January 6, 2026 • 38 mins
On this episode of Simply Money presented by Allworth Financial, Bob and Brian reveal why January is the most strategic money month of the year. From harvesting capital gains and revisiting direct indexing strategies to maximizing donor-advised funds and managing idle cash, they break down the smartest financial moves you can make right now. Plus, they discuss why a bigger tax refund isn't necessarily a good thing, how poor timing can erode your investment returns, and how to prepare emotionally and financially for long-term care decisions. Later, they answer listener questions about tax alpha, inherited IRAs, and consolidating retirement accounts.
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Episode Transcript
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Speaker 1 (00:06):
Tonight the smartest money moves to make in January. You're
listening to Simply Money, because i'd buy all Worth Financial
on Bob Sponseller along with Brian James. That's the first
Monday of twenty twenty six. And if you're like most people,
you probably kicked off the year with a couple of resolutions.
Maybe it's get in shape or cut back on screen time.
(00:27):
But if you're sitting on a few million dollars or
more in net worth, there are much smarter moves to
make right now, and those involve your finances. Brian, let's
get into a couple moves that people should be considering,
you know here in the new year.
Speaker 2 (00:42):
Yeah, well this is this first one here we've talked
about before. This is a typical annual tax planning types
of things. But now we're gonna look at the timing
a little more closely here. So move number one, harvest
those capital gains and reset your cost basis.
Speaker 3 (00:56):
So December is usually when.
Speaker 2 (00:57):
People talk about tax loss harvesting, and the reason for
that is because by this time of year, we usually
have a pretty clear picture on what are or as
clear as it's going to be, what our tax situation
is going to look like when it comes time to
do taxes here the next few months. But in January,
well that's when savvy investors start to harvest gains. You
can sell some appreciated assets, realize those long term gains,
and immediately buy them back to reset your cost bases
(01:19):
as long as you're careful. Now, what we mean by
that is something called a wash sale. If you're going
to harvest gains there, then you can go ahead and
do that, and that will not create a wash sale.
So I want to avoid confusion here among anybody. But
at the same time, if you on the other end
of this, if you are going to sell out of
some assets and buy them back in, you know a
(01:39):
lot of people might want to harvest a loss there.
You have to stay out of that security for the
net for thirty days and or the IRS will will
deem that sale as not to have occurred for tax purposes.
So just be carefully. You understand the wash sale rules.
But this can be especially smart if you had some
lower income last year, or maybe you're early in retirement
and you're managing your bracket level, so that gain could
(02:01):
be taxed at fifteen percent ory believe it or not
even zero percent. Right, there is a certain level of
income for married filance, for single or married taxpayers where
you may not pay any capital gains at all. Now,
remember here's the confusing part. That is not only an
income bracket. That capital gain that you would be generating
is itself part of the calculation. So you really have
(02:22):
to have some pretty low income years to generate zero
percent capital gain type situation. But it's not as hard
as you might think. There are rules out there that
put that in place. What's another move were gonna be
thinking about, Bob Well.
Speaker 1 (02:34):
Move number two, and I think it kind of dovetails
with what you just talked about, and that's revisit your
direct index indexing strategy. And we're talking now about taxable
accounts where we're taking full advantage of these direct indexing
or tax soce harvesting strategies with individual positions. And if
you started using a strategy like that in twenty twenty five,
(02:58):
and a lot of people probably we did, now's the
time to clean that up. You know, back to Brian's
prior point December, if you did some things, you know,
to do some tax planning going into the end of
the year. December likely left you with some temporary uninvested
positions from watch sales. January is when you want to
re establish your full market exposure, stay fully invested, but
(03:23):
tweak you know, the customization for the coming year. It
means you don't have to go right back into the
same sector or even the same stock that you sold
in twenty twenty five. Now's a good opportunity, as part
of your direct indexing strategy to maybe tilt towards some
other asset classes, things like small camp value, small camp growth,
(03:46):
maybe some dividend strategies, some things that maybe diversify the portfolio.
Do it on a tax efficient basis and get that
portfolio position so that we're not so concentrated in big
cap tech stocks you know in twenty twenty six, and
get you into some other asset classes and strategies, but
(04:06):
do it on a tax efficient basis. Brian, talk about
charitable giving move number three that we want to cover,
and you've done a great job of covering this throughout
the third and fourth quarter of twenty twenty five, talking
about taking full advantage of that standard deduction, but you know,
by maybe lumping some charitable giving into two tax years
(04:28):
instead of one. It's a great idea. You've covered it. Well,
let's touch on what we mean here in twenty twenty
six so that we don't forget about what maybe some
folks planned to do or started to do in twenty
twenty five.
Speaker 2 (04:41):
Well, tis the season, Bob, to be thinking about this anyway,
where you know, it's the holidays. We're in a giving mood,
so let's make sure we understand the tax benefits we
can get if we handle things correctly. So front loading
you're giving that in January can have some huge advantages.
If you fund a donor advice fund now you can
get the deduction for this year and then give your
twelve months of potential tax free growth on that money,
(05:03):
and which can give you that much more to benefit
from from that charity. And remember you're taking that deduction.
What you're doing is you're lumping several years worth of
donations all into one year. So, for example, if you
know you're gonna give your church, let's say ten thousand
dollars or your charity or whoever you have in mind,
ten thousand dollars a year for the next five years,
well that's fifty thousand dollars. None of that is large
(05:25):
enough to get you a tax deduction because you probably
will not be clearing the standard deduction anyway. But if
you lump it all into one year and use a
donor advised fund, you can take fifty thousand dollars in
one year. So the ideal time to do this would
be when you know it's going to be a big
tax year anyway, and then you can turn around and
dole it out from the donor advice fund. It's no
(05:45):
longer your money and you can't get it back, but
you still control to some extent how it's distributed and when.
More importantly, to that ultimate charity. But they don't know
the difference. They just know that you're giving the same
amount that you gave all along, but you will have
lump it all into one.
Speaker 3 (06:00):
Year to have gotten a better tax advantage for yourself.
Speaker 2 (06:03):
So this will give you a calmer, more deliberate giving plan.
No more last minute scrambles in December. If you know,
if you do this year at the beginning of the year,
and if you have a strong income year, maybe you
sold a business in twenty five, well, this is one
of the best tools you can use to offset some
of that tax hit that you're about to take.
Speaker 1 (06:19):
What about Brian, just well, just to belabor that point
a little bit, or you know, talk about a point
that you made. You talked about having twelve months worth
of potential tax free growth on that money. We're talking
about the growth on the money once it gets into
that donor Advice fund, because once it's in there, you
know it's a charitable fund, there are no taxes being
paid on the growth. So to Brian's point, if you
(06:41):
can get out in front of this and be strategic
early in the year, you know, let's face it, we've
had a real we had a real healthy stock market
year in twenty twenty five. You know, now's the time
where you can avoid those capital gains taxes on what
you want to give away. Get the tax deduction, now,
get it in that donor advice fund, get it diverse.
Even if you're not gonna part ways with the money
(07:03):
right now, you still have control over it. You know,
that's correct me if I'm wrong, Brian, that's what you're
talking about here with giving yourself twelve tax free months
of potential tax free growth once it's in the donor
Advice fund, right.
Speaker 2 (07:16):
Right, because, but but because when you when you're using
a donor advice fund, right, you're the whole intent of
a donor advice fund is to stretch out the ultimate
distribution of these assets to the charity, but lump into
one year the contribution to the fund in the first place.
So uh, since we know there's time involved, right, there's
going to be time involved in in stretching out those
those ultimate distributions. Then that money has to sit somewhere,
(07:39):
and that gives you the ability to invent even if
you want to be conservative, you might keep it in
a money Marketer CDs at four or five percent. Well,
that is going to result in that much more money
available to go to that charity, which may which may
reduce you that that could eliminate the need for you
to to reconsider this, you know, any sooner, because those
funds will again create more to create future contributions from
(07:59):
you to those charities. Ultimately, what about cash, Bob, What
if we got idle cash? What would you do there?
Speaker 1 (08:05):
Well, people people have money in idle cash for a
number of reasons. Maybe you sold a business, maybe you
inherited some money. Some people, you know, just neglect to
monitor the maturity of their treasuries or their CDs, or
they've neglected money market accounts that maybe you know, have
gone down in terms of yield. You gotta you gotta
(08:27):
especially and now in today's day and age, you got
to manage your cash just like any other stock or
bond portfolios. So you know, take a look at your
overall financial plan, what are your goals, what are your
needs and wants from your cash assets, and make sure
you get those assets deployed strategically. Here in twenty twenty six,
both from a yield standpoint and from a tax efficiency standpoint,
(08:51):
now's a good time to evaluate, you know, maybe whether
a laddered municipal bond portfolio might make some sense to
add some tax alpha to that. Spread out the maturity
of those money market treasuries and CDs. Don't just buy
and let the bank renew a five year CD at
(09:11):
very low rates. You might be passing up on some
opportunity here down the road. So make sure you sit
down and manage your cash money sitting idly in the bank.
