance it if the rate is competitive, look for incentives, right, So,
we do seem to be getting back to supply a
chain kind of like it used to be, where maybe
we'll get back where we'll see these kind of fourth
quarter inventory clearances or zero percenters. If it's a zero
percent loan, jump at that all day, every day, as
long as you have confirmed that they haven't arbitrarily hiked
(39:31):
the purchase price. Zero percent is zero percent, and you
can keep your cash longer. That's the best of both worlds.
But again, if it's more than say two percent percentage
points higher than your realistic low risk return, then pay
the cash.
Speaker 1 (39:43):
Now, let's move on to buying a home, Bob.
Speaker 2 (39:46):
Well, here here's one that we come up against a lot,
you know, the classic twenty percent down payment, which, let's
face it, it's hard for people to achieve that nowadays,
but it does help you avoid private mortgage insurance. A
lot of times, Brian makes sense to make a way
smaller down payment because if you completely drain everything, you
have to hit that twenty percent threshold. Sometimes we'll find
(40:09):
people after they buy the home, six eight months down
the road, they're sitting with credit card debt paying you know,
twenty seven percent interest.
Speaker 4 (40:17):
So you got to look at not only.
Speaker 2 (40:18):
Today, but look at what life's going to look like
six months from now, because you know you've got to
manage that debt based on what your actual life is
going to look like on a cash flow basis moving forward.
Speaker 4 (40:31):
Thanks for listening.
Speaker 2 (40:31):
You've been listening to Simply Money, presented by all Worth
Financial on fifty five KRC the talk station. Some people
only hear what they want to hear these days.
Speaker 5 (40:41):
You need to keep an open mind.
Speaker 1 (40:43):
We only deal in what you need to hear. Everybody
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Speaker 4 (40:47):
You need the information that matters.
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We need to know if there were warning signs.
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You need it around the clock today tomorrow and for
the rest of life.
Speaker 2 (40:56):
In the no twenty four hours a day, you don't
need to go anywhere else, and that's something that people
already know.
Speaker 5 (41:01):
For certainly, what.
Speaker 4 (41:06):
Twenty five kr z
Speaker 1 (41:08):
Z talkstation, according to a twenty twenty two fbis the
two
Y'all are FACEDRC.
Speaker 2 (00:10):
Tonight while using the recent pass to chase returns could
be a dangerous proposition. You're listening to Simply Money, presented
by all Worth Financial on Bob Sponseller along with Brian James.
Last week, we told you that the bullmarket we're in
hit its three year anniversary this month. And if you're periodically,
(00:30):
you know, watching your net worth and watching it grow
and grow, maybe you've got lots of peace of mind
right now, and hopefully for good reason. If we could
end the year right now, right now today, this would
be a very rare occurrence. If the S and P
five hundred were to finish the year with double digit games,
it would mark only the eleventh time we've experienced double
(00:52):
digit games three years in a row in the last
hundred years.
Speaker 3 (00:56):
Brian, I'm sorry, so we've had a heck of a
run here since twenty twenty two. That was the last
time that people really had a good, solid panic that
lasted a long time, little bumpy earlier this April, but
that kind of came and went relatively clickly.
Speaker 1 (01:10):
Twenty two was no fun.
Speaker 3 (01:11):
We started down from day one and then we bottomed
out just before Halloween.
Speaker 1 (01:15):
In October and then it's been kind of off to
the races ever since.
Speaker 3 (01:18):
So hopefully you are someone listening to us who didn't
panic and stayed invested and just kind of shrugged your
shoulders and said, this is no fun. This thinks I
hate it, but I've seen it before, and now this
game works well. The game worked again. So if the
SMP ends up twenty percent or more this year, it
would only mark the second time of gains for twenty
percent or more for three consecutive years. The only other
(01:39):
time that happened was the late nineties. That was the
original Internet bubble, in the original technology wave there. So
in twenty three and twenty four puts some numbers to this,
S and P was up twenty four percent and twenty
three percent around this time. In twenty twenty three, it
was only up by twelve percent for the year, meaning
in the in the that final stretch run of the
(01:59):
year that we got an enormous a rate of return
in twenty twenty three to finish out the year. So
don't count out twenty twenty five, just yeat, we may
get to that twenty percent number.
Speaker 1 (02:07):
Who knows, all.
Speaker 2 (02:08):
Right, Brian, these numbers can't stay this high forever, right,
I mean, the long term average return of the S
and P five hundred is somewhere around ten percent annually.
Speaker 4 (02:18):
We've been doing so much better than that.
Speaker 2 (02:21):
We've got to get a reversion to the means sometime
very soon, right, I mean, I'm sure people are out
there thinking that. So walk us through what not to do.
If you're thinking and feeling those kind of things right now.
Speaker 3 (02:33):
Well, don't think that there is a there's a roadmap
that says if a happens, then do B.
Speaker 1 (02:37):
It doesn't work that way. The market does not cooperate.
Speaker 4 (02:40):
As such.
Speaker 3 (02:41):
It's easy to look at these numbers and just declare that, hey,
this is just a spreadsheet, it's just math. Investing is way, way,
way more art than science, despite the presence of numbers
to make us think otherwise.
Speaker 1 (02:51):
So what should we not do?
Speaker 4 (02:52):
Well?
Speaker 3 (02:52):
Something we talk about all the time, BOB, is recency
bias that can trigu you into thinking that those double
digit returns are the new normal. This happens if you're
looking at your four oh one K, for example, and
you're picking investments, and you go, you don't really know
what I'm doing, but this one, this fund sure did
do well last year.
Speaker 1 (03:06):
I'll just choose that.
