December 10, 2025 • 38 mins
On this episode of Simply Money presented by Allworth Financial, Bob and Brian uncover the crucial differences between financial advisors who are just going through the motions and those truly playing offense—actively helping high-net-worth clients reduce taxes, build legacy plans, and take control of their financial futures. Learn the red flags that suggest your advisor may be stuck in the past and the proactive strategies—like Roth conversions and tax-efficient income planning—that can dramatically improve your long-term outcomes. Plus, find out what Vanguard is doing that could make your 401(k) feel more like a pension, when it makes sense to start financially helping your kids now, and how to plan your estate beyond just taxes and probate. It’s a jam-packed show for anyone who wants to stay sharp and plan smarter.
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Episode Transcript
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Speaker 1 (00:06):
Tonight, how to know if your advisor is playing offense,
playing defense, or maybe just running out the clock. You're
listening to Simply Money, presented by all Worth Financial on
Bob Sponseller along with Brian James. Here's a question most
people with real money rarely stop to ask. Is my
advisor really earning his or her keep think about it.
(00:29):
Maybe they helped you get to where you are. You've
built up maybe three million, five million dollars, maybe even more.
But now that you're there you is your advisor evolving
with you or just babysitting your portfolio? Brian, There's a
few things to evaluate here. Let's get into some of
these telltale signs of what good advisors should be doing
(00:50):
for their clients on a regular basis.
Speaker 2 (00:53):
Yeah, and so here's how this commonly goes down, Bob.
Once you hit those big milestones have three million dollars
five million dollar figure you were referring to, sometimes the
planning can get lazy, meetings become routine, and all be
honest that this goes both directions. Uh, you know, sometimes
we hear stories about the advisor having gotten board with
the whole process. Sometimes the clients check out because we
just don't want to talk about those heavier duty things, right, So,
(01:15):
and and and these are often things where the decisions,
the planning decisions are much more about being efficient, not
more about the difference between success and failure. Once we've
hit these milestones usually means you've kind of won the game.
You're in really good shape for the for the road forward. Uh,
you know, obviously barring individual situations and all these other
things become again, like I said, more about efficiency, less
about you got to do this or you know, it's
(01:37):
a it's a huge sacrifice. So so here's the trap though,
if you're if you've got an advisor in this situation,
you're still kind of paying for that advice. But if
that advisor is stuck in the mud just talking about
last quarter's returns, that's not planning, that's just investment, uh management.
Speaker 1 (01:52):
Uh.
Speaker 2 (01:52):
And they're just reporting to you what happened last quarter,
what happened this quarter. They're not talking about whether that
matters to you, Does that have an impact on your
plan to just things need to change? Do you need
to change your expectations? Those kinds of things. So we're
gonna again, We're gonn We're gonna focus tonight about the
difference between an advisor who is playing defense and one
who is actually on offense looking for opportunities.
Speaker 1 (02:12):
All right, well, let's give it. Let's give a couple
of examples. Here. Here's one of what we'll call a
defensive advisor. You've had the same portfolio mix for say,
the last five or ten years. You know, you're stuck
in that sixty forty seventy thirty allocation. Maybe there's been
a little bit of rebalancing. But have things changed at
all as you've gotten older. Have any questions been asked
(02:34):
about your current risk tolerance, or income needs, or gifting strategies,
anything like that that might or should impact the composition
of your portfolio. And here's a big one. And we
see this all the time, you know, especially as the
dollar amounts get larger. You know, folks start social Security early,
but their advisor never mentions the idea of even possibly
(02:58):
waiting until age seventy to social security. Why because that
would have required doing some planning, a full income plan,
not just an investment plan. In other words, And you've
already made the point one time, Brian. The advisor is
just reporting past investment returns, not focusing on an income
strategy and on tax efficiency.
Speaker 2 (03:20):
Yeah, and I want to add a point to that too,
So it's not a bad thing necessarily if you've had
the same mix for the last five years. We're definitely
not advocates.
Speaker 1 (03:27):
You know.
Speaker 2 (03:27):
That kind of speaks to what I talk about all
the time of when I started in this industry, the
rule of thumb, quote unquote was your age in bonds,
which is ridiculous in my mind. But so your age
is irrelevant. What your plan is what matters when do
you need this particular pile of dollars. So perhaps you
set that allocation up five, six, seven, eight, even ten
years ago, it may still be appropriate. So it's not
(03:49):
the idea that you must change your allocation as time
has passed. The idea would be make sure you're having
a conversation with it, because your life will have changed,
You will have evolved, your financial stations, situation will have evolved,
and that may drive some some need to change the
asset allocation. But the important thing is that that conversation
be occurring, not once a decade, but at least once
(04:10):
a year, just to kind of make sure that whatever
tools are being employed are still appropriate. So let's move
on to the other side of this, the proactive offensive advisor.
If we're going to say that the defensive side might
have some weaknesses, well what are we actually looking for?
Speaker 3 (04:23):
So here's an example.
Speaker 2 (04:24):
Let's take a couple, you know, both retired, age sixty five.
They got four million dollars across a few different things.
Maybe half of it's in IRA's retirement plans, about one
point two on the broker's taxable side, eight hundred thousand
or so in cash and WROTH accounts, and that advisor says, well,
let's do some tax projections from now to age seventy five.
Speaker 3 (04:42):
We've got a ten year window.
Speaker 2 (04:43):
Remember they're sixty five years old, so they've got ten
years until required minimum distributions kick in at their full
full breadth. And so what if we do these partial
roth conversions every year, say one hundred thousand dollars while
staying in that twenty four percent tax bracket. So what
that means is that they'd be paying it. You know,
they're done twenty four percent. That means they might be
blending together around twenty. So in other words, what the
(05:03):
advisor is challenging them to do is to consider writing
a check voluntarily for approximately twenty thousand dollars to the
irs and yes, maybe some of the state, depending on
where these fake people live in exchange for converting a
million dollars over a ten year time period. It's not sexy, right,
This is the opposite of sexy. We're voluntarily giving money
to the irs.
Speaker 3 (05:23):
Nobody like that.
Speaker 2 (05:24):
But over ten years now, suddenly we've got a million
dollars that's going to grow tax free forever, no requirementum
distributions on that chunk, no tax bill later for their heirs,
and as a special bonus, those airs get another ten
years of tax free growth beyond the death of the
owner of the roth Ira. That's offense and that is
value among an advisor.
Speaker 1 (05:44):
Yeah, it's a great point. And to the point you
made at the beginning of the segment. I mean, this
is a two way street. It requires some work. It
requires a little bit of mental energy and time on
the part of the advisor and the client, meaning you know,
and Brian, you and I have meetings like this all
the time with folks. You actually run different scenarios, you
discuss different assumptions, you run some numbers in some sophisticated
(06:08):
tax software, and you can you know, generate a projection
on the impact of making some of these changes. And yes,
it can sometimes be assumption based, but that's where you
have a dialogue with the client. You discuss the pros
and cons. Everybody's on the same page as far as
what we want to do and why. And that's playing offense.
But yet it does require a little bit of time
(06:30):
and effort to come in and sit down and talk
about this stuff. But man, it can make a huge difference,
you know, over the next ten to twenty years, not
only for you, but for your kids and grandkids if
you get a little proactive and have a strategy in place.
Speaker 2 (06:45):
Yeah, and I'll add, you know, before we came on
the air tonight, like literally just before, I've sent an
email to a client who has been really struggling with
whether they want to perform a Roth conversion here in
the in the waning weeks of this year. In the
conclusion I gave them was, look, if it's causing this
much stress, whether you want to pull the trigger on it,
then that's a no for me because it shouldn't be.
(07:05):
You know, these aren't these types of strategies are not
no brainers.
Speaker 3 (07:09):
Right, they're not appropriate for everybody.
Speaker 2 (07:10):
They definitely involve sacrifice in exchange for a benefit down
the road. For some people that is ideal and it
makes all the sense in the world to make that sacrifice.
But for other people it's too much of a sacrifice
and they simply won't be comfortable having pulled the trigger.
Speaker 3 (07:24):
Either way is fine.
Speaker 2 (07:25):
The goal is not to get everyone to pursue, you know,
option A or B or C. It's to make sure
that everybody understands the pros and cons of those options
and then they can make a decision for themselves. So
this particular client, we said, you know what, this is
not the last year you'll ever be able to do one.
Got a few more years to require minimum distributions kick in.
We've had a long conversation all through Q four this year.
(07:46):
Now we know the basics. Let's regather ourselves next year
sometime and you'll have a cleaner conversation about it.
Speaker 3 (07:52):
So that's okay.
Speaker 2 (07:53):
It's not a bad thing to not pull the trigger
on these types of things.
Speaker 1 (07:57):
Yeah, and I've got a few clients like that, Brian,
that I've worked with for over thirty years, and they've
told me year after year. I just want to keep
this simple, and they really they know they have enough money,
they know they're never going to spend all the money
that they have, and they just frankly don't want to
go through all these gyrations of running all these numbers,
and to the extent that we try to force them
(08:19):
to do it, you know, to the point you just made,
that's going to create stress in their life and keep
them up at night thinking about things they don't even
want to think about. So, yeah, it's a two way street,
and you've got to find out where people's comfort level
is or isn't with respect to looking into some of
these things. But at least an advisor should be proactive,
(08:40):
proactive enough to tee up the topics, give people an
option of engaging about it, and then you go from there.