Another thing, Brian, is start your tax planning early. And
we emphasize this all the time. Talk about what we
mean there by tax planning early, I mean nobody wants
(09:34):
to nobody wants to talk about taxes, you know, coming
right out of the holidays. But this is the opportune
time to develop an actual tax strategy.
Speaker 3 (09:44):
Yeah.
Speaker 2 (09:44):
Well, if your CPA is hearing from you normally for
the first time in a given year in October, well
then you're already a little bit behind. So January is
really when you want to get an idea at least
run some kind of a projection, because now you can
start to get a handle around the rules that may
have changed. There was a enormous amount of little things
from the one big beautiful bill that are kicking in
(10:05):
over time. So I would recommend sitting down with your
CPA to make sure that you understand what those new
rules are going to be for this year here in
twenty twenty six, and see if you should have be
making adjustments now to take advantage of those things or
to protect yourself from them. The sooner you do that,
the more time you're going to have to move the
puzzle pieces around to be sure that you're that you
minimize the impact of those things or maximize the opportunities
(10:28):
as they exist. This will affect you know, things like
roth conversions, big gifts, you might want to make, timing
distributions from a business or if you're going to sell
a business, those kinds of things. The big thing here, Bob,
is flexibility. That means you got twelve months, you have
the full If you do these types of analysis now,
you'll have a full year here to make any decisions
and move these things around. But if you wait too long,
(10:49):
you know, you might be stuck towards the end of
the year trying to do things that just can't be done.
Speaker 1 (10:53):
All right, well, speaking of maintaining flexibility, now is a
great time to start your estate planning. If you're somebody
that has some plans to do some gifting or maybe
some more nuanced or intricate estate planning strategies, sit down
and book a meeting with your financial advisor and your
estate planning attorney now, and we're talking about gifting strategies.
(11:17):
Trust you know, all this stuff takes time to get
set up, and you want to run some numbers and
be out in front of what you're actually going to
strategically be doing, especially when it gets into gifting. Don't
wait until the fourth quarter of twenty twenty six, where
every estate planning attorney is slammed and you just got
to get in line and hope they can get to
(11:38):
you before the end of the year. That's not a
knock on attorneys at all. It's just, you know reality.
People only have a limited number of hours. So get
out in front of this early in the year, because
people tend to think about their estate planning strategies late
in the year. And just a reminder it takes time
to do this stuff correctly. Here's the all Worth advice.
(12:01):
Start your year not just with resolutions, but with real
financial action. January can be your most strategic money month
if you get out in front of this. Now coming
up next, why some taxpayers will see bigger refunds and
why that's not necessarily a good thing, Plus why some
(12:22):
are earning less than their investments are actually making. You're
listening to Simply Money presented by Allworth Financial on fifty
five KRC, the talk station. You're listening to Simply Money
presented by all Worth Financial on Bob Sponseller along with
Brian James. If you can't listen to Simply Money live
(12:44):
every night, subscribe and get our daily podcasts. You can
listen the following morning, during your commute or at the gym.
And if you think your friends or family could use
some financial advice, tell them about us as well. Just
search simply Money on the iHeart app or wherever you
find your podcast. Straight Ahead. Too many retirement accounts, new
(13:05):
Secure Act rules, and a long neglected health savings account.
We're going to break all that down and more what
smart investors should be doing in each of those cases.
The IRS has announced delays in how it's handling certain
tax season tasks. But here's the surprising part. Some people
are going to end up with bigger refunds because of it.
(13:28):
What's going on here, Brian Well.
Speaker 2 (13:30):
Who's likely to see a higher refund? Well, people with
multiple deductions, credits, if you added a child, paid for education,
if there's maybe there's a big charitable donation, or if
you took advantages of some tax breaks like the clean
vehicle credit or energy efficient home upgrades, all those things
can boost your refund. So if you've considered those projects,
make sure you're taking that into account that can help
pay for help them pay for themselves. If you over
(13:51):
withheld from your paycheck, if you didn't, maybe you didn't
adjust that withholding after a job change or after a raise,
or you might want to be making sure if you
if you've switched from ROTH to traditional four to one
K contributions, make sure you're withholding is still in line
to keep you where you need to be. But you
could have sent too much to the irs this year,
so that overpayment, of course comes back to you as
a refund. For business owners, real estate investors, maybe your
(14:14):
income dropped this year, you took some losses, your taxable
income could have dropped. That might result in a larger refund,
especially if you continue to pay quarterly estimates estimates assuming
that your income was the same as last year.
Speaker 1 (14:26):
Yeah, it feels like this entire show might end up
being the importance of working with a good CPA and
a fiduciary financial advisor. Brian to me, this comes down
to proactive communication and a lot of times people just
don't take the time to communicate with their tax professional.
Here's what I mean. If you're somebody where to your point,
(14:49):
some of these credits happened last year and aren't gonna
happen this year, or vice versa. Or you do own
a business and your income fluctuates quite a bit. You
got to communicate that stuff to the person that does
your taxes, especially if you're filing quarterly estimates, because you
don't run a run into a situation where you got
to write a huge check at the end of the
year or next April, or you know what we're talking
(15:11):
about tonight, getting a huge check back next April. I mean,
let's face it, would you give a bank twenty thousand
dollars of your own money to hold for twelve months
and then give it back to you with no interest
next April. Probably not. I mean, we see people calling us,
emailing us all the time. You know, they're going and
shopping for different savings accounts rates. I mean they're quibbling
(15:34):
over you know, ten basis points on a savings account
interest rate. But yet they think nothing of having their
money tied up with the irs for an entire year
earning nothing, you know, zero.
Speaker 2 (15:45):
So people who get excited about that, hey, I got
a big refund coming in the coming in April, Well
that's great, except you're leaving some opportunity on the table.
Speaker 1 (15:53):
Here. You're listening to simply Money presented by all Worth
Financial on Bob Sponseller along with Brian James. Here's something
that might surprise you. Even if you're invested in a
solid mutual fund or ETF, a real well performing fund,
there is a very good chance you're not actually earning
the returns that are reported by that fund every year.
(16:16):
It's called the behavior gap. Brian, get into this. This,
This is really important. We see this often as well.
Speaker 2 (16:24):
So, yeah, this stat is coming from morning Star. New
research shows that investors, on average are earning less than
the funds that they invest in, Which that sounds kind
of strange, right, If I own a fund, I get
whatever it returns, don't I. Well, over the past ten years,
here's the numbers behind it. The average investor earned about
six point three percent a year, But of the funds
that morning Star looked at in this study, those were
averaging about seven point three percent. So some people are going, well,
(16:46):
that's the must be fees. They're giving that back in fees.
Speaker 3 (16:48):
No they're not.
Speaker 2 (16:49):
That's not the point. Where did that missing one percent go?
It was lost in timing. People tend to jump into
these funds after they've had a good run. I just
had a conversation yesterday with somebody who was looking at
their retire and plan and asked me to look at
and he said, yeah, you know what, don't worry about it.
I'm just going to take a look at what happened
last year, two years ago, and then I'll just pick
those funds. And they said, wait a minute, Bengals went
to the super Bowl in twenty twenty one.
Speaker 3 (17:10):
Does that mean they were going to win twenty two
and twenty three.
Speaker 1 (17:13):
Please don't talk about the Bengals. I'm still I'm still
trying to pull myself out of the depression state. But no,
you know, finish your point.
Speaker 3 (17:21):
Yeah, so, so again, morning star. I looked at both.
This isn't just you know, a handful of funds.
Speaker 2 (17:26):
He looked at both mutual funds and exchange traded funds
because ETFs are even easier to jump in and out
of index funds. These low cost, passively managed funds did
a little bit better, but even then, the average investor
still underperforms the fund. That it has to do with behavior,
you know, stalling on making that decision. Maybe, maybe, maybe
if somebody thought about this earlier this year in April
(17:46):
and thought about how the market's kind of bumpy, I
don't want to invest, and decided to wait until June
while money.
Speaker 3 (17:51):
Was left on the table.
Speaker 2 (17:52):
So when we look at the returns that mutual funds
have had or any investment, frankly, you were looking at
an agnostic year over year type of return scenario, not
when did somebody out there get the guts to go
ahead and invest and not read the headlines anymore. So
those numbers on that piece of paper you're looking at
have nothing to do with the human element of all
these different things.
Speaker 1 (18:13):
The flip side of this, Brian, and we talk about
this often on this show, is some people, not all,
but some people use their growth mutual funds like your
savings account. Here's what I mean. If people know they're gonna,
you know, remodel their bathroom, or buy a car, or
take a cruise or something like that, or an expensive vacation,
they just they want to pull the money out of
(18:33):
that high growth fund, you know, whenever the bill is
due for that particular you know spending, you know event
that's going to happen. Talk to your advisor, you know,
ahead of time, because you know it it makes sense
to get that money out of harm's way, get it
out of the market with enough time to prevent some
type of uh, you know, market correction or just a
(18:57):
temporary drop due to a news event something like that. Again,
it comes down to communication with your advisor to try
to you know, we're not trying to date day trade
this stuff or get in an extensive market timing. But
there is some common sense involved here. I mean, if
you're the market's at an all time high and you
(19:18):
know you're going to be doing something over the next
two to three months, it might make sense to take
a little money off the table. Here's the all Worth advice.