Speaker 3 (03:08):
That's like assuming that the same team that won the
Super Bowl of the World Series last year is going
to do it again. It just never works that way.
Those those those repeats are just not the norm.
Speaker 4 (03:17):
Does that mean the Reds might win a World Series sometimes?
Speaker 3 (03:20):
Well, that's one that I think is a little more,
a little more reliable, the fact that the red Let's
go this way, the fact that the Reds didn't win
the World Series this year is indicative of the fact
that they probably won't next year either, So that it
does go.
Speaker 1 (03:32):
Recency bias does work in some ways anyway.
Speaker 2 (03:34):
No, you make you make a good point because people
especially looking at four oh one K options and all
that that's just the natural tendency. You look at what's
returned really high the last few years and you overallocate
to those options, and that can be you know, that
can cause some problems.
Speaker 3 (03:51):
Correct, and that's not the right way to do it,
right That that's indicative of not knowing how to build
a portfolio or not understanding acid allocation and risk.
Speaker 2 (03:58):
Uh.
Speaker 3 (03:59):
You know, it's one thing to say I just want
to be super aggressive, but one thing you might be
doing right now. If you've done that is a lot
of people are sitting on just the S and P
five hundred. I sat down with a prospective client yesterday
who has on her stock portfolio is nothing but the
S and P five hundred, and that's okay, except that
she's leaving a lot on the table. That means there's
(04:19):
no mid cap stocks, no small caps for those the
go go markets, there are no international stocks. International stocks
right now Bob are up thirty percent for the year.
But if you're somebody who's subscribed to the I don't
need anything but the US, you're missing out on that.
You're leaving return on the table. So understand the components
of a portfolio and don't assume that I just need
to have one of these things. And you need to
make sure you understand the different waitings of the various
(04:41):
holdings you might have in there.
Speaker 2 (04:42):
All right, here's another thing not to do is make
decisions based on headline news. Fears of a market correction
are always out there, and let's face it, there's always
uncertainty out there in the world. Shoot, we're in the
middle of earning season, we're in the middle of the
government shut down. Have you know, ongoing negotiations on tariffs
(05:03):
and deal dealings with China. I mean there's umptyen different
stories you can hear every day, which would cause you
to conclude, Man, I just need to get out of
this market, sell everything, and sit you know.
Speaker 4 (05:16):
In cash.
Speaker 2 (05:17):
That's kind of the opposite, you know, reaction to what
we just talked about, in terms of recency bias. Just
think fear, you know, have you not participate in the
market whatsoever?
Speaker 4 (05:28):
Right?
Speaker 1 (05:28):
And remember headlines were scary a year ago.
Speaker 3 (05:30):
If you don't believe me, go back and google headlines
from October twenty third, twenty twenty four.
Speaker 1 (05:35):
Go see if you find anything to be positive about.
Speaker 3 (05:37):
Had you reacted to that, you could we could have
told the same story exactly a year ago, scary headlines
and at that time the market had been up twenty
plus percent two years in a row, and that this
would be the exact same story. Had you reacted to
that and said, oh, it's a bubble, we got to
back off, We got to take some risk off the table.
What you would have given up so far what has
been a fifteen percent return in twenty twenty five.
Speaker 1 (05:58):
So don't fall victim to that.
Speaker 2 (06:00):
Another thing not to do is overreact to volatility, because
it's not a matter of if it's when we get
some volatility in the market. As a reminder, on average,
the market corrects, you know, roughly thirteen fourteen percent a
year every year on average. So right now, Brian, if
the market were to go down three four, five six percent,
(06:23):
the headlines I the headlines would be enormous.
Speaker 4 (06:26):
They would strike fear.
Speaker 2 (06:27):
People would be thinking that we're going to have a
great depression, when in fact it's normal. Volatility is normal,
so it's not sell everything. You know, to your point,
now is a great time when the market's up to
rebalance and have a responsible review of your portfolio, to
just reset your asset allocation to where it needs to
(06:49):
be per your financial plan if you have one, and
your proper risk tolerance level.
Speaker 3 (06:55):
I think it's a great point and another thing to
think about it. As we talk about frequently, this is
the time to do those things that you always got it.
You know, if I have money, I'll do that one day.
When I have this money, I want to support this charity,
or I want to do something for my kids, or
I want to do this.
Speaker 1 (07:06):
That or the other.
Speaker 3 (07:07):
Well, guess what you got the money now with a
with an eighty seven percent return since October of twenty two.
If you stayed invested, then you should have a lot
more money than you've ever had in your life. Take
if you are concerned, if you find yourself being worried
about the portfolio or worried about the markets or whatever,
take some of this a windfall type money that the
market has given you and do those things. If your
(07:29):
plan worked on the assumption of you could have done
it three years ago, well now you've got even more money,
So take a look at that. Also, look at your
concentrated stock positions for example, you may still have you
may have too much in any of these things. There
are a lot of places, and when the market has
gone on a huge run like this, you might have
a position or two in there that has gotten a
lot big than you ever wanted it. And it looks
great right now because it's giving you a gigantic dollar
(07:50):
amount on your statements. But at the same time, remember
that one company, that one holding can take a hit.
The market doesn't tend to like to cooperate on things
like that, and then that's going to drag you your
numbers down as you are now you're going to be
kicking yourself because you didn't take the money while it
was on the table.
Speaker 2 (08:05):
Another thing to do, perhaps between now and the end
of the year, is if you have some of these
lump some expenditures coming up, let's say a bathroom remodel
or a new vehicle purchase or something like that, where
you're going to need a lump some amount of cash,
now's the time, you know, in a tax efficient manner,
to maybe trim some of these gains and put that
(08:26):
money to the side rather than just leave it to
chance and pull the money out, you.