And I guess that leads to the last point we
want to make here is your plan stale, Meaning if
you've never had a deep conversation about how your goals
have changed and evolved over five, ten, fifteen, twenty years
with your advisor, there there might be some real missed opportunities,
(09:03):
and it might have less to do with taxes, but
just planning for your legacy and your family, maybe charities,
you know, really putting this money to work in ways
that could be meaningful to you if your advisor sits
down and gives you some options. I come up against
this all the time, Brian, where you know, people just
(09:24):
have never been asked questions that should be asked about
how they want their money or their wealth to be utilized.
Speaker 2 (09:31):
Yeah, and then most people just stare at the pile
and watch it grow bigger. That's that's really the for
a lot of people, that's the financial plan. And that's
not terrible. I mean you usually what that means is
those are people who wind up sacrificing a lot more
than they had to. They wind up and invested too
aggressively because that's just what the growth. They stay in
growth mode for throughout their retirement years, or they wind
(09:52):
up since they've never looked at what that pile can
do for them, they only focus on the size of it.
Speaker 3 (09:57):
Then they end up working too long.
Speaker 2 (09:58):
So that that's the whole point of making sure that
you know, like Bob says, is your plan stale, well,
just make sure it's relevant to the topics you are
discussing now. When you're twenty thirty forties, then yeah, you're
thinking about growth, growth the pile. That's a pretty easy answer.
But as you hit your fifties and sixties, obviously we
want to figure out what did we do all this
for in the first place? What can this machine do
that I have actually built in? How do I even
(10:20):
know how to turn it on?
Speaker 1 (10:22):
All? Right? Well, now let's get into some questions that
folks out there who are who have the time and
the inclination to want to get involved in some of
these this planning and want an advisor who's going to
help them do it. Here's some of the questions that
you should be asking your advisor, just as an example.
Number one, what's your strategy for reducing my lifetime tax burden?
(10:44):
How are we preparing for taxes in twenty twenty six?
Have you modeled my income plan with different social Security
claiming strategies? Can you show me how my investments are
aligned with my cash flow needs over the next five
to ten years. If your advisor dodges those questions or
gives you kind of a deer in the headlights, look,
(11:06):
you're not getting customized planning at all. You're just getting
an off the shelf portfolio and most likely overpaying for
investment management.
Speaker 3 (11:16):
Yeah.
Speaker 2 (11:16):
And I would also say that if there's a there
are no blanket answers right there are. There are very
very very few topics that have a quick yes or
no answer. So if your advisor is saying things like, well,
you know, age seventy is going to give you the
most income you can possibly have, so just do that, Well,
that's not advice. That's that's rules of thumb, and you
can find those on the internet anywhere you want to look.
So a real advisor is going to help you understand,
(11:37):
like I said before, the pros and cons of each
educating not dictating. So therefore that rules out completely those
rules of thumb that are intended to be black and white.
Just do this and never worry about it again. No,
you need to make decisions. You need to be equipped
to make decisions that are going to affect you and
your family and your loved ones for the rest of
your life, and a lot of those you only get
one chance at, so make sure you understand it from
(11:58):
all standpoints before you pull the trigger.
Speaker 1 (12:00):
Here's the all worth advice. A good advisor keeps you safe.
A great advisor keeps you sharp. Coming up next, how
Vanguard's latest plan could start treating your retirement account kind
of like a pension plan. You're listening to Simply Money,
presented by all Worth Financial on fifty five KRC, the
talk station. You're listening to Simply Money. You're presented by
(12:27):
all Worth Financial on Bob Sponseller along with Brian James.
If you can't listen to Simply Money every night, subscribe
and get our daily podcast. Just search Simply Money on
the iHeart app or wherever you find your podcast. Straight
Ahead at six forty three, we tackle some high level
listener questions that it savvy investor should be probably thinking about.
(12:50):
All right, Brian, what if your four oh one k
could start acting more like a pension with predictable monthly
income without you having to buy a separate auity of
any kind. This will peak some interest because, let's face it,
a lot of folks out there love the concept of
quote unquote guaranteed income. Those are big buzzwords that get
(13:11):
a lot of attention from folks. Let's dig into what
Vanguard is up to starting in twenty twenty six.
Speaker 2 (13:17):
Bryan, So, yeah, Vanguards that I'm putting some new features
into their four oh one ks. They're gonna offer a
four to oh one K target date fund that has
a built in regular payout functionality. So if you're a
four roh one K participant, this means you might have
access to an annuity type income stream right inside your
four oh one k workplace retirement plan. So this is
gonna be called the Vanguard Target Retirement Lifetime Income Trust.
Speaker 3 (13:41):
And here's how it works. Bob, is you approach retirement.
Speaker 1 (13:43):
Say that three times fast, and.
Speaker 2 (13:45):
Let's let me do an acronym out of that, vt
r l T vitter lit. We're gonna go with vitter
lit from now on.
Speaker 1 (13:52):
That's even worse, I.
Speaker 3 (13:53):
Know, and I'm gonna say it a lot, all right.
Speaker 2 (13:55):
So, speaking of vitter lit u, as you approach retirement
age sixty five, if you can have about twenty five
percent of your four to win k balance moved into
a contract with a with a well known insurance provider TIAA,
which is a big, big, huge insurance company out there,
more prevalent in the government, public spaces, education spaces.
Speaker 3 (14:13):
That kind of thing, but not certainly not a newcomer
to the industry.
Speaker 2 (14:17):
And that portion again up to twenty five percent that
becomes a guaranteed income stream, kind of like a pension
or a steady monthly paycheck. The rest of your four
oh one K stays the same way as always, stocks, bonds,
whatever you've chosen via those mutual funds in there.
Speaker 3 (14:30):
So let's take an example here, Bob.
Speaker 2 (14:31):
If you're if I'm sixty five and I've got a
million dollars and I'll put twenty five percent into that option,
So that's about a quarter million dollars that could generate
something like one six hundred and seventy dollars per month
pre tax. Remember you're still going to be impacted by
whether you've chosen traditional or wroth off of this, and
that's going to depend on that calculation, just like any
other pension is dependent on interest rates in the terms
(14:52):
of the annuity. But at some point you will be
committing to some kind of payout that where you're gonna
sign your name on the dotted and that payout is
what it is and which can be a good thing.
That's the whole point of guaranteed, but also not necessarily flexible.
But it's important to remember that's why you can only
put about a quarter into this anyway, This is not
the panacea. This is not the I never have to
(15:14):
worry about money solution ever. Again, no such thing exists.
But this is a new tool for people out there
who are kind of keeping their own money under their
own control and want to stay inside that.
Speaker 3 (15:23):
For one K.
Speaker 1 (15:25):
Well, I kind of like the idea. I mean, as
I've talked about several times on this show, I used
to be the advisor for a few very large four
to one K plans and I'd go in and do
those participant meetings. And for a lot of folks in
four to one K plans, they're not getting any investment
advice whatsoever. And when you start to talk about these
kind of things, you do get that deer in a
(15:46):
headlights look. And let's face it, everybody needs a chunk
of guaranteed income in their life, especially when they retire.
So I think this is a good thing. Along with
a lot of things we talk about here, options and
choices are rate. I'm gonna make one prediction on how
some of this might could go haywire here, because anytime
(16:07):
you get into any kind of an annuity arrangement, you're
going to be attracted by the highest possible monthly check,
and you might you know, paycheck, I mean, and you
might forget to think about doing what does my survivor
benefit look like if you just take a life only
annuity for yourself and forget about the fact that if
you die, your spouse would get nothing. That could really
(16:30):
create a problem. And a lot of these annuity decisions,
just like pension decisions when folks retire, there's no do
overs here. You know, it is an irrevocable decision. So
you know, choices are good, but we say it all
the time. You know, you gotta get a little bit
of advice and have somebody that knows what they're doing
sit down with you and Brian for a lot of
(16:52):
folks that rarely happens to help them make these decisions
before you make a you know, pull an irrevocable trigger.
Speaker 2 (16:59):
Yeah, and I don't want this headline to you know,
to get people to conclude that, oh my gosh, finally
something that works for me. There's nothing new going on here.
There's really because remember we're talking about people who are
effectively retired. You don't want this if you're still working,
because you're wanting to grow your money and leave it
invested in a growth mode. So this is for somebody
who is retired and inn is actively looking to have
(17:19):
money spit into their checking account to pay the bills.
There's nothing stopping anybody from doing that right now or
for the past five decades, because you could roll your
money to an IRA and put it in an annuity
and annuitize the income stream. Annuities do get a bit
of a bad rap because of the commission based thing.
That's a little bit of a different scenario. This is
the actually annuity for its core purpose, which is to
generate a stream of income. That's all the word annuity means.
(17:41):
So it's not a bad thing, but it's not a
new thing either. So you know, I feel like this
is this is sort of a solution in search of
a problem because again this does not create anything I
couldn't have done before. Great, I can do it in
my four oh one K, but it I can do
it outside in an IRA. You know, for a lot
of other there are reasons to maintain only a four,
but those are very specific types of situations. So anyway,
(18:04):
you like you said, choice is good, but this isn't
the shining panacea that some might view it.