Even great funds can't protect you from poor timing. The
best way to grow wealth isn't chasing returns. It's avoiding
the costly mistakes they can keep you from earning what
your investments are already providing to you. Coming up next,
(19:42):
assisted living, nursing homes or staying home. What's the right
move for your parents or for you? These are tough,
costly decisions will help you plan before the situation becomes urgent.
Coming up next, you're listening to Simply Money presented by
all Worth Financial on fifty five KR see the talk station.
(20:06):
You're listening to Simply Money presented about all Worth Financial.
I'm Bob sponseller along with Brian James. It's one of
the hardest decisions a family has to make, and it
never feels like there's a perfect answer. Brian, I know
this is definitely more of an art than a science.
We're talking about senior living, whether to do assisted living,
nursing homes, in home care, or just trying to keep
(20:30):
mom and dad at home, and the truth is these
decisions are as emotional as they are financial. Let's start
by laying out what the options even are and what
the typical cost is for each of these options.
Speaker 2 (20:43):
Now, this can be a little bit of alphabet soup.
You're looking at a lot of different words that are
gonna sound familiar, but they're all gonna run together. So
we'll start with the different flavors of the types of
care you can have. So first off is independent living.
This is more like senior apartments. No real care is
provided there, but it's kind of ready at hand. Something
is needed and you're in a community of people kind
of your own age and.
Speaker 3 (21:05):
A lot of commonalities there.
Speaker 2 (21:06):
That runs about three thousand dollars a month for just
that kind of bare minimum, with help nearby but not
necessarily right up in your face every day. That next
step up, though, Bob, is assisted living. This is going
to include help with meals, medication, and just daily tasks
of keeping the household in shape and taking care of
the things you need to that'll run anywhere from forty
five hundred to seven thousand dollars monthly.
Speaker 3 (21:28):
And again you're.
Speaker 2 (21:29):
Still kind of independent, but you've got somebody hanging around
that can help with those again, those daily routines. And
then where we get into the bigger ones is really
memory care. And a lot of people go through this.
It can be very challenging, of course, aside from the finances,
but so of course we're talking about Alzheimer's, dimension, dementia, Parkinson's,
those kinds of things. You're looking at six to ten
(21:50):
thousand dollars per month for that level of care. And
then one more step up from that when we've got
nursing home care. This is really really where we're getting to.
We've got a lot of medical issues and kind of
a really end of life type care. Full medical care
runs about nine to twelve thousand dollars a month.
Speaker 3 (22:06):
For a situation like that.
Speaker 2 (22:08):
But the thing I want to point out here, Bob,
is a lot of people will do a financial plan
for people who are young and healthy, maybe just retired sixties,
maybe early seventies, and they'll start to look at these
numbers and they'll say, Okay, I have got to be
able to take this plan that we just built and
layer on an extra ten thousand dollars a month for
one of these days.
Speaker 3 (22:23):
That is not the case.
Speaker 2 (22:24):
Remember when you're in one of these more elaborate, more
expensive type homes, You're not traveling anymore, you're not running
to the grocery store anymore. There's a lot of bills
that are being covered for you in that ten thousand
a month. So it might be more than you're actually
spending currently to run your lives, but it's not a
complete extra expense added on to the top. Be careful
not to go too far down that rabbit hole of
how scary it will be to go through this type
(22:45):
of thing. It's expensive, for sure, but it's not as
terrifying as it might seem.
Speaker 1 (22:50):
Yeah, the flip side of that, Brian, and I'm living
through this right now with an actual client. I mean,
it is a little bit terrifying. And here's what I mean.
This person is recently widowed. She wants to stay in
her home, and she has multiple in home caregivers coming
in for a variety of reasons. So when you layer
(23:13):
on some of these in home care folks, depending on
what they provide, I mean, in this one case, and
I'm talking about one, this particular lady is spending upwards
of twenty thousand dollars a month to stay in her
home and have all these people come in and provide
all these services. So thankfully, you know, she's in a
situation where she can at least now afford all that.
(23:36):
But boy, that's a lot of money. And I guess
that leads to the point that really makes this difficult
is emotionally, everybody, Brian, everybody wants to stay in their
home as long as they can. And you got two
things you got to look at here, and I've done.
I'm in the middle of dealing this all, dealing with
(23:56):
this also with multiple families, there's communication needs that need,
you know, need to go on between the siblings and
the kids. Who's going to provide this kind of care
to enable mom or dad or both to stay at home.
And then financially, what does this all mean, Because again,
the default is I want to stay in my home.
I want to stay in my home. I want to
(24:16):
you know, be where I am. But it costs money, time, effort,
angst on the part of the family that you're having
come in to help you. And these communications and discussions
need to take place sooner rather than later so that
you don't disrupt multiple families on top of all the
money decisions. To make all this work, it could get
(24:38):
very very difficult.
Speaker 2 (24:39):
So, yeah, we want to be paying attention to a
lot of these things, and it's it can be very
very stressful. So what should you be doing? Well, think
about your own future here, what do you want? And again,
this may help you think about what you're even if
you're doing this early and maybe you feel too early,
but you might be helping your parents and other relatives
simply by you thinking about it, you can have better
conversations with them. Is it important to you to age
(25:00):
at home? Could your house even handle that right?
Speaker 1 (25:03):
Is?
Speaker 3 (25:03):
Are there are a lot of steps?
Speaker 2 (25:04):
Are there are a lot of things that are going
to make it tough for somebody who's a little bit
limited with mobility. Do you have long term care insurance
or have you looked into asset based policies that might
give you some flexibility. One of my all time favorite
things to do for people is if we've got a
life insurance policy, for example, that was purchased when the
kids were new, or maybe even before the kids were around,
and now those kids have kids, then sometimes those policies
(25:25):
can have cash values built up in them and we
really no longer.
Speaker 3 (25:28):
Need the death benefits.
Speaker 2 (25:29):
Well, one of the things that can be done. You can,
of course cash it out and run away and pay
taxes and all that. That's always a choice, but a
lot of times what you can do is convert that
into something that, yes, has a minimal death benefit, which
is kind of necessary to make this work, but instead
of focusing on that, it also provides primarily a long
term care benefit. So all you're doing in that case
is read a bunch of paperwork and some testing and
(25:51):
redeploying a pile of money from a need you don't have,
which is death benefit, to a need that you do,
which is now long term care. That's called a ten
thirty five exchange, a tax free type of a thing.
If you have that situation and you don't need death benefit,
you might consider that.
Speaker 1 (26:05):
Brian. Another thing to consider, and I'd love to get
your perspective on this even if you don't disagree. If
you don't agree with me, a lot of times I've
had people that have had life insurance policies for years
with this built up cash value in it, and you know,
when you run the actual probability of dying, which is
last time I checked, was one hundred percent versus needing
(26:27):
long term care coverage, which is, you know, around fifty percent.
Sometimes you can afford, if you build your plan properly,
to just spend down some of your assets knowing that
the life insurance is going to come in and backfill
those assets that you spent down. That can end up
being a pretty good scenario because at least you know
you're going to get some bang for your buck out
(26:48):
of your insurance. What do you think about that idea?
Speaker 2 (26:51):
I think that's really something to look into and make
sure you've got all these moving parts covered.
Speaker 3 (26:55):
From a standpoint of it, it's.
Speaker 2 (26:56):
Complicated, but if we think ahead then we can kind
of get we can control the future a little bit
as long as we plan.
Speaker 1 (27:02):
Here's the all Worth advice. Planning for long term care
isn't just smart, It is a gift to your family.
You're saving them from crisis, conflict, and potentially years of stress.
Coming up next from Tangled iras to secure two point
zero confusion and even some hidden gems in your health
(27:22):
savings account. We'll tackle the questions you've been meaning to ask.
Coming up next. 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
on Bob Sponseller along with Brian James. Do you have
(27:43):
a financial question you'd like for us to answer? There
is a red button you can click if you're listening
to the show from the iHeart app. Simply record your
question and it will come straight to us. All right.
Karen in Hyde Park leads us off tonight Brian. She says,
we've heard about something called tax alpha, the idea that
(28:03):
good planning can add as much value as investment performance.
I don't know about that, but how do you measure
tax alpha? Talk about what that is and help Karen,
you know, understand the difference between that and just plane
on investment performance.
Speaker 2 (28:16):
I actually like the way she phrase that. That makes
a lot of sense, and I think there's a lot,
there's a lot of benefit to this.
Speaker 3 (28:21):
So what is tax alpha?