Speaker 1 (08:31):
Know, the week before you need it if.
Speaker 2 (08:33):
The market's down. Case in point, I had a review
meeting with a client last week. We ran some we
did some in depth tax analysis, and bottom line, they
are planning some home remodeling in the first quarter of
twenty twenty six. We were able to pull six thousand
dollars out of their IRA now and Brian, we were
(08:53):
able to do that at a zero percent tax rate.
And it was all because we had a discussion about it.
I knew what their plans were for next year, and
I'm like, hey, look, let's pull some of this money
out now while we can pay no taxes, sell at
a market high, and they love the idea and we
executed it on it.
Speaker 4 (09:12):
I mean six thousand. There is a lot of money,
but it's not the point though. It's it's the you
don't want to pay taxes on it.
Speaker 3 (09:18):
Right, It's the window of time that you help them identify. Look,
this is no, this is not a huge amount of money,
but if we take it out next year, you're gonna
have to. We're gonna have take out seven. So you
can give the irs a thousand and you'll keep your six.
Speaker 1 (09:29):
But this year you're in a.
Speaker 3 (09:31):
Window where you are your your income is lower than
it's been in years. And this isn't this is a
temporary situation. A lot of people go through this uh
as shortly after retirement, where the salaries are gone. Maybe
you're living off of your savings, or you're spending down
assets you already have, which you know, which generally isn't
a taxable situation. If you're using money that's sitting in
the bank spending down cash, uh then that's a year
(09:52):
where you have a zero percent bracket. That literally does
happen to people. That is not a time to spike
the football. If you don't take advantage of it and
perform proactively some taxable transactions, then you're missing an opportunity.
So what I'm getting at is do the things that
you know are going to be pricey tax wise, do
them in the best time to do it. And that
would be roth conversions or as you mentioned, Bob, if
(10:13):
we need to take a good chunk out of an
I or if we wanted to do do that in
these years, even if the bill's not gonna come due
until next year, you might not be doing the thing
until twenty twenty six. Well carve out the cash now
in a better tax window and sit on it's take
it in the money market. Let it spit out a
little bit of interest until that bill comes due next year.
But all you're doing is you're adjusting your timeframes. You
are time shifting your IRA distributions.
Speaker 2 (10:36):
One last thing we want to cover here is perhaps
if you're charitably inclined and you do regular charitable giving,
accelerate some charitable giving now between now and the end
of the year. And Brian, you talk about this strategy
all the time. You know we both love to use
donor advise funds. But you talk about bundling, you know,
maybe two three years worth of charitable giving using some
(10:58):
appreciated stock positions, because let's face it, the standard you know,
deduction amount is up now, you know, at a high
level where a lot of people can't even take advantage
from a deduction standpoint on their charitable giving. Well, using
some appreciated positions and bundling, you know, two to three
years worth of giving might accomplish, you know, moving over
(11:20):
that standard deduction throat, and even if it doesn't, you're
one hundred percent avoiding the capital gains taxes at a
market high on these appreciated positions. That's another thing to
really take a look at between perhaps now in.
Speaker 1 (11:34):
The end of the year, absolutely and one of the
to clarify there.
Speaker 3 (11:38):
So what we're talking about there is if you're in
a situation where you're in a higher bracket, I would
not want to do a donor advice fund any year
where I'm already in a low bracket because you've got
nothing to deduct against. But no, but it's a great
point for those people in the opposite side of things.
So if you maybe this is a big year where
you know you sold a business, or maybe you've inherited
a sizable IRA or something and it's spitting out taxable
distributions where you can carve out some of that money.
(12:00):
All you're doing is you're benefiting a charity that you
probably already were anyway. This is not a quick you know,
check this box and get a deduction. This is if
you're already donating money, do it in a different manner.
Pull several years into one year and take that deduction
this year, and you'll probably be better off in the long run.
Speaker 2 (12:16):
Here's the all Worth advice after a historic market run,
don't just ride the wave, use it, rebalance harvest games
and do some strategic planning while the market is high.
Coming up next, what is what if your four toh
one K could guarantee a paycheck for life? Next we're
digging into whether annuities should be the default position in
(12:39):
defined contribution plans. You're listening to Simply Money, presented by
all Worth Financial on fifty five KRC the talk station,
breaking story coming out of City Hall today.
Speaker 5 (12:50):
Use you need it.
Speaker 6 (12:53):
What I was hearing locally nationally everywhere in between fifty
five KRC D.
Speaker 7 (13:00):
Station 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 2 (13:19):
You're listening to Simply Money, present up by all Worth
Financial on Bob Sponseller along with Brian James. If you
can't listen to Simply Money every night, subscribing get our
daily podcasts. And if you think your friends or family
or neighbors could use some financial advice, tell them.
Speaker 4 (13:33):
About us as well.
Speaker 2 (13:34):
Just search Simply Money on the iHeart app wherever you
find your podcast. Straight Ahead at six forty three, we'll
talk about the retirement sweet spot that you might not
know about. There's an opinion piece in the Wall Street
Journal that caught our attention. It was written by Olivia Mitchell,
a professor of insurance and risk Management and business economics
(13:56):
and Policy. Wow, that's a big department at the wart
Morton School of the University of Pennsylvania. That's a big school,
so she covers a lot of areas where she also
directs the Pension Research Council. The contention that she makes
in this article, Brian is that making an annuity the
default option in four to one K plans could shift
(14:19):
more savings into guaranteed lifetime income solutions, and I guess
help more people, much like now the default option in
many four to one K plans or these target date
funds that we talk about all the time.