Speaker 3 (18:08):
That it is.
Speaker 1 (18:10):
Yeah, if we look across the whole landscape of four
to one K retirement plan fund only about four percent
of four to one K plans now offer such an option,
you know, like the one we're talking about. Vanguard's rivals,
including State Street, JP, Morgan Asset Management, and black Rock
are also going to introduce some version of this annuity
(18:32):
based thing. Interestingly enough, Brian Fidelity Investments, the second largest
manager of target date funds, says they have no immediate
plans to incorporate annuities into these products. I'm curious as
to know by. Hopefully there's good reasons behind that. And
you know it again, not to beat a dead horse here,
(18:54):
but you gotta you gotta watch out for fees. You
got to look at look at your overall income plan,
make sure you've got inflation protection, because once you put
money in one of these annuities, you're going to give
up some growth. And the point we already made is
it's irreversible. Once you pull the trigger on this thing,
you can't go back, you can't undo it. And yeah,
(19:16):
we're just calling it out that these options are going
to start to come down the pike for folks retiring
good to have these options, but in situations, if at
all possible, get some help from a good fiduciary advisor
to make sure you thoroughly evaluate these options and pick
one that makes sense for you. Here's the all Worth
advice by locking in any kind of guaranteed income. Before
(19:40):
you do that, talk to a fiduciary advisor about how
annuitizing part of your portfolio fits or doesn't fit with
your overall retirement strategy, tax picture, and long term goals. Next,
we'll break down the smart way to help your kids
now without creating life long dependency or blowing up your
(20:03):
own retirement plan in the process. You're listening to Simply
Money presented by all Worth Financial on fifty five KRC
the talk station. You're listening to Simply Money presented by
all Worth Financial. I'm Bob sponsorer along with Brian James.
If you're like a lot of successful families, you've built
(20:24):
a strong nest egg and now you might be asking
a big question. Should I start helping my kids financially
now or possibly even grandkids instead of waiting until after
I passed away. Brian, you know this is a discussion
that's coming up more and more often, and it's something
we're bringing up with clients, and I think especially in
(20:45):
this you know era we're living in now, you know,
with this seemingly large affordability gap between the Baby boom
generation and younger generations. I love this topic and I
think it's something that should be talked about as or
of everyone's financial plan doing more multi generational planning, because
(21:07):
you can really make a sizable impact in a young
person or young people's life if they get a little
bit of help in their thirties rather than waiting until
they're in their sixties doing here in a big chunk
of money, and you know, after that, it's gonna have
less impact on their life in a positive way than,
you know, than what otherwise could be achieved.
Speaker 3 (21:30):
Yeah, these are common.
Speaker 2 (21:30):
Like you said, I'm hearing the same thing from people
will want with life expectancy being a lot longer than
it was then, you know, when when in earlier generations
people are saying, you know what, I'm doing fine now,
I don't.
Speaker 3 (21:42):
Really feel like I'm gonna need all of this.
Speaker 2 (21:45):
And you know, I understand the concept of step up
and cost bases.
Speaker 3 (21:48):
And all those kinds of things.
Speaker 2 (21:49):
Maybe it is more efficient to wait, and that's true
for some assets, but for other assets, why not just
help them out now when they're trying to get family started,
and you know, because people remember those were the more
st RESTful times and they want to help out their
kids at this point. So there's of course pros and
cons to this. There's tax rules involved here, so let's
get into the mechanics of that. The IRS allows you
(22:11):
to give up to nineteen thousand dollars per person per year,
doesn't have to be related. Anybody walking down the street,
you can give them a check for nineteen thousand dollars,
no harm, no foul, without filing even a gift tax return.
So you can literally write a check, you're done with it.
If you're married, you can double that thirty eight thousand
to each child or grandchild. If those children are married
and you trust that in law, then you can each
(22:33):
give nineteen thousand dollars in four gifts. Right, so spouse
one gives nineteen thousand dollars to their own child, and
then the spouse of that child, and then spouse two
does the same thing.
Speaker 3 (22:43):
So that's seventy six thousand dollars.
Speaker 2 (22:45):
That can be handed down right now today, without worrying
about gift taxes. Now, there's also something called a lifetime
gift exemption, and that's the total amount above and beyond
that nineteen thousand per kid that you can give away
during life or pass that death before the federal and
the state gift tax applies. That currently in twenty twenty six,
that's fifteen million dollars per individual in twenty six.
Speaker 3 (23:07):
Now that's that is you.
Speaker 2 (23:08):
Have to report those, That's how it's tracked. That's kind
of the difference, But it doesn't mean that taxes are
going to apply. Reporting and taxation are two different things.
Speaker 1 (23:17):
Yeah, and the numbers work here, and it's very easy,
as Brian's just outlined, it's very easy to move around
a lot of money very quickly without falling, you know,
into any gift tax problems. I don't think that's the issue.
I think the issue is are these kids ready? Have
they been prepared to handle receiving a chunk of money responsibly?
(23:38):
And that's where I see more and more of a
gap sometimes is you know, people just don't talk about
financial planning with their kids, and if there are behaviors
going on that you know, the next generation is handling
money differently than the parents, or not managing it very
well at all. I think that's why some parents are
(23:59):
just read as an to start put giving money to
them because they they're not sure how it's gonna be handled.
And I think that's why, you know, these discussions have
to take place. You don't want to run your kid's life,
but you you do, I think, have a responsibility to
be a good steward of this money and at least
make sure some good habits are in place. Does it
(24:20):
have to be perfect, you know, No, are kids going
to make some mistakes, absolutely, just like everyone's made some mistakes,
you know, when they were younger and less experienced. But
I think, you know, handling money, having a good dialogue
and getting some good habits in place and some good
you know dialogue and discussion going on with family members,
(24:41):
I think that's going to help everybody feel more confident
and comfortable with deploying some assets and ways. Again, that
could make some huge, you know, benefits to create to
the next generation, but it involves communication and being proactive,
and Brian, a lot of people just aren't willing to
sit down and have those conversations.
Speaker 2 (25:02):
Right, So let's get into some of the mechanics of
if I'm going to do this, if I believe it this,
what are the things that I can be looking at? Well,
first and foremost, one of my favorite things to help
people understand is five twenty nine plans. So you can
fund a five twenty nine plan and front load five
years worth of these gifts. Right, So we just got
done saying nineteen thousand dollars per year. Well, if you're
going to do it through a five twenty nine, well,
(25:23):
now you can do ninety five thousand dollars per beneficiary
in a single year. But you can still do the
reporting over those five years, no harm, no foul, and
you know, not too burdensome. So a married couple of course,
can double that one hundred ninety thousand. Those are gift
tax free as long as no additional gifts to that
same person are made in the following four years.
Speaker 3 (25:42):
That's important to remember.
Speaker 2 (25:43):
Now, a lot of people get hung up on the
idea that, well, you know, I don't five twenty nine
that's for college. I don't know that I want to
fund this for that because maybe that's just not in
the picture.
Speaker 3 (25:52):
We just don't know.
Speaker 2 (25:53):
Well, they've changed the rules over the last couple of years.
Now any unused amounts, well not any up to thirty
five thousand dollars dollars of an unused amount left over
in a five to twenty nine can now become a
wroth contribution for that individual. So, in other words, the
annual contribution is, you know, depending on their age seventy
five eighty five hundred dollars, then they can put those
(26:13):
into the roth ira, you know, using those five twenty
nine dollars.
Speaker 3 (26:17):
There's there's caveats to.
Speaker 2 (26:18):
This, it has to have sat there for fifteen years,
but the point is that it can be tax free
growth for a very, very, very long time. I really
would look strongly at the five twenty nine plan for that.
Beyond that, we can look into family trusts. You can
gift into an irrevocable trust and leave clear rules on
how and when those funds are be distributed and you
can still control it after your death. That's the point
(26:39):
of a trust and keep it out of your estate.
Speaker 1 (26:43):
All right, good stuff there. Here's the r Worth advice.
Before you write that check, talk to a fiduciary advisor
about how gifting fits into your financial plan and your
family dynamic. The smartest gifts are the ones that support
your kids without undermining their independence. Next, Aaron's riding high
on investment gains and Sandy's digging into roth conversion strategies.
(27:08):
If you're sitting on a solid nest egg, these are
the kind of questions decisions you need to make that
you are probably facing two. We're going to try to
tackle all of them coming up. Next. You're listening to
Simply Money presented by Allworth Financial on fifty five KRZ,
the talk station. You're listening to Simply Money presented by
(27:30):
all Worth Financial on Bob Sponsorer 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 there on the iHeart app.
Simply record your question and it will come straight to us.
John and Terris Park says, we're running into a situation
where our taxable portfolio is throwing off way more gains
(27:53):
than we spend. How do you restructure your investment portfolio
so your tax bill isn't dictating your entire withdraw strategy? Brian,
here's a guy that wants to do some proactive planning.
I love this question.
Speaker 3 (28:05):
Yeah, this to me, this is where it gets fun.
Speaker 2 (28:07):
This is kind of where the rubber meets the road,
when you know, more meat on the bone and the
financial planning process. And I can tell that John's been
paying attention to how stuff works over the years, because
when you're when you're younger, we're just growing a big
pile of money. Uh, then you don't really pay attention
to these things. But obviously he's been around the block
of time or two and he's kind of wondering how
to make things more efficient.