Speaker 2 (28:22):
Tax alpha is the extra value you can get by
focusing on the tax efficiency of your investments rather than
simply looking at a pile of different investment options and
watching how they go up and down over the years. So, really,
what this means is what is my portfolio done after taxes?
Speaker 3 (28:39):
So, for example, if.
Speaker 2 (28:40):
I'm doing something and I'm somehow I've got some kind
of heavy trading strategy that is generating a lot of
short term gains, well those gains are going to be
taxed me as income. If I'm in a thirty percent bracket,
well then I'm given away a third of my return
in my short term trading program. That's why a lot
of people don't do this kind of thing because, or
at least if they're doing it, they're doing it in
an IRA maybe, So how should you?
Speaker 3 (29:01):
How should you? How do you measure it?
Speaker 2 (29:03):
Because the only way you can really know you can't
open a brochure and see what some investment strategies after
tax performances have been. Because taxes are an individual thing.
Everybody's in a different bracket with a different situation. So
the after tax performance is going to be different for everybody.
Best thing you can do there is established some kind
of a benchmark that matches what it does, and then
figure out what your own pre tax returns have been.
(29:25):
What did that portfolio earn before taxes? This is usually
pretty easy to get to. What did the benchmark earn
that's pre tax alpha, and then figure out your after
tax returns. This is where you'll have to look at
your You know, often you're looking at your schedule B,
your ten ninety nine B and looking for the capital
gains and losses that were generated if you had a
This isn't a perfect comparison care but if you had
(29:46):
this money and some kind of a portfolio prior to
moving to the tax alpha strategy, then what you can
do is look for more and there should be more
activity generating more losses in those kinds of things, and
so see if you can find a way to compare
those older returns with the newer ones. With that strategy
in place, now, granted you'd be talking about two different
market periods. It is not perfect by any stretch, but
(30:06):
you should be seeing more activity trickling through your tax
return in this sense of realizing gains that are offset,
therefore not being taxed, or giving you up to three
thousand dollars in a straight up deduction if there's any
losses over and above the gains that are generated.
Speaker 3 (30:20):
So hope that helps. That's a slippery slope tax.
Speaker 2 (30:22):
I'm a big believer in tax alpha, but it does
take some understanding, all right. So we're gonna move on
to Aaron and Kenwood. Aaron says they've got they feel
good about their net worth. They look great on paper,
but they feel like lots of it is ill liquid.
They've got a bunch of stuff everywhere, real estate, retirement accounts,
some stakes and businesses.
Speaker 3 (30:37):
And he's wondering, how do you build up liquidity without
blowing up the plan?
Speaker 1 (30:40):
Bob, Well, the words that's out to me in this
question is blowing up the plan. And here's what I mean, Aaron.
The plan needs to include a gradual transition of some
of these ill liquid assets and accounts into something that
can create liquid income. So I think the plan needs
to be re ex zamin And the big thing that
(31:01):
I tell folks all the time is you don't have
to make wholesale decisions and movements in one fell swoop,
you know, in one year, because if you do that,
that will blow up your tax return in the way
of unnecessary taxation. So I think you got to sit down,
especially as it relates to illiquid assets such as real
(31:24):
estate or a business. You know, there's a process, there's
a timeline that you got to develop that matches your
desire for liquidity with your personal desires in retirement and
craft a gradual strategy to transition your net worth into
something that's going to meet your needs, you know, when
you no longer want to work. Hope that helps, all right?
(31:46):
Ron and Mason says, we've got multiple iras and four
to one k's spread across different institutions. What's the cleanest
way to consolidate them without losing cost basis, data or protection. Fortunately,
this is a relatively easy one. Brian Ye softball for me.
Speaker 2 (32:03):
So the way to handle the cost basis of an
IRA or a four oh one K is to it
ignore it entirely, because it doesn't mean anything at all,
you know. So, I mean, unless you're in a situation
where maybe you work for Procter and Gamble, if you're
looking at something called a net unrealized appreciation type of
a transaction. Yes, then then the cost basis will matter.
But most people simply have you know, mutual funds or
(32:24):
exchange traded funds in those types of retirement plans, and
so therefore the cost basis is irrelevant the tax treatment
of the account. If it's pre tax then that simply
means that are traditional IRA or four O one K.
That simply means that any nickel that comes out of
it is going to get taxed as income to you.
If it's WROTH, then it's not going to be taxed
at all, as long as you've met a couple simple
rules with regard to timing and some other things that
(32:45):
are relatively simple to get passed, so you can consolidate
all those into one account without really losing any information.
Not to mention, let's say you're not talking about an IRA.
Cost basis only is irrelevant in a taxable account. If
the custodian has that in it will transfer over from
one financial institution to another. Sometimes it takes a week
(33:05):
or two to get it all there, but they do
have to communicate that if they have it. If you
handed them a certificate thirty years ago that represented some stock,
then they don't know either what you paid for it.
Speaker 3 (33:15):
So hope that helps.
Speaker 2 (33:16):
One more question here, and we're going to move on
to Paul and Anderson. This is not a softball, Paul says.
His CPA mentioned the secure two point zero rules for
inherited iras, Bob, and he's asking, does the ten year
rule mean equal withdrawals or can you still manage the time?
I guess this one's not too bad, but could be
a bit of a rabbit hole, Bob.
Speaker 1 (33:35):
Yeah, there's a couple of different rules to consider here, Paul,
and I'm going to assume we're talking about a non
spouse beneficiary. So the first thing to know is when
does the proverbial clock start running. That ten year clock
starts running the year following the death of the original
IRA owner. That's the first thing to keep in mind.
After that, it comes down to was the person that
(33:59):
passed away already in there require minimum distribution stage where
they're already taking annual rmds. If so, then you are
required to stay on that same schedule based on the
decedents you know, age and that whole formula. And then
in addition to that, the whole thing needs to be
(34:19):
you know, paid out completely in ten years. So what
that situation can end up looking like is you got
to take a little bit out every year, and then
if you do not manage it, you know, in year
ten you might get a bigger you know, lump sum
coming out and a bigger tax bill than you might
want to see. The other option is if the person
that passed away had not started annual rmds, well, then
(34:42):
you got a ton of flexibility as long as you
meet that ten year rule. You don't have to take
anything out until year ten if you don't want to,
But then in year ten you got to pull the
whole thing out. It's all taxable income. You owe all
the taxes. So depending on what your situation is, you know,
that's where you want to sit down with your advice
in your CPA and map out an income strategy to
(35:03):
make this withdrawal uh situation as tax efficient as possible.
There are a lot of moving parts there, but if
you if you understand what you're dealing with, you know,
from the get go you can manage the situation, you know,
without a whole lot of complexity. Coming up next, I've
got my two cents and some additional thoughts on the
whole long term care planning discussion we had a little
(35:25):
bit earlier. 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 Spondseller along with Brian James. Brian, I want to
I want to talk a little bit more, you know,
just piggybacking on our prior discussion about this whole long
(35:48):
term care planning process. And what I want to talk
about here is, you know, assuming we get to the
point where it is time to start looking at a
long term care facility, you know, moving into a facility,
you know, there's some important considerations to factor in and
some important questions to ask. And a couple of those
(36:10):
questions I think these are good ones. What's the staffed
to resident ratio at night? Because look, when if you
just schedule a tour and go in there, it's like
any other tour you go on, they're gonna they're gonna
put their best face on the whole situation. The thing's
fully staffed, it's been cleaned. It's all that you want
to talk about. You know, what are things look like?
At night, when when a lot of this care is
(36:33):
really needed, so staffed a resident ratio at night. And
then also what's the staff turnover rate? They should be
willing to share that kind of information with you, because
if the staff is moving in and out and it's
a constant turnover, I don't think that's good. I think
our loved one wants to know who they're dealing with
develop a relationship. They need to get to know what
(36:55):
the ins and outs of what the needs really are
for our loved one, so that if the staff's turning
over at a breakneck pace, that's not a really good thing.
And then I would also say, are they doing background
checks on all of their caregivers at the facility? I
know you want to jump in here as well.
Speaker 2 (37:14):
Yeah, So I think that this is probably one of
the most important places where word of mouth feedback is
the most valuable. You know, the brochures are lovely, but
they're not gonna not be lovely, So look under every
stone for stories. I would be looking on social media
and just search for the you know, search for the
for the name of the facility, and bear in mind,
obviously you're gonna see stories. You know, people don't tend
People who are super happy don't tend to talk about
(37:36):
it very much versus people who are raging over something.
Speaker 3 (37:39):
Then it could come up there.
Speaker 2 (37:40):
But again, just look under every stone, find people who
live there. You might even you know, catch somebody who
perhaps looks younger walking out of the facility. Perhaps this
is the adult child of someone who lives there. Stop
them in the parking lot and just ask how it's gone.
You know, this is an extremely important one. So I
think you look under every stone for every piece of
information you can possibly get, or just.
Speaker 1 (37:59):
Netl work around with your friends and folks. I mean,
everybody knows someone who has needed this kind of care.