Speaker 4 (14:33):
Let's get into this a little bit.
Speaker 3 (14:35):
I want I want to clarify one thing because for
a lot of time and I think perhaps we're maybe
a little guilty of this. We warn about annuities all
the time because they can be extremely lucrative for the
person selling them in the form of a commission those
kinds of things. That is a real thing, that is
a real problem you have to be careful of. But
that's not going to happen in a four to one K.
These are not your commission based type annuities. These are
These would just be investment options like any other in
(14:58):
the four oh one K. You're not gonna worry some
much about upfront commissions or lock up periods, those kinds
of things. And I suppose that's possible, but I'd be
shocked if Arisa allowed that to happen. Any case, annuity
does not always mean commission. It's something to think about.
But anyways, so for today what we're talking about. The
argument for it is this, if you're about to go
into retirement and you want to lock in that floor
of income, you can carve out part of it to
(15:20):
put in the annuities and keep the rest of your
portfolio invested for growth. An annuity gives you that fixed
cost layer of your income so that your growth assets
are more free to take some risk. Now, whenever we
say fixed costs, whenever we're talking about annuities, this will
necessarily and in a guaranteed manner, lower your rate of
return over time if you otherwise were invested in a
growth portfolio.
Speaker 1 (15:41):
That makes logical sense, but something to be aware of.
Speaker 3 (15:43):
Some people can be disappointed that, well, if I'm going
to lock in and take this guarantee now, it doesn't
do as much in the go go markets. Of course,
not because you put that guarantee in place. It doesn't
make it a bad thing. That's just something to be
aware of. So do the math, figure out what you're
comfortable with. I want X amount of dollars per year
that I can count on that I don't have to
worry about to cover my most basic living expenses, and
then that means the rest of my portfolio can swing
(16:04):
up or down. I won't enjoy the down markets, but
I will understand how they work because I because I've
learned my history. But and I will be happy in
the notion that I've got my income covered otherwise for
my basic expenses.
Speaker 2 (16:15):
All right, Brian, I'm gonna switch gears on you a
little bit here, because what you're talking about right now
is people that will actually do some financial planning, run numbers, figure.
Speaker 4 (16:24):
Out what they need leap.
Speaker 2 (16:26):
Well, I think you are in this sense, and I'm
just hearkening back to the days where I've talked about
this before. I used to be the advisor to you know,
three or four pretty large four or one K plans.
So I'd go in and do the semi annual or
annual discussion with all of the employees in the company,
and Bryant, you get this deer in the headlights look
(16:49):
from a lot of them. You know, they have no
idea what we're even thinking about right now when it
comes to asset allocation, picking funds, what have you. At
the end of the day, they they want to work
and they want to have their paycheck continue. And I
think I think the reason that the argument is being
made for the fixed income annuity kind of strategy by
(17:11):
ms Mitchell is a lot of these folks, you know,
in an ideal world, we'd go back to the defined
benefit pension world where you work thirty or forty years
and you know you're going to get a paycheck and
you know what it's going to be. I think there
is a place for this for folks that can't afford
or don't have you know, advisors like you that can
(17:31):
walk them through all these you know, all these different
UH planning strategies and options.
Speaker 4 (17:37):
What do you think about that?
Speaker 2 (17:38):
Because when you put if you make this the default
option in a four to one K plan to the
point you've already made, you're permanently locking into lower returns. Yeah,
you might have a guaranteed income at some point, but
it's that check is going to be a lot less
than if you had just put it in a stock
index fund or a target date fund, you know, seven
(18:00):
eighty percent weighted to stock. That's kind of where I'm
coming from.
Speaker 4 (18:03):
Here, Bob.
Speaker 3 (18:04):
I'm gonna be super blunt. I hate this as the
default option. I really hope that is not what comes
to be. And the reason I say this is because
it wasn't that long ago that the default option became
target date funds. And the reason for that was so
many people out there just they just filled out the
paperwork when they hired into their company, and the default
fund was just a money market fund, and then ten
literally ten fifteen years later they would start to understand,
(18:27):
you know what the four O one K is for,
and all of a sudden they realized it's been sitting
in a savings account for fifteen years. During that time,
it should have been their most aggressive investing times ever.
So I do not like this as the default. I
think it brings us back to the notion that I
don't have to think someone will just hand me a
paycheck when I retire. Well, an annuity is guaranteed to
be a source of income, and that is not a
(18:48):
bad thing, but it's also guaranteed to be less than
a growth portfolio. You shouldn't have a guaranteed stream of
income type of a tool when you're in your twenties
and thirties. Let it grow. The guaranteed income parts should
come much much later in life.
Speaker 4 (19:01):
All right.
Speaker 2 (19:01):
So if we've made Brian King for a day, forget
about you know, the Wharton School of Business and all that.
If you were the King, you know of Arisa in
designing retirement plans, what would you put in as the
default option for folks that don't fill out a form
and select their own investment options.
Speaker 1 (19:22):
I like the plan we have now. I was really happy.
I don't remember when that was.
Speaker 3 (19:25):
That's by fifteen years ago, maybe longer than that, when
when they changed to the default option needs to be
some kind of reasonable target date fund that forced people
to even if you weren't going to put any effort
at all, at least you had something.
Speaker 1 (19:36):
Somebody made a decision that based on.
Speaker 3 (19:38):
Your age, here's how aggressive you should be with your
portfolio versus making it a widow's and orphan's portfolio by
sticking it in the money market.
Speaker 4 (19:45):
Uh.