Speaker 3 (28:24):
So the real issue here is that the that we
want to be.
Speaker 2 (28:26):
Careful to that the tax tail doesn't start wagging the
retirement income dog. The goal here is to rebuild that
portfolio so that withdrawal strategy when it's time for it
to kick in, is driven by the needs of your lifestyle,
not i RS distribution. So let's think of this in
three steps. First, figure out where your tax drag is
coming from. In the first place, h Historically, the biggest
culprits there are those legacy mutual funds that have big turnover.
(28:48):
That's this time of years when we see those big
capital gains. Maybe you've got individual positions with huge embedded gains.
Every time you sell anything, all of a sudden you've
got a big tax bill.
Speaker 1 (28:57):
Uh.
Speaker 2 (28:57):
And then then the second step, you know you want
to start to a sort of manage transition rather than
a wholesale reset. We're not starting from scratch, Harvest those
losses when they're available, peel back overweight positions slowly by
offsetting those those gains with the losses you just set up,
and then redirect all your future cash flows to that
newly organized portfolio. And then third, finally, a build out
(29:18):
withdrawal strategy that's going to deliberately separate your cash flow
from your tax events. That means you're gonna set up
you're gonna sit down and think about it, and you're
gonna set up a spending policy maybe at three to
four percent of that tax bill accounts value, raise that
cash for it once or twice a year by trimming
those lowest gain lots first, in spending those down to
pay the bills over time, this is going to get
you to a structure where that portfolio behaves the way
(29:40):
you spend and it doesn't just sit there and spit
out tax obligations. When you didn't necessarily need that distribution
in the first place, So hope that helps. We'll move
on to now to Trevor and hyde Park. Trevor says
their advisor has mentioned that their portfolio isn't quite liquid
enough and it lacks liquidity staging, and so he's wondering,
how do you set up these multiple liquidity tiers, cash,
short term bonds, and growth by I think, Bob, we
(30:02):
call these buckets often, so that the portfolio supports these
different time horizons.
Speaker 1 (30:06):
What would you say, Well, first of all, Trevor, it
sounds like, you know, you've got a good advisor that's
thinking ahead for you and doing some proactive planning. So
that's great. I think what he or she is talking
about here is you got to make a You got
to take a look at how your portfolio is structured
to make sure that the money is there and in
(30:26):
a low enough risk situation to support what you need
it to do. And I'll give you a couple of
examples that I run into sometimes folks. You know, with
these higher interest rates, savings accounts and CDs, sometimes people
will lock up their CDs for five years, and you know,
it's great that you're getting that higher interest or we're
(30:46):
getting it one or two years ago, but you know
that money's tied up. So if the new car purchase
comes up, or the crews comes up, you got to
go find some money, you know, to come up with
to support these things that you want to do in
your life. And that might involve having to go sell
something and create a tax burden, whether that's pulling money
out of an IRA or selling stocks with capital gains.
(31:08):
So I think that's what, Trevor, what your advisor is
talking about here is let's let's sit down and look
at what your goals are and then making sure we've
got liquid assets available at the right time to meet
those goals. I'll give you an example that just came
up yesterday of how this works. Well, this is a
client and I know you know this couple listens to
(31:29):
this show every night, so this is a shout out
to them. We had their annual review meeting back in
September and they and they talked about what they had
coming down the pike. They were looking at maybe moving
to a different home and how much money that was
going to involve, and maybe buying a custom car. Because
this gentleman just retired, we put those dollar amounts into
(31:51):
the plan, and then he called me yesterday and said, hey,
you know, remember that conversation back in September. Some things
of check. I'm going to custom car off the table
here because the amount that we think we're likely going
to spend on this change in homes has gone up
a little bit. Just wanted you to know about that,
and that I love that because that allows me to
(32:14):
update their plan, take a look at things, and we're
staying in contact with one another in being proactive. So
when the time comes to pull the trigger on some
of these things, we know exactly which bucket, to Bryant's point,
that money's going to come out of, and we could
try to minimize the tax burden in the process. So
that's what we're talking about here in terms of liquidity tiers.
(32:37):
All right, Aaron in Addison says, our investments have grown nicely,
but I'm realizing our tax exposure has seemingly grown even faster.
How do you run forward looking tax projections, Brian, So
you're managing future brackets, not just current ones.
Speaker 2 (32:54):
Well, a lot of advisors kind of hit this point
where the portfolio starts growing faster than your ability to
do the tax planning for it, and all of a
sudden you're reacting to tax surprizes and instead of managing
those future brackets. So the real discipline is shifting from
what's my tax bill this year to what does my
lifetime tax bill look like? You know, what can I
be doing now to change things in the future. So
here's three steps to kind of to start looking forward there.
(33:16):
Figure out that trajectory is the first step. So tax
exposure will tend to spike in two places when wages
fall and require minimum distribution start. This is that window
after you've retired and you'll start to need to draw
off of your investments in generating different taxes than those
to which you are accustomed. And then when you hit
age seventy three or seventy five and require minimum distribution
(33:38):
start to start to kick in. So project that income
year over year, earned income, dividends, capital gains, wherever it's
all coming from. Even a rough assumption is better than nothing.
That'll help you see if your current twenty two percent bracket,
for example, might spike to thirty two once those are
mds kick in. Second, just like the financial planning process,
we're going to use scenario modeling to compare these strategic
moves make sure that different out comes can be handled
(34:01):
by different different strategies.
Speaker 3 (34:03):
But the whole point is run the numbers.
Speaker 2 (34:05):
And see what it actually looks like and then use
different tax tax brackets. We don't know where taxes are
going to go based on the various administrations that could come. Finally,
what is your annual tax budget instead of just letting
these gains or conversions happen accidentally. Decide how much you're
willing to recognize every year to keep your long term
bracket and healthy range. This could mean figuring out how
fat of a check you're willing to write to the
(34:26):
irs voluntarily now to control your traditional IRA requirement and
distributions by converting into a WROTH.
Speaker 3 (34:32):
All good things to look at and hope that helps.
Speaker 1 (34:35):
Coming up next, I've got my two cents on some
possible year end estate planning discussions you might want to
have with your kids as families start to gather together
to celebrate the holidays. You're listening to Simply Money present
up by all Worth Financial on fifty five KRC the
talk station. You're listening to Simply Money set up by
(34:59):
all Worth FI Final. I'm Bob Sponseller along with Brian James. Well, Brian,
I had a meeting with a client last week. You know,
this is somebody I've worked with for over thirty years.
And this gentleman came in loaded for bear with all
kinds of questions about his estate plan, and he was
wanting to talk about tax avoidance and probate avoidance and
(35:19):
all that. And after five minutes I was able to
tell him, I'm like, hey, we've had all this stuff
taken care of for twenty five years. You're not paying
any taxes, everything's protected by probate. You know, we're good.
But we got into some other discussions about personal property
and he had shared a couple stories about some struggles
(35:40):
a couple of his kids are having, and just you know,
relational dynamics with kids and spouses and all that. And again,
these legal documents have been drafted in his case probably
ten to fifteen years ago. Here's my point. I started
to ask him, just have you made provisions about some
of your personal property items that might have sentimental value
(36:02):
to your kids, things like jewelry, tools, maybe a piece
of furniture something like that. Where one of your kids,
it would definitely mean the world to them to receive
that item, and to the other kid, not so much.
And that launched into a wonderful conversation, and he shared
some regrets that he had when his unfortunately his wife
(36:23):
died several years ago, and and he quickly gave all
her jewelry to one of the dollars in laws. And
he regretted that because some people, you know, got a
little bent out of shape about that. So here's my
point is, you don't have Sometimes the simplest things are
the most impactful things. And you know, even if you've
(36:44):
got a trust and you've got everything tied up, you know,
with IRA beneficiaries and all that, to avoid probate, you
still got to or or I would encourage you to
think about some of those personal propertys and a lot
of attorneys will agree with what I'm going to say
right here. You don't have to redo your will. Simply
write down what some of these personal property items are
(37:07):
to whom you want them to go, sign it and
date it, attach it to your will, and that way
your executor, you know, it's in writing, it's documented, and
your executor can you know, take care of things accordingly,
I think that's a great conversation to maybe have with
kids as you gather for the holidays. Just get a
pulse beat on is there anything out there that I
(37:29):
want to be proactive about to leave to certain kids
for a certain reason. Brian, do you ever run into
this topic at all?
Speaker 2 (37:36):
Yeah, more and more of these days. And I want
to encourage people to to give your kids a credit.
They may be more ready to have these conversations than
you've been thinking. If you've got younger kids, maybe late
high school, early college age, and you you've noticed they're
starting to pay attention to money a little bit, that's
a good sign and it can be okay to give
them let them, let them peek at the vault, You
(37:56):
show them where you are and how you got there,
and then that starts an that maybe over the next five, seven,
ten years, you can start to have these more in
depth planning conversations for you know, what really want do
do you guys want to happen when mom and dad
are gone?
Speaker 3 (38:10):
You know?
Speaker 2 (38:10):
For those of you with older kids, then perhaps you've
gotten them to that point.
Speaker 3 (38:13):
But again, it's it's okay.