Don't just rely on the internet and online reviews. Get
out there and talk to somebody, because the sad truth
is you can spend a fortune and still get poor
care if you have not vetted this situation carefully. Thanks
(38:20):
for listening tonight. You've been listening to Simply Money, presented
by all Worth Financial on fifty five KRC, the talk
station
Tonight the smartest money moves to make in January. You're
listening to Simply Money, because i'd buy all Worth Financial
on Bob Sponseller along with Brian James. That's the first
Monday of twenty twenty six. And if you're like most people,
you probably kicked off the year with a couple of resolutions.
Maybe it's get in shape or cut back on screen time.
(00:27):
But if you're sitting on a few million dollars or
more in net worth, there are much smarter moves to
make right now, and those involve your finances. Brian, let's
get into a couple moves that people should be considering,
you know here in the new year.
Speaker 2 (00:42):
Yeah, well this is this first one here we've talked
about before. This is a typical annual tax planning types
of things. But now we're gonna look at the timing
a little more closely here. So move number one, harvest
those capital gains and reset your cost basis.
Speaker 3 (00:56):
So December is usually when.
Speaker 2 (00:57):
People talk about tax loss harvesting, and the reason for
that is because by this time of year, we usually
have a pretty clear picture on what are or as
clear as it's going to be, what our tax situation
is going to look like when it comes time to
do taxes here the next few months. But in January,
well that's when savvy investors start to harvest gains. You
can sell some appreciated assets, realize those long term gains,
and immediately buy them back to reset your cost bases
(01:19):
as long as you're careful. Now, what we mean by
that is something called a wash sale. If you're going
to harvest gains there, then you can go ahead and
do that, and that will not create a wash sale.
So I want to avoid confusion here among anybody. But
at the same time, if you on the other end
of this, if you are going to sell out of
some assets and buy them back in, you know a
(01:39):
lot of people might want to harvest a loss there.
You have to stay out of that security for the
net for thirty days and or the IRS will will
deem that sale as not to have occurred for tax purposes.
So just be carefully. You understand the wash sale rules.
But this can be especially smart if you had some
lower income last year, or maybe you're early in retirement
and you're managing your bracket level, so that gain could
(02:01):
be taxed at fifteen percent ory believe it or not
even zero percent. Right, there is a certain level of
income for married filance, for single or married taxpayers where
you may not pay any capital gains at all. Now,
remember here's the confusing part. That is not only an
income bracket. That capital gain that you would be generating
is itself part of the calculation. So you really have
(02:22):
to have some pretty low income years to generate zero
percent capital gain type situation. But it's not as hard
as you might think. There are rules out there that
put that in place. What's another move were gonna be
thinking about, Bob Well.
Speaker 1 (02:34):
Move number two, and I think it kind of dovetails
with what you just talked about, and that's revisit your
direct index indexing strategy. And we're talking now about taxable
accounts where we're taking full advantage of these direct indexing
or tax soce harvesting strategies with individual positions. And if
you started using a strategy like that in twenty twenty five,
(02:58):
and a lot of people probably we did, now's the
time to clean that up. You know, back to Brian's
prior point December, if you did some things, you know,
to do some tax planning going into the end of
the year. December likely left you with some temporary uninvested
positions from watch sales. January is when you want to
re establish your full market exposure, stay fully invested, but
(03:23):
tweak you know, the customization for the coming year. It
means you don't have to go right back into the
same sector or even the same stock that you sold
in twenty twenty five. Now's a good opportunity, as part
of your direct indexing strategy to maybe tilt towards some
other asset classes, things like small camp value, small camp growth,
(03:46):
maybe some dividend strategies, some things that maybe diversify the portfolio.
Do it on a tax efficient basis and get that
portfolio position so that we're not so concentrated in big
cap tech stocks you know in twenty twenty six, and
get you into some other asset classes and strategies, but
(04:06):
do it on a tax efficient basis. Brian, talk about
charitable giving move number three that we want to cover,
and you've done a great job of covering this throughout
the third and fourth quarter of twenty twenty five, talking
about taking full advantage of that standard deduction, but you know,
by maybe lumping some charitable giving into two tax years
(04:28):
instead of one. It's a great idea. You've covered it. Well,
let's touch on what we mean here in twenty twenty
six so that we don't forget about what maybe some
folks planned to do or started to do in twenty
twenty five.
Speaker 2 (04:41):
Well, tis the season, Bob, to be thinking about this anyway,
where you know, it's the holidays. We're in a giving mood,
so let's make sure we understand the tax benefits we
can get if we handle things correctly. So front loading
you're giving that in January can have some huge advantages.
If you fund a donor advice fund now you can
get the deduction for this year and then give your
twelve months of potential tax free growth on that money,
(05:03):
and which can give you that much more to benefit
from from that charity. And remember you're taking that deduction.
What you're doing is you're lumping several years worth of
donations all into one year. So, for example, if you
know you're gonna give your church, let's say ten thousand
dollars or your charity or whoever you have in mind,
ten thousand dollars a year for the next five years,
well that's fifty thousand dollars. None of that is large
(05:25):
enough to get you a tax deduction because you probably
will not be clearing the standard deduction anyway. But if
you lump it all into one year and use a
donor advised fund, you can take fifty thousand dollars in
one year. So the ideal time to do this would
be when you know it's going to be a big
tax year anyway, and then you can turn around and
dole it out from the donor advice fund. It's no
(05:45):
longer your money and you can't get it back, but
you still control to some extent how it's distributed and when.
More importantly, to that ultimate charity. But they don't know
the difference. They just know that you're giving the same
amount that you gave all along, but you will have
lump it all into one.
Speaker 3 (06:00):
Year to have gotten a better tax advantage for yourself.
Speaker 2 (06:03):
So this will give you a calmer, more deliberate giving plan.
No more last minute scrambles in December. If you know,
if you do this year at the beginning of the year,
and if you have a strong income year, maybe you
sold a business in twenty five, well, this is one
of the best tools you can use to offset some
of that tax hit that you're about to take.
Speaker 1 (06:19):
What about Brian, just well, just to belabor that point
a little bit, or you know, talk about a point
that you made. You talked about having twelve months worth
of potential tax free growth on that money. We're talking
about the growth on the money once it gets into
that donor Advice fund, because once it's in there, you
know it's a charitable fund, there are no taxes being
paid on the growth. So to Brian's point, if you
(06:41):
can get out in front of this and be strategic
early in the year, you know, let's face it, we've
had a real we had a real healthy stock market
year in twenty twenty five. You know, now's the time
where you can avoid those capital gains taxes on what
you want to give away. Get the tax deduction, now,
get it in that donor advice fund, get it diverse.
Even if you're not gonna part ways with the money
(07:03):
right now, you still have control over it. You know,
that's correct me if I'm wrong, Brian, that's what you're
talking about here with giving yourself twelve tax free months
of potential tax free growth once it's in the donor
Advice fund, right.
Speaker 2 (07:16):
Right, because, but but because when you when you're using
a donor advice fund, right, you're the whole intent of
a donor advice fund is to stretch out the ultimate
distribution of these assets to the charity, but lump into
one year the contribution to the fund in the first place.
So uh, since we know there's time involved, right, there's
going to be time involved in in stretching out those
those ultimate distributions. Then that money has to sit somewhere,
(07:39):
and that gives you the ability to invent even if
you want to be conservative, you might keep it in
a money Marketer CDs at four or five percent. Well,
that is going to result in that much more money
available to go to that charity, which may which may
reduce you that that could eliminate the need for you
to to reconsider this, you know, any sooner, because those
funds will again create more to create future contributions from
(07:59):
you to those charities. Ultimately, what about cash, Bob, What
if we got idle cash? What would you do there?
Speaker 1 (08:05):
Well, people people have money in idle cash for a
number of reasons. Maybe you sold a business, maybe you
inherited some money. Some people, you know, just neglect to
monitor the maturity of their treasuries or their CDs, or
they've neglected money market accounts that maybe you know, have
gone down in terms of yield. You gotta you gotta
(08:27):
especially and now in today's day and age, you got
to manage your cash just like any other stock or
bond portfolios. So you know, take a look at your
overall financial plan, what are your goals, what are your
needs and wants from your cash assets, and make sure
you get those assets deployed strategically. Here in twenty twenty six,
both from a yield standpoint and from a tax efficiency standpoint,
(08:51):
now's a good time to evaluate, you know, maybe whether
a laddered municipal bond portfolio might make some sense to
add some tax alpha to that. Spread out the maturity
of those money market treasuries and CDs. Don't just buy
and let the bank renew a five year CD at
(09:11):
very low rates. You might be passing up on some
opportunity here down the road. So make sure you sit
down and manage your cash money sitting idly in the bank.
Another thing, Brian, is start your tax planning early. And
we emphasize this all the time. Talk about what we
mean there by tax planning early, I mean nobody wants
(09:34):
to nobody wants to talk about taxes, you know, coming
right out of the holidays. But this is the opportune
time to develop an actual tax strategy.