Speaker 3 (19:45):
Because I'm twenty years old and didn't want to read
the paperwork, so I thought that was a good plan.
I don't want to see us leave it.
Speaker 2 (19:50):
All right, take that Wharton School of Business, all right,
here's the all Worth advice. With the right strategy, you
can build refuly up or retirement income without locking your
money away. We had a call or ask if he
should switch his four to one k from Roth to
pre tax. But the real answer may be something you've
never even heard of. We'll break that down and explain
(20:12):
why it could be a huge opportunity for some of you.
You're listening to Simply Money presented by all Worth Financial
on fifty five KRC the talk station.
Speaker 1 (20:21):
Your countries are going to hell. Something is happening.
Speaker 7 (20:24):
Would be Trump assas and Ryan Ruth guilty.
Speaker 2 (20:27):
Trump shutdown, Antifa, check in all day, it's all the
way something I forgive him.
Speaker 1 (20:33):
Fifty five KRZ the talk station, another group.
Speaker 7 (20:37):
This is fifty five KRC and iHeartRadio station.
Speaker 2 (20:45):
You're listening to Simply Money presented by all Worth Financial
on Bob Sponseller along with Brian James. Do you have
a financial question you'd like for us to answer. There's
a red button you can click while you're listening to
the show right on the iHeart app. Simply record your
question and it will come straight to us. And speaking
of questions, we've actually got a live caller tonight. John
(21:06):
has called in and John, thanks for joining us tonight.
What's on your mind and how can we help.
Speaker 6 (21:12):
You perfect no appreciate you guys helping me on Love
the Show. My question is really related to four oh
one K contributions. So just a little bit of context.
My wife and I both max are four to one
K contributions. We are in the highest tax bracket so
and that's you know, above thirty seven percent. Both my
(21:34):
wife and I contribute to a ROTH contribution and we
have been for years, and so my question is, you know,
I know the debate of whether it should be pre
tax or ROTH, but we just always wanted to, you know,
have as much savings and WROTH as we possibly can,
and we're both very good savers, and so just wanted
(21:56):
to get your guys's perspective on if we should switch
to a pre tax for one k try contribution and
then you know, obviously get some tax savings, or if
we're kind of okay contributing into it to a ROTH
for a.
Speaker 1 (22:10):
One k Okay, Yeah, that great detail there, John.
Speaker 3 (22:13):
So a quick question for you is you didn't bring
this up, so I assume that otherwise cash flow is okay.
You're not really worried about getting the bills paid in
all that, You're just trying to find the most efficient way,
most fficient place for that surplus income to land.
Speaker 4 (22:25):
Do I have that?
Speaker 1 (22:26):
Correct?
Speaker 5 (22:26):
That's correct.
Speaker 6 (22:27):
We still save regularly into a taxable brokerage account as well.
So if we were to switch into a change this
to a traditional and get more tax savings, I would
probably just save that into a into a taxable brokerage
account to be honest.
Speaker 3 (22:42):
Okay, gotcha. Well that's a great, great situation. So congratulations
for putting yourself there. You have a lot of opportunities
ahead you. So the first thing that comes to mind is,
first off, I'll say, here's my personal perspective. So I'm
fifty one, and I spent the first several decades of
my career shoving money into my pre tax four oh
one K cuz that's all there was. And as I
sit here and do my job that I've been doing
(23:04):
for about thirty years now, that's what I run across
people with an enormous amount of money on the pre
tax side, and maybe a little bit of roth because
they came to it later.
Speaker 1 (23:11):
It simply wasn't an opportunity.
Speaker 3 (23:13):
It was really really only became an option to do
inside of a four oh one K. I would say,
starting twenty ten and later, because that is a plan
by planned decision. Your employer, your company has to decide
to allow ROTH contributions to the four oh one K,
and they have to pay lawyers to redo a document
that governs the whole plan. So that's why it didn't
become available on day one, like when roth iras came
(23:34):
available to everyone. So that's that's kind of what I'm
kind of guessing that maybe a little bit of what
you're facing too. But you're right, Yeah, the pre tax
side is great. Of course, it sounds like you're in
a bracket where you're in about the highest bracket there is,
so pre tax savings would be lovely and I think
probably makes some sense there.
Speaker 1 (23:50):
Now you mentioned Roth contributions.
Speaker 3 (23:52):
You are I want to clarify you are specifically referring
to ROTH contributions to the four oh one K.
Speaker 1 (23:56):
You're not doing roth iras outside, correct.
Speaker 6 (24:00):
We do we contribute to a traditional IRA and then
do the back door for both myself and my wife.
Speaker 3 (24:06):
Okay, well you just said the key word there because
this is when I read When I when I heard
your question and kind of what we were going to
be talking about, my mind went straight to something that
I super, super super hope you can do. Have you
ever heard of a mega back door four oh one
K roller.
Speaker 6 (24:22):
I've heard of it. I'm not sure if my employer
allows it or not, but be helpful to get some
some additional background for sure.
Speaker 3 (24:29):
Yeah, you bet, absolutely So this could be a fantastic
opportunity or for you or it's going to be a
big tease because you'll find out you can't do it.
But at the very least it's worth looking into. So
let me kind of walk in through the details here
at the end of this if you look of First
of all, let me ask you a quick question. Can
I ask how old you are or if you're over
under fifty? Yeah, I'm thirty eight thirty eight, all right,
so you you got some time to go. So the
(24:50):
reason I asked is because if you're over fifty, you'll
be able to do a little more in terms of catchups.