Speaker 2 (38:15):
For whatever reason in this country, it's taboo to talk
about these things. I'm here to tell you that I
have done this with my own family, and I've seen
clients do it too, and it doesn't cause the problems
that we've been raised to think.
Speaker 1 (38:24):
It does. Be open excellent point, all right, thank you
for listening tonight. You've been listening to Simply Money, presented
by all Worth Financial on fifty five KRC, the talk
station
Tonight, how to know if your advisor is playing offense,
playing defense, or maybe just running out the clock. You're
listening to Simply Money, presented by all Worth Financial on
Bob Sponseller along with Brian James. Here's a question most
people with real money rarely stop to ask. Is my
advisor really earning his or her keep think about it.
(00:29):
Maybe they helped you get to where you are. You've
built up maybe three million, five million dollars, maybe even more.
But now that you're there you is your advisor evolving
with you or just babysitting your portfolio? Brian, There's a
few things to evaluate here. Let's get into some of
these telltale signs of what good advisors should be doing
(00:50):
for their clients on a regular basis.
Speaker 2 (00:53):
Yeah, and so here's how this commonly goes down, Bob.
Once you hit those big milestones have three million dollars
five million dollar figure you were referring to, sometimes the
planning can get lazy, meetings become routine, and all be
honest that this goes both directions. Uh, you know, sometimes
we hear stories about the advisor having gotten board with
the whole process. Sometimes the clients check out because we
just don't want to talk about those heavier duty things, right, So,
(01:15):
and and and these are often things where the decisions,
the planning decisions are much more about being efficient, not
more about the difference between success and failure. Once we've
hit these milestones usually means you've kind of won the game.
You're in really good shape for the for the road forward. Uh,
you know, obviously barring individual situations and all these other
things become again, like I said, more about efficiency, less
about you got to do this or you know, it's
(01:37):
a it's a huge sacrifice. So so here's the trap though,
if you're if you've got an advisor in this situation,
you're still kind of paying for that advice. But if
that advisor is stuck in the mud just talking about
last quarter's returns, that's not planning, that's just investment, uh management.
Speaker 1 (01:52):
Uh.
Speaker 2 (01:52):
And they're just reporting to you what happened last quarter,
what happened this quarter. They're not talking about whether that
matters to you, Does that have an impact on your
plan to just things need to change? Do you need
to change your expectations? Those kinds of things. So we're
gonna again, We're gonn We're gonna focus tonight about the
difference between an advisor who is playing defense and one
who is actually on offense looking for opportunities.
Speaker 1 (02:12):
All right, well, let's give it. Let's give a couple
of examples. Here. Here's one of what we'll call a
defensive advisor. You've had the same portfolio mix for say,
the last five or ten years. You know, you're stuck
in that sixty forty seventy thirty allocation. Maybe there's been
a little bit of rebalancing. But have things changed at
all as you've gotten older. Have any questions been asked
(02:34):
about your current risk tolerance, or income needs, or gifting strategies,
anything like that that might or should impact the composition
of your portfolio. And here's a big one. And we
see this all the time, you know, especially as the
dollar amounts get larger. You know, folks start social Security early,
but their advisor never mentions the idea of even possibly
(02:58):
waiting until age seventy to social security. Why because that
would have required doing some planning, a full income plan,
not just an investment plan. In other words, And you've
already made the point one time, Brian. The advisor is
just reporting past investment returns, not focusing on an income
strategy and on tax efficiency.
Speaker 2 (03:20):
Yeah, and I want to add a point to that too,
So it's not a bad thing necessarily if you've had
the same mix for the last five years. We're definitely
not advocates.
Speaker 1 (03:27):
You know.
Speaker 2 (03:27):
That kind of speaks to what I talk about all
the time of when I started in this industry, the
rule of thumb, quote unquote was your age in bonds,
which is ridiculous in my mind. But so your age
is irrelevant. What your plan is what matters when do
you need this particular pile of dollars. So perhaps you
set that allocation up five, six, seven, eight, even ten
years ago, it may still be appropriate. So it's not
(03:49):
the idea that you must change your allocation as time
has passed. The idea would be make sure you're having
a conversation with it, because your life will have changed,
You will have evolved, your financial stations, situation will have evolved,
and that may drive some some need to change the
asset allocation. But the important thing is that that conversation
be occurring, not once a decade, but at least once
(04:10):
a year, just to kind of make sure that whatever
tools are being employed are still appropriate. So let's move
on to the other side of this, the proactive offensive advisor.
If we're going to say that the defensive side might
have some weaknesses, well what are we actually looking for?
Speaker 3 (04:23):
So here's an example.
Speaker 2 (04:24):
Let's take a couple, you know, both retired, age sixty five.
They got four million dollars across a few different things.
Maybe half of it's in IRA's retirement plans, about one
point two on the broker's taxable side, eight hundred thousand
or so in cash and WROTH accounts, and that advisor says, well,
let's do some tax projections from now to age seventy five.
Speaker 3 (04:42):
We've got a ten year window.
Speaker 2 (04:43):
Remember they're sixty five years old, so they've got ten
years until required minimum distributions kick in at their full
full breadth. And so what if we do these partial
roth conversions every year, say one hundred thousand dollars while
staying in that twenty four percent tax bracket. So what
that means is that they'd be paying it. You know,
they're done twenty four percent. That means they might be
blending together around twenty. So in other words, what the
(05:03):
advisor is challenging them to do is to consider writing
a check voluntarily for approximately twenty thousand dollars to the
irs and yes, maybe some of the state, depending on
where these fake people live in exchange for converting a
million dollars over a ten year time period. It's not sexy, right,
This is the opposite of sexy. We're voluntarily giving money
to the irs.
Speaker 3 (05:23):
Nobody like that.
Speaker 2 (05:24):
But over ten years now, suddenly we've got a million
dollars that's going to grow tax free forever, no requirementum
distributions on that chunk, no tax bill later for their heirs,
and as a special bonus, those airs get another ten
years of tax free growth beyond the death of the
owner of the roth Ira. That's offense and that is
value among an advisor.
Speaker 1 (05:44):
Yeah, it's a great point. And to the point you
made at the beginning of the segment. I mean, this
is a two way street. It requires some work. It
requires a little bit of mental energy and time on
the part of the advisor and the client, meaning you know,
and Brian, you and I have meetings like this all
the time with folks. You actually run different scenarios, you
discuss different assumptions, you run some numbers in some sophisticated
(06:08):
tax software, and you can you know, generate a projection
on the impact of making some of these changes. And yes,
it can sometimes be assumption based, but that's where you
have a dialogue with the client. You discuss the pros
and cons. Everybody's on the same page as far as
what we want to do and why. And that's playing offense.
But yet it does require a little bit of time
(06:30):
and effort to come in and sit down and talk
about this stuff. But man, it can make a huge difference,
you know, over the next ten to twenty years, not
only for you, but for your kids and grandkids if
you get a little proactive and have a strategy in place.
Speaker 2 (06:45):
Yeah, and I'll add, you know, before we came on
the air tonight, like literally just before, I've sent an
email to a client who has been really struggling with
whether they want to perform a Roth conversion here in
the in the waning weeks of this year. In the
conclusion I gave them was, look, if it's causing this
much stress, whether you want to pull the trigger on it,
then that's a no for me because it shouldn't be.
(07:05):
You know, these aren't these types of strategies are not
no brainers.
Speaker 3 (07:09):
Right, they're not appropriate for everybody.
Speaker 2 (07:10):
They definitely involve sacrifice in exchange for a benefit down
the road. For some people that is ideal and it
makes all the sense in the world to make that sacrifice.
But for other people it's too much of a sacrifice
and they simply won't be comfortable having pulled the trigger.
Speaker 3 (07:24):
Either way is fine.
Speaker 2 (07:25):
The goal is not to get everyone to pursue, you know,
option A or B or C. It's to make sure
that everybody understands the pros and cons of those options
and then they can make a decision for themselves. So
this particular client, we said, you know what, this is
not the last year you'll ever be able to do one.
Got a few more years to require minimum distributions kick in.
We've had a long conversation all through Q four this year.
(07:46):
Now we know the basics. Let's regather ourselves next year
sometime and you'll have a cleaner conversation about it.
Speaker 3 (07:52):
So that's okay.
Speaker 2 (07:53):
It's not a bad thing to not pull the trigger
on these types of things.
Speaker 1 (07:57):
Yeah, and I've got a few clients like that, Brian,
that I've worked with for over thirty years, and they've
told me year after year. I just want to keep
this simple, and they really they know they have enough money,
they know they're never going to spend all the money
that they have, and they just frankly don't want to
go through all these gyrations of running all these numbers,
and to the extent that we try to force them
(08:19):
to do it, you know, to the point you just made,
that's going to create stress in their life and keep
them up at night thinking about things they don't even
want to think about. So, yeah, it's a two way street,
and you've got to find out where people's comfort level
is or isn't with respect to looking into some of
these things. But at least an advisor should be proactive,
(08:40):
proactive enough to tee up the topics, give people an
option of engaging about it, and then you go from there.