Speaker 3 (09:44):
Yeah.
Speaker 2 (09:44):
Well, if your CPA is hearing from you normally for
the first time in a given year in October, well
then you're already a little bit behind. So January is
really when you want to get an idea at least
run some kind of a projection, because now you can
start to get a handle around the rules that may
have changed. There was a enormous amount of little things
from the one big beautiful bill that are kicking in
(10:05):
over time. So I would recommend sitting down with your
CPA to make sure that you understand what those new
rules are going to be for this year here in
twenty twenty six, and see if you should have be
making adjustments now to take advantage of those things or
to protect yourself from them. The sooner you do that,
the more time you're going to have to move the
puzzle pieces around to be sure that you're that you
minimize the impact of those things or maximize the opportunities
(10:28):
as they exist. This will affect you know, things like
roth conversions, big gifts, you might want to make, timing
distributions from a business or if you're going to sell
a business, those kinds of things. The big thing here, Bob,
is flexibility. That means you got twelve months, you have
the full If you do these types of analysis now,
you'll have a full year here to make any decisions
and move these things around. But if you wait too long,
(10:49):
you know, you might be stuck towards the end of
the year trying to do things that just can't be done.
Speaker 1 (10:53):
All right, well, speaking of maintaining flexibility, now is a
great time to start your estate planning. If you're somebody
that has some plans to do some gifting or maybe
some more nuanced or intricate estate planning strategies, sit down
and book a meeting with your financial advisor and your
estate planning attorney now, and we're talking about gifting strategies.
(11:17):
Trust you know, all this stuff takes time to get
set up, and you want to run some numbers and
be out in front of what you're actually going to
strategically be doing, especially when it gets into gifting. Don't
wait until the fourth quarter of twenty twenty six, where
every estate planning attorney is slammed and you just got
to get in line and hope they can get to
(11:38):
you before the end of the year. That's not a
knock on attorneys at all. It's just, you know reality.
People only have a limited number of hours. So get
out in front of this early in the year, because
people tend to think about their estate planning strategies late
in the year. And just a reminder it takes time
to do this stuff correctly. Here's the all Worth advice.
(12:01):
Start your year not just with resolutions, but with real
financial action. January can be your most strategic money month
if you get out in front of this. Now coming
up next, why some taxpayers will see bigger refunds and
why that's not necessarily a good thing, Plus why some
(12:22):
are earning less than their investments are actually making. You're
listening to Simply Money presented by Allworth Financial on fifty
five KRC, the talk station. You're listening to Simply Money
presented by all Worth Financial on Bob Sponseller along with
Brian James. If you can't listen to Simply Money live
(12:44):
every night, subscribe and get our daily podcasts. You can
listen the following morning, during your commute or at the gym.
And if you think your friends or family could use
some financial advice, tell them about us as well. Just
search simply Money on the iHeart app or wherever you
find your podcast. Straight Ahead. Too many retirement accounts, new
(13:05):
Secure Act rules, and a long neglected health savings account.
We're going to break all that down and more what
smart investors should be doing in each of those cases.
The IRS has announced delays in how it's handling certain
tax season tasks. But here's the surprising part. Some people
are going to end up with bigger refunds because of it.
(13:28):
What's going on here, Brian Well.
Speaker 2 (13:30):
Who's likely to see a higher refund? Well, people with
multiple deductions, credits, if you added a child, paid for education,
if there's maybe there's a big charitable donation, or if
you took advantages of some tax breaks like the clean
vehicle credit or energy efficient home upgrades, all those things
can boost your refund. So if you've considered those projects,
make sure you're taking that into account that can help
pay for help them pay for themselves. If you over
(13:51):
withheld from your paycheck, if you didn't, maybe you didn't
adjust that withholding after a job change or after a raise,
or you might want to be making sure if you
if you've switched from ROTH to traditional four to one
K contributions, make sure you're withholding is still in line
to keep you where you need to be. But you
could have sent too much to the irs this year,
so that overpayment, of course comes back to you as
a refund. For business owners, real estate investors, maybe your
(14:14):
income dropped this year, you took some losses, your taxable
income could have dropped. That might result in a larger refund,
especially if you continue to pay quarterly estimates estimates assuming
that your income was the same as last year.
Speaker 1 (14:26):
Yeah, it feels like this entire show might end up
being the importance of working with a good CPA and
a fiduciary financial advisor. Brian to me, this comes down
to proactive communication and a lot of times people just
don't take the time to communicate with their tax professional.
Here's what I mean. If you're somebody where to your point,
(14:49):
some of these credits happened last year and aren't gonna
happen this year, or vice versa. Or you do own
a business and your income fluctuates quite a bit. You
got to communicate that stuff to the person that does
your taxes, especially if you're filing quarterly estimates, because you
don't run a run into a situation where you got
to write a huge check at the end of the
year or next April, or you know what we're talking
(15:11):
about tonight, getting a huge check back next April. I mean,
let's face it, would you give a bank twenty thousand
dollars of your own money to hold for twelve months
and then give it back to you with no interest
next April. Probably not. I mean, we see people calling us,
emailing us all the time. You know, they're going and
shopping for different savings accounts rates. I mean they're quibbling
(15:34):
over you know, ten basis points on a savings account
interest rate. But yet they think nothing of having their
money tied up with the irs for an entire year
earning nothing, you know, zero.
Speaker 2 (15:45):
So people who get excited about that, hey, I got
a big refund coming in the coming in April, Well
that's great, except you're leaving some opportunity on the table.
Speaker 1 (15:53):
Here. You're listening to simply Money presented by all Worth
Financial on Bob Sponseller along with Brian James. Here's something
that might surprise you. Even if you're invested in a
solid mutual fund or ETF, a real well performing fund,
there is a very good chance you're not actually earning
the returns that are reported by that fund every year.
(16:16):
It's called the behavior gap. Brian, get into this. This,
This is really important. We see this often as well.
Speaker 2 (16:24):
So, yeah, this stat is coming from morning Star. New
research shows that investors, on average are earning less than
the funds that they invest in, Which that sounds kind
of strange, right, If I own a fund, I get
whatever it returns, don't I. Well, over the past ten years,
here's the numbers behind it. The average investor earned about
six point three percent a year, But of the funds
that morning Star looked at in this study, those were
averaging about seven point three percent. So some people are going, well,
(16:46):
that's the must be fees. They're giving that back in fees.
Speaker 3 (16:48):
No they're not.
Speaker 2 (16:49):
That's not the point. Where did that missing one percent go?
It was lost in timing. People tend to jump into
these funds after they've had a good run. I just
had a conversation yesterday with somebody who was looking at
their retire and plan and asked me to look at
and he said, yeah, you know what, don't worry about it.
I'm just going to take a look at what happened
last year, two years ago, and then I'll just pick
those funds. And they said, wait a minute, Bengals went
to the super Bowl in twenty twenty one.
Speaker 3 (17:10):
Does that mean they were going to win twenty two
and twenty three.
Speaker 1 (17:13):
Please don't talk about the Bengals. I'm still I'm still
trying to pull myself out of the depression state. But no,
you know, finish your point.
Speaker 3 (17:21):
Yeah, so, so again, morning star. I looked at both.
This isn't just you know, a handful of funds.
Speaker 2 (17:26):
He looked at both mutual funds and exchange traded funds
because ETFs are even easier to jump in and out
of index funds. These low cost, passively managed funds did
a little bit better, but even then, the average investor
still underperforms the fund. That it has to do with behavior,
you know, stalling on making that decision. Maybe, maybe, maybe
if somebody thought about this earlier this year in April
(17:46):
and thought about how the market's kind of bumpy, I
don't want to invest, and decided to wait until June
while money.
Speaker 3 (17:51):
Was left on the table.
Speaker 2 (17:52):
So when we look at the returns that mutual funds
have had or any investment, frankly, you were looking at
an agnostic year over year type of return scenario, not
when did somebody out there get the guts to go
ahead and invest and not read the headlines anymore. So
those numbers on that piece of paper you're looking at
have nothing to do with the human element of all
these different things.
Speaker 1 (18:13):
The flip side of this, Brian, and we talk about
this often on this show, is some people, not all,
but some people use their growth mutual funds like your
savings account. Here's what I mean. If people know they're gonna,
you know, remodel their bathroom, or buy a car, or
take a cruise or something like that, or an expensive vacation,
they just they want to pull the money out of
(18:33):
that high growth fund, you know, whenever the bill is
due for that particular you know spending, you know event
that's going to happen. Talk to your advisor, you know,
ahead of time, because you know it it makes sense
to get that money out of harm's way, get it
out of the market with enough time to prevent some
type of uh, you know, market correction or just a
(18:57):
temporary drop due to a news event something like that. Again,
it comes down to communication with your advisor to try
to you know, we're not trying to date day trade
this stuff or get in an extensive market timing. But
there is some common sense involved here. I mean, if
you're the market's at an all time high and you
(19:18):
know you're going to be doing something over the next
two to three months, it might make sense to take
a little money off the table. Here's the all Worth advice.