But for now, we'll just we'll keep it as it
is where we are right now. But the just what
I'm about to say is that you could potentially, if
the planets line up correctly for you, which we're about
to walking through, you could potentially be putting a way
up to sixty nine thousand dollars as somebody who is
(25:10):
under fifty into your four oh one k. So there
are a lot Most people are familiar with the two
flavors of tax treatment inside right, we can do WROTH
or we can do pre tax.
Speaker 1 (25:21):
You've been talking about that already on this call.
Speaker 3 (25:22):
There is a third flavor called after tax, which is
a little bit of both of them. You can choose
and sometimes they call it a voluntary contribution. There's lots
of weird IRS risso words attached to it. But you
put the money in, you do not get a deduction.
That's the after tax part, and if you leave it
as such, if you leave it as an after tax contribution,
any growth that occurs will happen on the pre tax side,
(25:46):
So it's kind of in that case, it's kind of
the worst of both worlds. You put the money in
and you don't get any deduction for having done so,
and the growth is creating a little more of an
ordinary income taxable overhang over time, So putting it in
as an after tax contribution is not the that's the
first step. The second step is an IRS rule that
went into place in twenty fifteen that basically said that
(26:07):
you are allowed to roll over any after tax contributions
directly into a WROTH. So when you combine your normal
twenty three thousand dollars that you can put in, that's
the limit for everybody. You can choose WROTH or pre
tax on that your company may throw in a match.
We have to account for that too. If your company
does profit sharing, it doesn't match or whatever. Let's all
make up a number. Let's pretend that that's an extra
(26:29):
twenty thousand dollars. So now we're at forty three. That
means in that particular case, you can choose to put
in another twenty six thousand in the after tax bucket
and then immediately convert that to wroth.
Speaker 1 (26:40):
Does that make sense?
Speaker 5 (26:41):
So far it does? It does.
Speaker 3 (26:45):
So here's the rub your plan itself. So every plan
is a different animal, right. A plan four to one
K plan is actually a trust that comes with an
instruction manual called a summary Plan description. And these are
probably documents that very few people ever bother to go
and read unless you're a financial nerd like Bob and I.
But what that will dictate is do you have the
ability to make that kind of contribution? First, that's the
(27:05):
first requirement. Second, it has to be able. You have
to be able to make a rollover of it. Sometimes
they'll allow you to do a rollover within the plan.
There are you know, the catillac of this whole thing
is a you know, Fidelity sometimes offers these plans where
you can set this up to happen how automatically. In
other words, the conversion happens as soon as you get
paid the next day, and it just jumps through all
the hoops automatically.
Speaker 1 (27:26):
I think I've seen one of those in my life.
Speaker 3 (27:28):
Other plans will allow you to do it, but it's
a much more manual process, involving paperwork and actual wet signatures.
Speaker 1 (27:34):
So and then the final that if you can keep
it in the plan.
Speaker 4 (27:38):
That's great.
Speaker 3 (27:39):
It's also possible that your custody and your four O
one K may require that you roll it into a
wroth ira, which you've already got out there. So in
this case you could just dump it into your own
your wroth iras as they stand, this would be worth
looking into for this would be separate, of course, for
both you and your wife. It is a per company,
per decision whether they're going to allow these types of
bells and whistles, but I'm hearing about them more and more,
(28:01):
so I would look into that just to see if
that's even an option for you. I know that's not
a direct. If you can do that, then what I
would do is, yeah, go ahead and flip the other
side to pretext. You're gonna high bracket, so take whatever
you can get, do the twenty three pre tax, and
then do the rest of it on the rock side.
Speaker 5 (28:18):
Okay, yeah, that makes a lot of sense.
Speaker 2 (28:20):
So John, the key is to get that summary Plan
description document. You know, they they're required to give that
to you. Just contact your HR department, have them email
that to you. If you did that, you know, first
thing in the morning, you'd probably have it by lunchtime.
Speaker 4 (28:36):
I got a couple other questions for you. Do you
and your wife have children?
Speaker 5 (28:40):
We do? We have? Okay, two children? Yeah, yeah, both
under six.
Speaker 4 (28:45):
How long do you plan on working?
Speaker 2 (28:47):
Sounds like you and your wife have you know, very
high incomes and your wonderful savers. What are your plans
for retirement? When do you plan to stop working? And
then what are your plans in terms of dividing up
your wealth down the road between your kids? And perhaps
other family members and perhaps charities. What are your thoughts
(29:08):
on how long you plan to work and how you
see dividing up, you know, the wealth that you're doing
a great job of building.
Speaker 6 (29:15):
Yeah, lots of good questions. I would say my wife,
similar age is probably would like to retire sooner rather
than later, in the next couple of years if possible,
and I would probably work, would like to work into
my mid fifties. Probably sixty would be a base case
(29:36):
for retirement. So that's kind of the go ahead plan
I think. Look honestly, in terms of distribution of wealth,
you know, hopefully we continue to save like we're doing
and have a good nest egg. I think, just the
way I was raised, I don't plan on, honestly leaving
(29:56):
a lot for my kids, not not not zero. But
our plan is to have a really nice retirement, spend it,
you know, go on iceaycations, you know, potentially buy a
second home. You know, it probably gives them to charity.
But just enjoy the savings that we did, and you know,
enjoy the time and experiences with my kids. But I
(30:17):
don't I don't plan to leave a lot.
Speaker 5 (30:19):
For my children.
Speaker 2 (30:21):
Fantastic the reason behind my questions is it might make
a lot of sense just to sit down with you,
with you and your wife, with a good fiduciary advisor,
and just map out some different scenarios, you know, as
far as how long you plan to work, what income
assumptions are, what you plan on spending when you do retire,
and just run some different scenarios based on what Brian
(30:44):
talked about, what's the what's the best way to do
this given your individual goals.