And I guess that leads to the last point we
want to make here is your plan stale, Meaning if
you've never had a deep conversation about how your goals
have changed and evolved over five, ten, fifteen, twenty years
with your advisor, there there might be some real missed opportunities,
(09:03):
and it might have less to do with taxes, but
just planning for your legacy and your family, maybe charities,
you know, really putting this money to work in ways
that could be meaningful to you if your advisor sits
down and gives you some options. I come up against
this all the time, Brian, where you know, people just
(09:24):
have never been asked questions that should be asked about
how they want their money or their wealth to be utilized.
Speaker 2 (09:31):
Yeah, and then most people just stare at the pile
and watch it grow bigger. That's that's really the for
a lot of people, that's the financial plan. And that's
not terrible. I mean you usually what that means is
those are people who wind up sacrificing a lot more
than they had to. They wind up and invested too
aggressively because that's just what the growth. They stay in
growth mode for throughout their retirement years, or they wind
(09:52):
up since they've never looked at what that pile can
do for them, they only focus on the size of it.
Speaker 3 (09:57):
Then they end up working too long.
Speaker 2 (09:58):
So that that's the whole point of making sure that
you know, like Bob says, is your plan stale, well,
just make sure it's relevant to the topics you are
discussing now. When you're twenty thirty forties, then yeah, you're
thinking about growth, growth the pile. That's a pretty easy answer.
But as you hit your fifties and sixties, obviously we
want to figure out what did we do all this
for in the first place? What can this machine do
that I have actually built in? How do I even
(10:20):
know how to turn it on?
Speaker 1 (10:22):
All? Right? Well, now let's get into some questions that
folks out there who are who have the time and
the inclination to want to get involved in some of
these this planning and want an advisor who's going to
help them do it. Here's some of the questions that
you should be asking your advisor, just as an example.
Number one, what's your strategy for reducing my lifetime tax burden?
(10:44):
How are we preparing for taxes in twenty twenty six?
Have you modeled my income plan with different social Security
claiming strategies? Can you show me how my investments are
aligned with my cash flow needs over the next five
to ten years. If your advisor dodges those questions or
gives you kind of a deer in the headlights, look,
(11:06):
you're not getting customized planning at all. You're just getting
an off the shelf portfolio and most likely overpaying for
investment management.
Speaker 3 (11:16):
Yeah.
Speaker 2 (11:16):
And I would also say that if there's a there
are no blanket answers right there are. There are very
very very few topics that have a quick yes or
no answer. So if your advisor is saying things like, well,
you know, age seventy is going to give you the
most income you can possibly have, so just do that, Well,
that's not advice. That's that's rules of thumb, and you
can find those on the internet anywhere you want to look.
So a real advisor is going to help you understand,
(11:37):
like I said before, the pros and cons of each
educating not dictating. So therefore that rules out completely those
rules of thumb that are intended to be black and white.
Just do this and never worry about it again. No,
you need to make decisions. You need to be equipped
to make decisions that are going to affect you and
your family and your loved ones for the rest of
your life, and a lot of those you only get
one chance at, so make sure you understand it from
(11:58):
all standpoints before you pull the trigger.
Speaker 1 (12:00):
Here's the all worth advice. A good advisor keeps you safe.
A great advisor keeps you sharp. Coming up next, how
Vanguard's latest plan could start treating your retirement account kind
of like a pension plan. You're listening to Simply Money,
presented by all Worth Financial on fifty five KRC, the
talk station. You're listening to Simply Money. You're presented by
(12:27):
all Worth Financial on Bob Sponseller along with Brian James.
If you can't listen to Simply Money every night, subscribe
and get our daily podcast. Just search Simply Money on
the iHeart app or wherever you find your podcast. Straight
Ahead at six forty three, we tackle some high level
listener questions that it savvy investor should be probably thinking about.
(12:50):
All right, Brian, what if your four oh one k
could start acting more like a pension with predictable monthly
income without you having to buy a separate auity of
any kind. This will peak some interest because, let's face it,
a lot of folks out there love the concept of
quote unquote guaranteed income. Those are big buzzwords that get
(13:11):
a lot of attention from folks. Let's dig into what
Vanguard is up to starting in twenty twenty six.
Speaker 2 (13:17):
Bryan, So, yeah, Vanguards that I'm putting some new features
into their four oh one ks. They're gonna offer a
four to oh one K target date fund that has
a built in regular payout functionality. So if you're a
four roh one K participant, this means you might have
access to an annuity type income stream right inside your
four oh one k workplace retirement plan. So this is
gonna be called the Vanguard Target Retirement Lifetime Income Trust.
Speaker 3 (13:41):
And here's how it works. Bob, is you approach retirement.
Speaker 1 (13:43):
Say that three times fast, and.
Speaker 2 (13:45):
Let's let me do an acronym out of that, vt
r l T vitter lit. We're gonna go with vitter
lit from now on.
Speaker 1 (13:52):
That's even worse, I.
Speaker 3 (13:53):
Know, and I'm gonna say it a lot, all right.
Speaker 2 (13:55):
So, speaking of vitter lit u, as you approach retirement
age sixty five, if you can have about twenty five
percent of your four to win k balance moved into
a contract with a with a well known insurance provider TIAA,
which is a big, big, huge insurance company out there,
more prevalent in the government, public spaces, education spaces.
Speaker 3 (14:13):
That kind of thing, but not certainly not a newcomer
to the industry.
Speaker 2 (14:17):
And that portion again up to twenty five percent that
becomes a guaranteed income stream, kind of like a pension
or a steady monthly paycheck. The rest of your four
oh one K stays the same way as always, stocks, bonds,
whatever you've chosen via those mutual funds in there.
Speaker 3 (14:30):
So let's take an example here, Bob.
Speaker 2 (14:31):
If you're if I'm sixty five and I've got a
million dollars and I'll put twenty five percent into that option,
So that's about a quarter million dollars that could generate
something like one six hundred and seventy dollars per month
pre tax. Remember you're still going to be impacted by
whether you've chosen traditional or wroth off of this, and
that's going to depend on that calculation, just like any
other pension is dependent on interest rates in the terms
(14:52):
of the annuity. But at some point you will be
committing to some kind of payout that where you're gonna
sign your name on the dotted and that payout is
what it is and which can be a good thing.
That's the whole point of guaranteed, but also not necessarily flexible.
But it's important to remember that's why you can only
put about a quarter into this anyway, This is not
the panacea. This is not the I never have to
(15:14):
worry about money solution ever. Again, no such thing exists.
But this is a new tool for people out there
who are kind of keeping their own money under their
own control and want to stay inside that.
Speaker 3 (15:23):
For one K.
Speaker 1 (15:25):
Well, I kind of like the idea. I mean, as
I've talked about several times on this show, I used
to be the advisor for a few very large four
to one K plans and I'd go in and do
those participant meetings. And for a lot of folks in
four to one K plans, they're not getting any investment
advice whatsoever. And when you start to talk about these
kind of things, you do get that deer in a
(15:46):
headlights look. And let's face it, everybody needs a chunk
of guaranteed income in their life, especially when they retire.
So I think this is a good thing. Along with
a lot of things we talk about here, options and
choices are rate. I'm gonna make one prediction on how
some of this might could go haywire here, because anytime
(16:07):
you get into any kind of an annuity arrangement, you're
going to be attracted by the highest possible monthly check,
and you might you know, paycheck, I mean, and you
might forget to think about doing what does my survivor
benefit look like if you just take a life only
annuity for yourself and forget about the fact that if
you die, your spouse would get nothing. That could really
(16:30):
create a problem. And a lot of these annuity decisions,
just like pension decisions when folks retire, there's no do
overs here. You know, it is an irrevocable decision. So
you know, choices are good, but we say it all
the time. You know, you gotta get a little bit
of advice and have somebody that knows what they're doing
sit down with you and Brian for a lot of
(16:52):
folks that rarely happens to help them make these decisions
before you make a you know, pull an irrevocable trigger.
Speaker 2 (16:59):
Yeah, and I don't want this headline to you know,
to get people to conclude that, oh my gosh, finally
something that works for me. There's nothing new going on here.
There's really because remember we're talking about people who are
effectively retired. You don't want this if you're still working,
because you're wanting to grow your money and leave it
invested in a growth mode. So this is for somebody
who is retired and inn is actively looking to have
(17:19):
money spit into their checking account to pay the bills.
There's nothing stopping anybody from doing that right now or
for the past five decades, because you could roll your
money to an IRA and put it in an annuity
and annuitize the income stream. Annuities do get a bit
of a bad rap because of the commission based thing.
That's a little bit of a different scenario. This is
the actually annuity for its core purpose, which is to
generate a stream of income. That's all the word annuity means.
(17:41):
So it's not a bad thing, but it's not a
new thing either. So you know, I feel like this
is this is sort of a solution in search of
a problem because again this does not create anything I
couldn't have done before. Great, I can do it in
my four oh one K, but it I can do
it outside in an IRA. You know, for a lot
of other there are reasons to maintain only a four,
but those are very specific types of situations. So anyway,
(18:04):
you like you said, choice is good, but this isn't
the shining panacea that some might view it.
Speaker 3 (18:08):
That it is.