Even great funds can't protect you from poor timing. The
best way to grow wealth isn't chasing returns. It's avoiding
the costly mistakes they can keep you from earning what
your investments are already providing to you. Coming up next,
(19:42):
assisted living, nursing homes or staying home. What's the right
move for your parents or for you? These are tough,
costly decisions will help you plan before the situation becomes urgent.
Coming up next, you're listening to Simply Money presented by
all Worth Financial on fifty five KR see the talk station.
(20:06):
You're listening to Simply Money presented about all Worth Financial.
I'm Bob sponseller along with Brian James. It's one of
the hardest decisions a family has to make, and it
never feels like there's a perfect answer. Brian, I know
this is definitely more of an art than a science.
We're talking about senior living, whether to do assisted living,
nursing homes, in home care, or just trying to keep
(20:30):
mom and dad at home, and the truth is these
decisions are as emotional as they are financial. Let's start
by laying out what the options even are and what
the typical cost is for each of these options.
Speaker 2 (20:43):
Now, this can be a little bit of alphabet soup.
You're looking at a lot of different words that are
gonna sound familiar, but they're all gonna run together. So
we'll start with the different flavors of the types of
care you can have. So first off is independent living.
This is more like senior apartments. No real care is
provided there, but it's kind of ready at hand. Something
is needed and you're in a community of people kind
of your own age and.
Speaker 3 (21:05):
A lot of commonalities there.
Speaker 2 (21:06):
That runs about three thousand dollars a month for just
that kind of bare minimum, with help nearby but not
necessarily right up in your face every day. That next
step up, though, Bob, is assisted living. This is going
to include help with meals, medication, and just daily tasks
of keeping the household in shape and taking care of
the things you need to that'll run anywhere from forty
five hundred to seven thousand dollars monthly.
Speaker 3 (21:28):
And again you're.
Speaker 2 (21:29):
Still kind of independent, but you've got somebody hanging around
that can help with those again, those daily routines. And
then where we get into the bigger ones is really
memory care. And a lot of people go through this.
It can be very challenging, of course, aside from the finances,
but so of course we're talking about Alzheimer's, dimension, dementia, Parkinson's,
those kinds of things. You're looking at six to ten
(21:50):
thousand dollars per month for that level of care. And
then one more step up from that when we've got
nursing home care. This is really really where we're getting to.
We've got a lot of medical issues and kind of
a really end of life type care. Full medical care
runs about nine to twelve thousand dollars a month.
Speaker 3 (22:06):
For a situation like that.
Speaker 2 (22:08):
But the thing I want to point out here, Bob,
is a lot of people will do a financial plan
for people who are young and healthy, maybe just retired sixties,
maybe early seventies, and they'll start to look at these
numbers and they'll say, Okay, I have got to be
able to take this plan that we just built and
layer on an extra ten thousand dollars a month for
one of these days.
Speaker 3 (22:23):
That is not the case.
Speaker 2 (22:24):
Remember when you're in one of these more elaborate, more
expensive type homes, You're not traveling anymore, you're not running
to the grocery store anymore. There's a lot of bills
that are being covered for you in that ten thousand
a month. So it might be more than you're actually
spending currently to run your lives, but it's not a
complete extra expense added on to the top. Be careful
not to go too far down that rabbit hole of
how scary it will be to go through this type
(22:45):
of thing. It's expensive, for sure, but it's not as
terrifying as it might seem.
Speaker 1 (22:50):
Yeah, the flip side of that, Brian, and I'm living
through this right now with an actual client. I mean,
it is a little bit terrifying. And here's what I mean.
This person is recently widowed. She wants to stay in
her home, and she has multiple in home caregivers coming
in for a variety of reasons. So when you layer
(23:13):
on some of these in home care folks, depending on
what they provide, I mean, in this one case, and
I'm talking about one, this particular lady is spending upwards
of twenty thousand dollars a month to stay in her
home and have all these people come in and provide
all these services. So thankfully, you know, she's in a
situation where she can at least now afford all that.
(23:36):
But boy, that's a lot of money. And I guess
that leads to the point that really makes this difficult
is emotionally, everybody, Brian, everybody wants to stay in their
home as long as they can. And you got two
things you got to look at here, and I've done.
I'm in the middle of dealing this all, dealing with
(23:56):
this also with multiple families, there's communication needs that need,
you know, need to go on between the siblings and
the kids. Who's going to provide this kind of care
to enable mom or dad or both to stay at home.
And then financially, what does this all mean, Because again,
the default is I want to stay in my home.
I want to stay in my home. I want to
(24:16):
you know, be where I am. But it costs money, time, effort,
angst on the part of the family that you're having
come in to help you. And these communications and discussions
need to take place sooner rather than later so that
you don't disrupt multiple families on top of all the
money decisions. To make all this work, it could get
(24:38):
very very difficult.
Speaker 2 (24:39):
So, yeah, we want to be paying attention to a
lot of these things, and it's it can be very
very stressful. So what should you be doing? Well, think
about your own future here, what do you want? And again,
this may help you think about what you're even if
you're doing this early and maybe you feel too early,
but you might be helping your parents and other relatives
simply by you thinking about it, you can have better
conversations with them. Is it important to you to age
(25:00):
at home? Could your house even handle that right?
Speaker 1 (25:03):
Is?
Speaker 3 (25:03):
Are there are a lot of steps?
Speaker 2 (25:04):
Are there are a lot of things that are going
to make it tough for somebody who's a little bit
limited with mobility. Do you have long term care insurance
or have you looked into asset based policies that might
give you some flexibility. One of my all time favorite
things to do for people is if we've got a
life insurance policy, for example, that was purchased when the
kids were new, or maybe even before the kids were around,
and now those kids have kids, then sometimes those policies
(25:25):
can have cash values built up in them and we
really no longer.
Speaker 3 (25:28):
Need the death benefits.
Speaker 2 (25:29):
Well, one of the things that can be done. You can,
of course cash it out and run away and pay
taxes and all that. That's always a choice, but a
lot of times what you can do is convert that
into something that, yes, has a minimal death benefit, which
is kind of necessary to make this work, but instead
of focusing on that, it also provides primarily a long
term care benefit. So all you're doing in that case
is read a bunch of paperwork and some testing and
(25:51):
redeploying a pile of money from a need you don't have,
which is death benefit, to a need that you do,
which is now long term care. That's called a ten
thirty five exchange, a tax free type of a thing.
If you have that situation and you don't need death benefit,
you might consider that.
Speaker 1 (26:05):
Brian. Another thing to consider, and I'd love to get
your perspective on this even if you don't disagree. If
you don't agree with me, a lot of times I've
had people that have had life insurance policies for years
with this built up cash value in it, and you know,
when you run the actual probability of dying, which is
last time I checked, was one hundred percent versus needing
(26:27):
long term care coverage, which is, you know, around fifty percent.
Sometimes you can afford, if you build your plan properly,
to just spend down some of your assets knowing that
the life insurance is going to come in and backfill
those assets that you spent down. That can end up
being a pretty good scenario because at least you know
you're going to get some bang for your buck out
(26:48):
of your insurance. What do you think about that idea?
Speaker 2 (26:51):
I think that's really something to look into and make
sure you've got all these moving parts covered.
Speaker 3 (26:55):
From a standpoint of it, it's.
Speaker 2 (26:56):
Complicated, but if we think ahead then we can kind
of get we can control the future a little bit
as long as we plan.
Speaker 1 (27:02):
Here's the all Worth advice. Planning for long term care
isn't just smart, It is a gift to your family.
You're saving them from crisis, conflict, and potentially years of stress.
Coming up next from Tangled iras to secure two point
zero confusion and even some hidden gems in your health
(27:22):
savings account. We'll tackle the questions you've been meaning to ask.
Coming up next. 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
on Bob Sponseller along with Brian James. Do you have
(27:43):
a financial question you'd like for us to answer? There
is a red button you can click if you're listening
to the show from the iHeart app. Simply record your
question and it will come straight to us. All right.
Karen in Hyde Park leads us off tonight Brian. She says,
we've heard about something called tax alpha, the idea that
(28:03):
good planning can add as much value as investment performance.
I don't know about that, but how do you measure
tax alpha? Talk about what that is and help Karen,
you know, understand the difference between that and just plane
on investment performance.
Speaker 2 (28:16):
I actually like the way she phrase that. That makes
a lot of sense, and I think there's a lot,
there's a lot of benefit to this.
Speaker 3 (28:21):
So what is tax alpha?
Speaker 2 (28:22):
Tax alpha is the extra value you can get by
focusing on the tax efficiency of your investments rather than
simply looking at a pile of different investment options and
watching how they go up and down over the years. So, really,
what this means is what is my portfolio done after taxes?
Speaker 3 (28:39):
So, for example, if.