Speaker 4 (30:49):
Because if you.
Speaker 2 (30:50):
Can have some a pile of money in all these
different buckets, that opens up a wonderful set of opportunities
for gifting to kids, gifting to charity, saving taxes. I'd
highly recommend you sit down with somebody and just start
mapping out some scenarios just so you know what the
opportunities are now, so you can get out in front
(31:13):
of this thing before you build up a massive tax
bill that you can't control once those require minimum distributions
rear their ugly head, you know, in thirty to forty
years from now.
Speaker 5 (31:25):
Yeah, that makes a lot of sense.
Speaker 6 (31:27):
I don't know a lot about those mandatory retirement distributions
quite yet.
Speaker 5 (31:32):
Just because I haven't you're out there yet. But it's
a very good point.
Speaker 1 (31:36):
You're doing a good job of handle.
Speaker 3 (31:37):
The best thing to do is not to have too
much on the pretext side that doesn't happen on the
wroth side. So if you do want to look into that,
you can find that summary plan description. You should be
able to find it in like a there should be
a documents section of your four oh one k It's
maybe a sectually never look in, but it'll have all
those governing documents.
Speaker 4 (31:52):
All right, Well, thank you for your time. It's wonderful
to have you on the show.
Speaker 2 (31:55):
You're listening to Simply Money, presented by all Worth Financial
on fifty five KRC the Talk Station.
Speaker 1 (32:01):
The Shumer shutdown, Trump shutdown, the Democrats will own it.
Portland is on fire, the Ice facility has been under siege.
Speaker 3 (32:09):
President's declared war on Chicago is a disaster.
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We deserve to be safe in our communities again.
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Thank America, Trump again. Israel and Hamas a peace deal
is closer than.
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Ever about every nation working on this deal.
Speaker 1 (32:22):
The events of the day, clear transparent information are heard
every day in real time. Fifty five KRC, the Talk Station,
are welcome to here. I do think he is too
old to run.
Speaker 7 (32:34):
In twenty twenty.
Speaker 4 (32:35):
Four fifty five KRC. The talk station.
Speaker 2 (32:43):
You're listening to Simply Money, presented by all Worth Financial
on Bob spond Seller along with Brian James. There's a
window in retirement where tax savings, roth conversions, and healthcare
premiums all aligne But Brian, most people miss it. Tonight,
we're going to try to help you find your retirement
sweet spot. And we're gonna paint a picture here with
(33:04):
an actual couple and talk about some potential strategies. So
let me paint a picture here. Say you retire at
sixty three, you delay Social Security until seventies seventy years old,
you require a minimum distributions don't kick in until late
seventy three.
Speaker 4 (33:19):
That gives you a ten year window.
Speaker 2 (33:21):
Where you can really take control of your taxable income.
That's what we're talking about here, the retirement sweet spot.
But you got to take advantage of what some of
the opportunities out there. Brian and I know this is
right in your wheelhouse as an excellent advisor. Walk us
through what we can be doing during that ten year sweepot.
Speaker 3 (33:42):
Yeah, this is a fun window where you can do
a lot of things. So roth conversions are the first
thing that come to mind. Low income equals low tax bracket.
And as we often say, that is not the time
to spike the football. It is not something to be
celebrated that you got yourself into a zero percent bracket.
Speaker 1 (33:56):
And that is possible, right, It is possible.
Speaker 3 (33:58):
To move your move your money around in a manner
that can give you zero percent bracket for a while,
but again, nothing to celebrate. That's the time to take
advantage of those low brackets, convert some of your pre
tax IRA money into WROTH instead of waiting for those
iras to continue to balloon until the IRS has a
gun to your head at age seventy three or seventy
five and starts making you take those require minimum distributions.
(34:19):
You're gonna go ahead and pay taxes now and move
it into a tax free bucket and let it grow
for a tax free forevermore in the WROTH side. So,
for example, you might target this is how you could
do the math. You might target the top of the
twenty four percent bracket, which for a married couple that's
close to four hundred thousand dollars. Knowing that otherwise if
you don't. You may permanently wind up in the thirty
two or thirty five percent bracket when rm d's and
(34:41):
Social Security kick in later. Another one, Bob, I'm gonna
throw this to you. Another one's capital gains harvesting. What
would you do there?
Speaker 4 (34:48):
Well, we talked about this earlier in the show. This
one doesn't get talked about enough.
Speaker 2 (34:52):
I mean, if your tax will income is low, or
you can purposely keep it low, believe it or not,
you could be in a zero percent long term capital
gains bracket. You know, you have to have married couple,
you know, income under ninety six thousand dollars, you know,
something around that level. We're talking about taxable income. This
is a great time to sell appreciated assets, take some gains, rebalance,
(35:15):
do that kind of stuff, and pay nothing in taxes.
Most people completely miss this, Brian, and I see this
way too often. Another one is health insurance planning. And
I saw this happen with a client last year. It
was remarkable how this worked. If you retire before sixty five,
you know, you might have to go to the Affordable
(35:36):
Care Act marketplace for health insurance between when you retire
and when Medicare kicks in, and what are the premiums
based on on the exchange you're modified adjusted gross income.
Speaker 4 (35:47):
Keep that income.
Speaker 2 (35:49):
Low enough and it could mean you qualify for significant subsidies.
We've seen families worth several million dollars qualify for thousands
of dollars in annual premium. Say things, I saw this
and helped the client do this last year, which you know,
I guess is why the country's thirty eight trillion dollars
in debt. But I digress people worth a few million
(36:12):
dollars getting free health care from the government. But you know,
we don't write the tax laws. We just help people
take advantage of them. But you got it. You gotta
do some planning and take a look at what's out there.