Speaker 1 (18:10):
Yeah, if we look across the whole landscape of four
to one K retirement plan fund only about four percent
of four to one K plans now offer such an option,
you know, like the one we're talking about. Vanguard's rivals,
including State Street, JP, Morgan Asset Management, and black Rock
are also going to introduce some version of this annuity
(18:32):
based thing. Interestingly enough, Brian Fidelity Investments, the second largest
manager of target date funds, says they have no immediate
plans to incorporate annuities into these products. I'm curious as
to know by. Hopefully there's good reasons behind that. And
you know it again, not to beat a dead horse here,
(18:54):
but you gotta you gotta watch out for fees. You
got to look at look at your overall income plan,
make sure you've got inflation protection, because once you put
money in one of these annuities, you're going to give
up some growth. And the point we already made is
it's irreversible. Once you pull the trigger on this thing,
you can't go back, you can't undo it. And yeah,
(19:16):
we're just calling it out that these options are going
to start to come down the pike for folks retiring
good to have these options, but in situations, if at
all possible, get some help from a good fiduciary advisor
to make sure you thoroughly evaluate these options and pick
one that makes sense for you. Here's the all Worth
advice by locking in any kind of guaranteed income. Before
(19:40):
you do that, talk to a fiduciary advisor about how
annuitizing part of your portfolio fits or doesn't fit with
your overall retirement strategy, tax picture, and long term goals. Next,
we'll break down the smart way to help your kids
now without creating life long dependency or blowing up your
(20:03):
own retirement plan in the process. You're listening to Simply
Money presented by all Worth Financial on fifty five KRC
the talk station. You're listening to Simply Money presented by
all Worth Financial. I'm Bob sponsorer along with Brian James.
If you're like a lot of successful families, you've built
(20:24):
a strong nest egg and now you might be asking
a big question. Should I start helping my kids financially
now or possibly even grandkids instead of waiting until after
I passed away. Brian, you know this is a discussion
that's coming up more and more often, and it's something
we're bringing up with clients, and I think especially in
(20:45):
this you know era we're living in now, you know,
with this seemingly large affordability gap between the Baby boom
generation and younger generations. I love this topic and I
think it's something that should be talked about as or
of everyone's financial plan doing more multi generational planning, because
(21:07):
you can really make a sizable impact in a young
person or young people's life if they get a little
bit of help in their thirties rather than waiting until
they're in their sixties doing here in a big chunk
of money, and you know, after that, it's gonna have
less impact on their life in a positive way than,
you know, than what otherwise could be achieved.
Speaker 3 (21:30):
Yeah, these are common.
Speaker 2 (21:30):
Like you said, I'm hearing the same thing from people
will want with life expectancy being a lot longer than
it was then, you know, when when in earlier generations
people are saying, you know what, I'm doing fine now,
I don't.
Speaker 3 (21:42):
Really feel like I'm gonna need all of this.
Speaker 2 (21:45):
And you know, I understand the concept of step up
and cost bases.
Speaker 3 (21:48):
And all those kinds of things.
Speaker 2 (21:49):
Maybe it is more efficient to wait, and that's true
for some assets, but for other assets, why not just
help them out now when they're trying to get family started,
and you know, because people remember those were the more
st RESTful times and they want to help out their
kids at this point. So there's of course pros and
cons to this. There's tax rules involved here, so let's
get into the mechanics of that. The IRS allows you
(22:11):
to give up to nineteen thousand dollars per person per year,
doesn't have to be related. Anybody walking down the street,
you can give them a check for nineteen thousand dollars,
no harm, no foul, without filing even a gift tax return.
So you can literally write a check, you're done with it.
If you're married, you can double that thirty eight thousand
to each child or grandchild. If those children are married
and you trust that in law, then you can each
(22:33):
give nineteen thousand dollars in four gifts. Right, so spouse
one gives nineteen thousand dollars to their own child, and
then the spouse of that child, and then spouse two
does the same thing.
Speaker 3 (22:43):
So that's seventy six thousand dollars.
Speaker 2 (22:45):
That can be handed down right now today, without worrying
about gift taxes. Now, there's also something called a lifetime
gift exemption, and that's the total amount above and beyond
that nineteen thousand per kid that you can give away
during life or pass that death before the federal and
the state gift tax applies. That currently in twenty twenty six,
that's fifteen million dollars per individual in twenty six.
Speaker 3 (23:07):
Now that's that is you.
Speaker 2 (23:08):
Have to report those, That's how it's tracked. That's kind
of the difference, But it doesn't mean that taxes are
going to apply. Reporting and taxation are two different things.
Speaker 1 (23:17):
Yeah, and the numbers work here, and it's very easy,
as Brian's just outlined, it's very easy to move around
a lot of money very quickly without falling, you know,
into any gift tax problems. I don't think that's the issue.
I think the issue is are these kids ready? Have
they been prepared to handle receiving a chunk of money responsibly?
(23:38):
And that's where I see more and more of a
gap sometimes is you know, people just don't talk about
financial planning with their kids, and if there are behaviors
going on that you know, the next generation is handling
money differently than the parents, or not managing it very
well at all. I think that's why some parents are
(23:59):
just read as an to start put giving money to
them because they they're not sure how it's gonna be handled.
And I think that's why, you know, these discussions have
to take place. You don't want to run your kid's life,
but you you do, I think, have a responsibility to
be a good steward of this money and at least
make sure some good habits are in place. Does it
(24:20):
have to be perfect, you know, No, are kids going
to make some mistakes, absolutely, just like everyone's made some mistakes,
you know, when they were younger and less experienced. But
I think, you know, handling money, having a good dialogue
and getting some good habits in place and some good
you know dialogue and discussion going on with family members,
(24:41):
I think that's going to help everybody feel more confident
and comfortable with deploying some assets and ways. Again, that
could make some huge, you know, benefits to create to
the next generation, but it involves communication and being proactive,
and Brian, a lot of people just aren't willing to
sit down and have those conversations.
Speaker 2 (25:02):
Right, So let's get into some of the mechanics of
if I'm going to do this, if I believe it this,
what are the things that I can be looking at? Well,
first and foremost, one of my favorite things to help
people understand is five twenty nine plans. So you can
fund a five twenty nine plan and front load five
years worth of these gifts. Right, So we just got
done saying nineteen thousand dollars per year. Well, if you're
going to do it through a five twenty nine, well,
(25:23):
now you can do ninety five thousand dollars per beneficiary
in a single year. But you can still do the
reporting over those five years, no harm, no foul, and
you know, not too burdensome. So a married couple of course,
can double that one hundred ninety thousand. Those are gift
tax free as long as no additional gifts to that
same person are made in the following four years.
Speaker 3 (25:42):
That's important to remember.
Speaker 2 (25:43):
Now, a lot of people get hung up on the
idea that, well, you know, I don't five twenty nine
that's for college. I don't know that I want to
fund this for that because maybe that's just not in
the picture.
Speaker 3 (25:52):
We just don't know.
Speaker 2 (25:53):
Well, they've changed the rules over the last couple of years.
Now any unused amounts, well not any up to thirty
five thousand dollars dollars of an unused amount left over
in a five to twenty nine can now become a
wroth contribution for that individual. So, in other words, the
annual contribution is, you know, depending on their age seventy
five eighty five hundred dollars, then they can put those
(26:13):
into the roth ira, you know, using those five twenty
nine dollars.
Speaker 3 (26:17):
There's there's caveats to.
Speaker 2 (26:18):
This, it has to have sat there for fifteen years,
but the point is that it can be tax free
growth for a very, very, very long time. I really
would look strongly at the five twenty nine plan for that.
Beyond that, we can look into family trusts. You can
gift into an irrevocable trust and leave clear rules on
how and when those funds are be distributed and you
can still control it after your death. That's the point
(26:39):
of a trust and keep it out of your estate.
Speaker 1 (26:43):
All right, good stuff there. Here's the r Worth advice.
Before you write that check, talk to a fiduciary advisor
about how gifting fits into your financial plan and your
family dynamic. The smartest gifts are the ones that support
your kids without undermining their independence. Next, Aaron's riding high
on investment gains and Sandy's digging into roth conversion strategies.
(27:08):
If you're sitting on a solid nest egg, these are
the kind of questions decisions you need to make that
you are probably facing two. We're going to try to
tackle all of them coming up. Next. You're listening to
Simply Money presented by Allworth Financial on fifty five KRZ,
the talk station. You're listening to Simply Money presented by
(27:30):
all Worth Financial on Bob Sponsorer 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 there on the iHeart app.
Simply record your question and it will come straight to us.
John and Terris Park says, we're running into a situation
where our taxable portfolio is throwing off way more gains
(27:53):
than we spend. How do you restructure your investment portfolio
so your tax bill isn't dictating your entire withdraw strategy? Brian,
here's a guy that wants to do some proactive planning.
I love this question.
Speaker 3 (28:05):
Yeah, this to me, this is where it gets fun.
Speaker 2 (28:07):
This is kind of where the rubber meets the road,
when you know, more meat on the bone and the
financial planning process. And I can tell that John's been
paying attention to how stuff works over the years, because
when you're when you're younger, we're just growing a big
pile of money. Uh, then you don't really pay attention
to these things. But obviously he's been around the block
of time or two and he's kind of wondering how
to make things more efficient.
Speaker 3 (28:24):
So the real issue here is that the that we
want to be.
Speaker 2 (28:26):
Careful to that the tax tail doesn't start wagging the
retirement income dog. The goal here is to rebuild that
portfolio so that withdrawal strategy when it's time for it
to kick in, is driven by the needs of your lifestyle,
not i RS distribution. So let's think of this in
three steps. First, figure out where your tax drag is
coming from. In the first place, h Historically, the biggest
culprits there are those legacy mutual funds that have big turnover.