Speaker 2 (28:40):
I'm doing something and I'm somehow I've got some kind
of heavy trading strategy that is generating a lot of
short term gains, well those gains are going to be
taxed me as income. If I'm in a thirty percent bracket,
well then I'm given away a third of my return
in my short term trading program. That's why a lot
of people don't do this kind of thing because, or
at least if they're doing it, they're doing it in
an IRA maybe, So how should you?
Speaker 3 (29:01):
How should you? How do you measure it?
Speaker 2 (29:03):
Because the only way you can really know you can't
open a brochure and see what some investment strategies after
tax performances have been. Because taxes are an individual thing.
Everybody's in a different bracket with a different situation. So
the after tax performance is going to be different for everybody.
Best thing you can do there is established some kind
of a benchmark that matches what it does, and then
figure out what your own pre tax returns have been.
(29:25):
What did that portfolio earn before taxes? This is usually
pretty easy to get to. What did the benchmark earn
that's pre tax alpha, and then figure out your after
tax returns. This is where you'll have to look at
your You know, often you're looking at your schedule B,
your ten ninety nine B and looking for the capital
gains and losses that were generated if you had a
This isn't a perfect comparison care but if you had
(29:46):
this money and some kind of a portfolio prior to
moving to the tax alpha strategy, then what you can
do is look for more and there should be more
activity generating more losses in those kinds of things, and
so see if you can find a way to compare
those older returns with the newer ones. With that strategy
in place, now, granted you'd be talking about two different
market periods. It is not perfect by any stretch, but
(30:06):
you should be seeing more activity trickling through your tax
return in this sense of realizing gains that are offset,
therefore not being taxed, or giving you up to three
thousand dollars in a straight up deduction if there's any
losses over and above the gains that are generated.
Speaker 3 (30:20):
So hope that helps. That's a slippery slope tax.
Speaker 2 (30:22):
I'm a big believer in tax alpha, but it does
take some understanding, all right. So we're gonna move on
to Aaron and Kenwood. Aaron says they've got they feel
good about their net worth. They look great on paper,
but they feel like lots of it is ill liquid.
They've got a bunch of stuff everywhere, real estate, retirement accounts,
some stakes and businesses.
Speaker 3 (30:37):
And he's wondering, how do you build up liquidity without
blowing up the plan?
Speaker 1 (30:40):
Bob, Well, the words that's out to me in this
question is blowing up the plan. And here's what I mean, Aaron.
The plan needs to include a gradual transition of some
of these ill liquid assets and accounts into something that
can create liquid income. So I think the plan needs
to be re ex zamin And the big thing that
(31:01):
I tell folks all the time is you don't have
to make wholesale decisions and movements in one fell swoop,
you know, in one year, because if you do that,
that will blow up your tax return in the way
of unnecessary taxation. So I think you got to sit down,
especially as it relates to illiquid assets such as real
(31:24):
estate or a business. You know, there's a process, there's
a timeline that you got to develop that matches your
desire for liquidity with your personal desires in retirement and
craft a gradual strategy to transition your net worth into
something that's going to meet your needs, you know, when
you no longer want to work. Hope that helps, all right?
(31:46):
Ron and Mason says, we've got multiple iras and four
to one k's spread across different institutions. What's the cleanest
way to consolidate them without losing cost basis, data or protection. Fortunately,
this is a relatively easy one. Brian Ye softball for me.
Speaker 2 (32:03):
So the way to handle the cost basis of an
IRA or a four oh one K is to it
ignore it entirely, because it doesn't mean anything at all,
you know. So, I mean, unless you're in a situation
where maybe you work for Procter and Gamble, if you're
looking at something called a net unrealized appreciation type of
a transaction. Yes, then then the cost basis will matter.
But most people simply have you know, mutual funds or
(32:24):
exchange traded funds in those types of retirement plans, and
so therefore the cost basis is irrelevant the tax treatment
of the account. If it's pre tax then that simply
means that are traditional IRA or four O one K.
That simply means that any nickel that comes out of
it is going to get taxed as income to you.
If it's WROTH, then it's not going to be taxed
at all, as long as you've met a couple simple
rules with regard to timing and some other things that
(32:45):
are relatively simple to get passed, so you can consolidate
all those into one account without really losing any information.
Not to mention, let's say you're not talking about an IRA.
Cost basis only is irrelevant in a taxable account. If
the custodian has that in it will transfer over from
one financial institution to another. Sometimes it takes a week
(33:05):
or two to get it all there, but they do
have to communicate that if they have it. If you
handed them a certificate thirty years ago that represented some stock,
then they don't know either what you paid for it.
Speaker 3 (33:15):
So hope that helps.
Speaker 2 (33:16):
One more question here, and we're going to move on
to Paul and Anderson. This is not a softball, Paul says.
His CPA mentioned the secure two point zero rules for
inherited iras, Bob, and he's asking, does the ten year
rule mean equal withdrawals or can you still manage the time?
I guess this one's not too bad, but could be
a bit of a rabbit hole, Bob.
Speaker 1 (33:35):
Yeah, there's a couple of different rules to consider here, Paul,
and I'm going to assume we're talking about a non
spouse beneficiary. So the first thing to know is when
does the proverbial clock start running. That ten year clock
starts running the year following the death of the original
IRA owner. That's the first thing to keep in mind.
After that, it comes down to was the person that
(33:59):
passed away already in there require minimum distribution stage where
they're already taking annual rmds. If so, then you are
required to stay on that same schedule based on the
decedents you know, age and that whole formula. And then
in addition to that, the whole thing needs to be
(34:19):
you know, paid out completely in ten years. So what
that situation can end up looking like is you got
to take a little bit out every year, and then
if you do not manage it, you know, in year
ten you might get a bigger you know, lump sum
coming out and a bigger tax bill than you might
want to see. The other option is if the person
that passed away had not started annual rmds, well, then
(34:42):
you got a ton of flexibility as long as you
meet that ten year rule. You don't have to take
anything out until year ten if you don't want to,
But then in year ten you got to pull the
whole thing out. It's all taxable income. You owe all
the taxes. So depending on what your situation is, you know,
that's where you want to sit down with your advice
in your CPA and map out an income strategy to
(35:03):
make this withdrawal uh situation as tax efficient as possible.
There are a lot of moving parts there, but if
you if you understand what you're dealing with, you know,
from the get go you can manage the situation, you know,
without a whole lot of complexity. Coming up next, I've
got my two cents and some additional thoughts on the
whole long term care planning discussion we had a little
(35:25):
bit earlier. 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 Spondseller along with Brian James. Brian, I want to
I want to talk a little bit more, you know,
just piggybacking on our prior discussion about this whole long
(35:48):
term care planning process. And what I want to talk
about here is, you know, assuming we get to the
point where it is time to start looking at a
long term care facility, you know, moving into a facility,
you know, there's some important considerations to factor in and
some important questions to ask. And a couple of those
(36:10):
questions I think these are good ones. What's the staffed
to resident ratio at night? Because look, when if you
just schedule a tour and go in there, it's like
any other tour you go on, they're gonna they're gonna
put their best face on the whole situation. The thing's
fully staffed, it's been cleaned. It's all that you want
to talk about. You know, what are things look like?
At night, when when a lot of this care is
(36:33):
really needed, so staffed a resident ratio at night. And
then also what's the staff turnover rate? They should be
willing to share that kind of information with you, because
if the staff is moving in and out and it's
a constant turnover, I don't think that's good. I think
our loved one wants to know who they're dealing with
develop a relationship. They need to get to know what
(36:55):
the ins and outs of what the needs really are
for our loved one, so that if the staff's turning
over at a breakneck pace, that's not a really good thing.
And then I would also say, are they doing background
checks on all of their caregivers at the facility? I
know you want to jump in here as well.
Speaker 2 (37:14):
Yeah, So I think that this is probably one of
the most important places where word of mouth feedback is
the most valuable. You know, the brochures are lovely, but
they're not gonna not be lovely, So look under every
stone for stories. I would be looking on social media
and just search for the you know, search for the
for the name of the facility, and bear in mind,
obviously you're gonna see stories. You know, people don't tend
People who are super happy don't tend to talk about
(37:36):
it very much versus people who are raging over something.
Speaker 3 (37:39):
Then it could come up there.
Speaker 2 (37:40):
But again, just look under every stone, find people who
live there. You might even you know, catch somebody who
perhaps looks younger walking out of the facility. Perhaps this
is the adult child of someone who lives there. Stop
them in the parking lot and just ask how it's gone.
You know, this is an extremely important one. So I
think you look under every stone for every piece of
information you can possibly get, or just.
Speaker 1 (37:59):
Netl work around with your friends and folks. I mean,
everybody knows someone who has needed this kind of care.
Don't just rely on the internet and online reviews. Get
out there and talk to somebody, because the sad truth
is you can spend a fortune and still get poor
care if you have not vetted this situation carefully. Thanks
(38:20):
for listening tonight. You've been listening to Simply Money, presented
by all Worth Financial on fifty five KRC, the talk
station
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