Speaker 4 (36:22):
Yep.
Speaker 3 (36:23):
So make sure you're not missing these easy ones. Let's
kind of summarize, right, don't wait too long to do
those ROTH conversions. If you get crushed by your rmds later,
there won't be anything to do about. I've had I've
had a lot of conversations lately with people saying, Hey,
I don't like these rm ds. How do I reduce
my taxes? Well, the answer is either start hemorrhaging money.
In a business that loses money all the time, or
maybe start making massive capital gains or charitable distributions. But
(36:46):
there's not a ton you can do to reduce the
taxes on those rm ds. They kind of are what
they are once you're in that stage.
Speaker 4 (36:52):
Here's the all Worth advice.
Speaker 2 (36:53):
The years between retirement and require minimum distributions are golden.
Use them to create tax free income, smooth out your
withdrawals and protect your future self from a government mandated
tax spike. The next time you make a big purchase,
should you pay cash or finance it? Some rules of
thumb that will talk about next you're listening to. Simply
(37:14):
Money was thated by Allworth Financial on fifty five KRC
the talk station.
Speaker 6 (37:19):
I'm super grateful that I was able to leave him financially.
Speaker 4 (37:23):
Giving thanks.
Speaker 5 (37:25):
It wasn't a good situation for me and my kids.
I just have you to think for that.
Speaker 3 (37:29):
For all the advice I fill myself, I wasn't going
to cry, and the guidance.
Speaker 4 (37:33):
To make good decisions.
Speaker 1 (37:34):
So you got control of your life and I gave
you choices.
Speaker 4 (37:36):
I'm proud of you. The Ramsey Show.
Speaker 3 (37:38):
It's definitely hard to get started, but once you get.
Speaker 1 (37:41):
Going as super duper easy to pack your lunch every
day and.
Speaker 7 (37:44):
Not drink Starbucks weekdays at seven on fifty five KRC.
Speaker 1 (37:49):
The talk station.
Speaker 2 (37:53):
You're listening to, Simply Money, is thated by Allworth Financial
Arm BOM sponsorller along with Brian James. When you're just
whether to pay cash or finance a big purchase, let's
say a home, a car, a kitchen remodel, The internet
tends to polarize. One camp shouts always pay cash. The
other swears never use your own money, use someone else's money.
(38:17):
But neither camp is living your actual life. The right
answer is where math in your reality actually meet?
Speaker 4 (38:24):
Brian.
Speaker 2 (38:24):
This is another one of those topics where you know
there is not just one black box answer. It's more
of an art than a science. But let's walk through
how we help people make these kind of decisions.
Speaker 3 (38:36):
Yeah, this is the old less filling tastes great argument
of financial planning, and I hear I can hear dads
and uncles arguing about this. You know, one size says
never have anybody and pull yourself up by your own bootstraps,
never owe anybody anything, and the other side says, do
the math figure out if the interest rate is really
going to hurt you in the long run versus what
else your cash could do. So here's how we kind
of break this down based on the kind of thing
(38:57):
you're needing to invest in. So, if you're buying a car,
well pay cash. If the APR is clearly higher than
what your cash might earn. If you're getting four percent
in the money market, and the APR on the loan
is seven percent, yeah that's easy.
Speaker 1 (39:09):
Pay that one off.
Speaker 3 (39:10):
You'll finance it if the rate is competitive, look for incentives, right, So,
we do seem to be getting back to supply a
chain kind of like it used to be, where maybe
we'll get back where we'll see these kind of fourth
quarter inventory clearances or zero percenters. If it's a zero
percent loan, jump at that all day, every day, as
long as you have confirmed that they haven't arbitrarily hiked
(39:31):
the purchase price. Zero percent is zero percent, and you
can keep your cash longer. That's the best of both worlds.
But again, if it's more than say two percent percentage
points higher than your realistic low risk return, then pay
the cash.
Speaker 1 (39:43):
Now, let's move on to buying a home, Bob.
Speaker 2 (39:46):
Well, here here's one that we come up against a lot,
you know, the classic twenty percent down payment, which, let's
face it, it's hard for people to achieve that nowadays,
but it does help you avoid private mortgage insurance. A
lot of times, Brian makes sense to make a way
smaller down payment because if you completely drain everything, you
have to hit that twenty percent threshold. Sometimes we'll find
(40:09):
people after they buy the home, six eight months down
the road, they're sitting with credit card debt paying you know,
twenty seven percent interest.
Speaker 4 (40:17):
So you got to look at not only.
Speaker 2 (40:18):
Today, but look at what life's going to look like
six months from now, because you know you've got to
manage that debt based on what your actual life is
going to look like on a cash flow basis moving forward.
Speaker 4 (40:31):
Thanks for listening.
Speaker 2 (40:31):
You've been listening to Simply Money, presented by all Worth
Financial on fifty five KRC the talk station. Some people
only hear what they want to hear these days.
Speaker 5 (40:41):
You need to keep an open mind.
Speaker 1 (40:43):
We only deal in what you need to hear. Everybody
needs the truth of the facts.
Speaker 4 (40:47):
You need the information that matters.
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We need to know if there were warning signs.
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You need it around the clock today tomorrow and for
the rest of life.
Speaker 2 (40:56):
In the no twenty four hours a day, you don't
need to go anywhere else, and that's something that people
already know.
Speaker 5 (41:01):
For certainly, what.
Speaker 4 (41:06):
Twenty five kr z
Speaker 1 (41:08):
Z talkstation, according to a twenty twenty two fbis the
two
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