(28:48):
That's this time of years when we see those big
capital gains. Maybe you've got individual positions with huge embedded gains.
Every time you sell anything, all of a sudden you've
got a big tax bill.
Speaker 1 (28:57):
Uh.
Speaker 2 (28:57):
And then then the second step, you know you want
to start to a sort of manage transition rather than
a wholesale reset. We're not starting from scratch, Harvest those
losses when they're available, peel back overweight positions slowly by
offsetting those those gains with the losses you just set up,
and then redirect all your future cash flows to that
newly organized portfolio. And then third, finally, a build out
(29:18):
withdrawal strategy that's going to deliberately separate your cash flow
from your tax events. That means you're gonna set up
you're gonna sit down and think about it, and you're
gonna set up a spending policy maybe at three to
four percent of that tax bill accounts value, raise that
cash for it once or twice a year by trimming
those lowest gain lots first, in spending those down to
pay the bills over time, this is going to get
you to a structure where that portfolio behaves the way
(29:40):
you spend and it doesn't just sit there and spit
out tax obligations. When you didn't necessarily need that distribution
in the first place, So hope that helps. We'll move
on to now to Trevor and hyde Park. Trevor says
their advisor has mentioned that their portfolio isn't quite liquid
enough and it lacks liquidity staging, and so he's wondering,
how do you set up these multiple liquidity tiers, cash,
short term bonds, and growth by I think, Bob, we
(30:02):
call these buckets often, so that the portfolio supports these
different time horizons.
Speaker 1 (30:06):
What would you say, Well, first of all, Trevor, it
sounds like, you know, you've got a good advisor that's
thinking ahead for you and doing some proactive planning. So
that's great. I think what he or she is talking
about here is you got to make a You got
to take a look at how your portfolio is structured
to make sure that the money is there and in
(30:26):
a low enough risk situation to support what you need
it to do. And I'll give you a couple of
examples that I run into sometimes folks. You know, with
these higher interest rates, savings accounts and CDs, sometimes people
will lock up their CDs for five years, and you know,
it's great that you're getting that higher interest or we're
(30:46):
getting it one or two years ago, but you know
that money's tied up. So if the new car purchase
comes up, or the crews comes up, you got to
go find some money, you know, to come up with
to support these things that you want to do in
your life. And that might involve having to go sell
something and create a tax burden, whether that's pulling money
out of an IRA or selling stocks with capital gains.
(31:08):
So I think that's what, Trevor, what your advisor is
talking about here is let's let's sit down and look
at what your goals are and then making sure we've
got liquid assets available at the right time to meet
those goals. I'll give you an example that just came
up yesterday of how this works. Well, this is a
client and I know you know this couple listens to
(31:29):
this show every night, so this is a shout out
to them. We had their annual review meeting back in
September and they and they talked about what they had
coming down the pike. They were looking at maybe moving
to a different home and how much money that was
going to involve, and maybe buying a custom car. Because
this gentleman just retired, we put those dollar amounts into
(31:51):
the plan, and then he called me yesterday and said, hey,
you know, remember that conversation back in September. Some things
of check. I'm going to custom car off the table
here because the amount that we think we're likely going
to spend on this change in homes has gone up
a little bit. Just wanted you to know about that,
and that I love that because that allows me to
(32:14):
update their plan, take a look at things, and we're
staying in contact with one another in being proactive. So
when the time comes to pull the trigger on some
of these things, we know exactly which bucket, to Bryant's point,
that money's going to come out of, and we could
try to minimize the tax burden in the process. So
that's what we're talking about here in terms of liquidity tiers.
(32:37):
All right, Aaron in Addison says, our investments have grown nicely,
but I'm realizing our tax exposure has seemingly grown even faster.
How do you run forward looking tax projections, Brian, So
you're managing future brackets, not just current ones.
Speaker 2 (32:54):
Well, a lot of advisors kind of hit this point
where the portfolio starts growing faster than your ability to
do the tax planning for it, and all of a
sudden you're reacting to tax surprizes and instead of managing
those future brackets. So the real discipline is shifting from
what's my tax bill this year to what does my
lifetime tax bill look like? You know, what can I
be doing now to change things in the future. So
here's three steps to kind of to start looking forward there.
(33:16):
Figure out that trajectory is the first step. So tax
exposure will tend to spike in two places when wages
fall and require minimum distribution start. This is that window
after you've retired and you'll start to need to draw
off of your investments in generating different taxes than those
to which you are accustomed. And then when you hit
age seventy three or seventy five and require minimum distribution
(33:38):
start to start to kick in. So project that income
year over year, earned income, dividends, capital gains, wherever it's
all coming from. Even a rough assumption is better than nothing.
That'll help you see if your current twenty two percent bracket,
for example, might spike to thirty two once those are
mds kick in. Second, just like the financial planning process,
we're going to use scenario modeling to compare these strategic
moves make sure that different out comes can be handled
(34:01):
by different different strategies.
Speaker 3 (34:03):
But the whole point is run the numbers.
Speaker 2 (34:05):
And see what it actually looks like and then use
different tax tax brackets. We don't know where taxes are
going to go based on the various administrations that could come. Finally,
what is your annual tax budget instead of just letting
these gains or conversions happen accidentally. Decide how much you're
willing to recognize every year to keep your long term
bracket and healthy range. This could mean figuring out how
fat of a check you're willing to write to the
(34:26):
irs voluntarily now to control your traditional IRA requirement and
distributions by converting into a WROTH.
Speaker 3 (34:32):
All good things to look at and hope that helps.
Speaker 1 (34:35):
Coming up next, I've got my two cents on some
possible year end estate planning discussions you might want to
have with your kids as families start to gather together
to celebrate the holidays. You're listening to Simply Money present
up by all Worth Financial on fifty five KRC the
talk station. You're listening to Simply Money set up by
(34:59):
all Worth FI Final. I'm Bob Sponseller along with Brian James. Well, Brian,
I had a meeting with a client last week. You know,
this is somebody I've worked with for over thirty years.
And this gentleman came in loaded for bear with all
kinds of questions about his estate plan, and he was
wanting to talk about tax avoidance and probate avoidance and
(35:19):
all that. And after five minutes I was able to
tell him, I'm like, hey, we've had all this stuff
taken care of for twenty five years. You're not paying
any taxes, everything's protected by probate. You know, we're good.
But we got into some other discussions about personal property
and he had shared a couple stories about some struggles
(35:40):
a couple of his kids are having, and just you know,
relational dynamics with kids and spouses and all that. And again,
these legal documents have been drafted in his case probably
ten to fifteen years ago. Here's my point. I started
to ask him, just have you made provisions about some
of your personal property items that might have sentimental value
(36:02):
to your kids, things like jewelry, tools, maybe a piece
of furniture something like that. Where one of your kids,
it would definitely mean the world to them to receive
that item, and to the other kid, not so much.
And that launched into a wonderful conversation, and he shared
some regrets that he had when his unfortunately his wife
(36:23):
died several years ago, and and he quickly gave all
her jewelry to one of the dollars in laws. And
he regretted that because some people, you know, got a
little bent out of shape about that. So here's my
point is, you don't have Sometimes the simplest things are
the most impactful things. And you know, even if you've
(36:44):
got a trust and you've got everything tied up, you know,
with IRA beneficiaries and all that, to avoid probate, you
still got to or or I would encourage you to
think about some of those personal propertys and a lot
of attorneys will agree with what I'm going to say
right here. You don't have to redo your will. Simply
write down what some of these personal property items are
(37:07):
to whom you want them to go, sign it and
date it, attach it to your will, and that way
your executor, you know, it's in writing, it's documented, and
your executor can you know, take care of things accordingly,
I think that's a great conversation to maybe have with
kids as you gather for the holidays. Just get a
pulse beat on is there anything out there that I
(37:29):
want to be proactive about to leave to certain kids
for a certain reason. Brian, do you ever run into
this topic at all?
Speaker 2 (37:36):
Yeah, more and more of these days. And I want
to encourage people to to give your kids a credit.
They may be more ready to have these conversations than
you've been thinking. If you've got younger kids, maybe late
high school, early college age, and you you've noticed they're
starting to pay attention to money a little bit, that's
a good sign and it can be okay to give
them let them, let them peek at the vault, You
(37:56):
show them where you are and how you got there,
and then that starts an that maybe over the next five, seven,
ten years, you can start to have these more in
depth planning conversations for you know, what really want do
do you guys want to happen when mom and dad
are gone?
Speaker 3 (38:10):
You know?
Speaker 2 (38:10):
For those of you with older kids, then perhaps you've
gotten them to that point.
Speaker 3 (38:13):
But again, it's it's okay.
Speaker 2 (38:15):
For whatever reason in this country, it's taboo to talk
about these things. I'm here to tell you that I
have done this with my own family, and I've seen
clients do it too, and it doesn't cause the problems
that we've been raised to think.
Speaker 1 (38:24):
It does. Be open excellent point, all right, thank you
for listening tonight. You've been listening to Simply Money, presented
by all Worth Financial on fifty five KRC, the talk
station
Simply Money News
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