Good morning everyone. My name is Martin Shields. I'm the chief well Advisor
at Bruchet Financial Group, and I'm gonna be your host today for Let's Talk
Money. It's great to be here with you. Do answer any questions you
may have regarding your financial planning or investment management concerns, and you could reach
me at one eight hundred Talk WGY. That's eight hundred eight two five five
nine four nine. Again, it's eight hundred eight two five five nine four
nine. I hope that you're doing well today. On this rather dark but
warm February morning, it feels more like spring when I do the radio at
a I'm up pretty early, and I was up even earlier. There was
birds chirping. I think at five o'clock. It felt like we were more
in May or late April than February. I think probably all the wildlife is
a little bit confused. Is it has been an interesting winner? Right?
We had some cold, then some warm. I tell you, as I've
said before, I'll take a cold snow a day over rainy and fog at
any point. It's good to hear. We may have some snow coming in
the next day or two. But you know this weekend. Yesterday was in
the fifties and the same with the Friday, felt like it could have been
March. But interesting times. I don't that you're doing well. It's Super
Bowl Sunday here, so it'll be interesting to see what happens. We got
the Chief and the forty nine Ers, and certainly, you know with it
being in Las Vegas and you get the star power of Taylor Swift and Mahomes
and Kelsey Travers, Travis you know, BBC what happens. I'm a forty
nine Ers fan on this game at least, you know, I might like
to see Brock Purdy win it. I think it's interesting to see that he
was was called mister irrelevant, meaning that he was the last person in the
draft two years ago, and now he's the starting quarterback on the team in
the Super Bowl. So it'd be curious to see what happens. But I
hope that you're doing well. And again, any questions you may have regarding
your financial planning or investment manager concerns, I encourage you to call. With
those questions. You can reach me at eight hundred Talk of AGI. That's
eight hundred eight two five, five, nine four nine, So a lot
to talk about today. A couple different topics. I want to talk about
regarding ross and how you can actually be able to contribute to a roth even
if you think you may not be able to because of your income. There
are different ways to make that happen. And then certainly be talking about the
markets. The s P five hundred goes on to hit all time highs up
above five thousand this week, So great news in that regard. But you
may be looking at your portfolio and say, well, wait a second,
I don't see my portfolio up, and that is because it depends on how
you're invested. We are continuing this trend where it's the Magnificent seven, the
big seven companies that includes Tesla and Navidia, includes Amazon and Apple, it
includes Meta which is old, Facebook and Google. Those big tech companies continue
to power this market. Hire. So if you have international stocks, let's
say international developed, you're down for the year. If you have emerging market
stocks, you're down for the year. If you have only small cap stocks,
you're down for the year. The only inecs right now that are up,
the NAZAK one hundred is up six point eight percent. And as you
if you listen to the show. You know, we have a large allocation
to the Nasdaq. We're big believers in technology, both in our business and
also from an investment perspective. We obviously you have exposure to the S and
P five hundred and the sp is up five point five percent year to date,
and the Dow Jones, uh Induicy is up two point seven percent,
but all those other indices that I mentioned to you are down. So again
you may be looking at your portfolio saying, hey, why am I down
when the market's up? And again it makes it's just important to you know,
make sure you have exposure. As we've talked about, we only have
exposure to the US markets. We just feel that in the last number of
years it's the best place to be and we haven't had any exposure to international
and coming on will be more than three years now, and we've been underweight
in the international for probably the three or four years before that, so that's
been beneficial to our clients. But this is where it's important to you know,
know what you're doing from an investment perspective and be able to stick to
that strategy. Now we get a lot of questions about folks to say,
well, I just want to have exposure to those seven names, and I
would caution you from just piling in only on those seven names. Right,
they have powered the market higher year to date, they part powered the market
hire last year. But you still have to approach this at from a discipline
perspective, and if you don't have any exposure to those companies, certainly getting
exposures fine, but appreciate that. You know, you don't always want to
chase the hot asset class and only have exposure to that. You know,
we could be in a situation where small mid caps start doing well and you
want to make sure you have something in that. So this is where it's
important to, you know, be balanced in how you're allocated. We're going
to go the phone lines we have carry from this unit. Carry you there,
Hi, Ryan, how are you? I'm so happy to talk to
you. Listen to your father for years back when he was on a Sunday
six o'clock in wd g Y. Right in the beginning. Oh that's great
to hear. Let's say he's been doing it for twenty nine years. But
just so you know, this is Marty. This is Marty, not Ryan.
Sorry, Okay, that's Okay, I know your name too, so
yeah, that's that's okay. No, absolutely, I always joked when I
first joined it was Ryan Steve, and I always said I was one of
the Bouchet brothers. So yes, yes, yeah, so that's all right,
you were there forever. Yes, I know that. Yees, yeah,
that's right. So forgive me. But so this is my question.
And I've asked Steve, but and he said I can come, We can
come and almost friends and family. Because I've talked to him so many times
as well, when exactly is the best time for us to come to see
you guys and talk and plan. And here's the deal. I'm going to
be sixty two soon. My husband's going to be sixty three. I really
am. He's chomping at the bit to retire. I really don't don't want
him to go at this time yet. I think it's a little too soon,
but we want to get on the right track to head towards that way.
Also, the other part of that question is we have a TSP.
I put it massively in the C fund, which is the S and P
relative. I'm going to say for years. He took it out and put
it more in the G Fund, which is all that slow drip one,
because he got a little nervous because we were so close to retirement, and
I'm telling him we should start putting it back in in the C fund because
we're not there, you know, not at the retirement yet. And I
feel comfortable with that, and I know Steve usually does. But I know
he's listening in another room somewhere, so he's got to hear somebody then,
you know, me tell him this, What would be a good ratio?
Yes, I know right, I'm only the wife. What would be a
good ratio for us so he could be comfortable with thirty percent? Would forty
percent be a good one? To go back into the C fund, which
is like the S and P at this time? So how far unto you
retire? How long? I would love to go tomorrow? But I would
really like to You're always afraid that it's too soon. I think that we,
you know, can be there. But that's probably another reason why we
should come in and start talking to people, to say this is where you
are, this is you're there now, or it would be better if you're
here, do you know what I mean? Oh? Yeah, absolutely absolutely.
Well, So a couple of things. I would highly encourage you,
you know, to come in and talk to our firm and get some guidance,
right because you are there, you need to get guidances to what this
roadmap looks like as you approach retirement and during retirement. So I would really
encourage you to do that. What I would tell you is this is,
and we always say this, even though you're going to retire, you're not
planned on dying, right, so you know, you could have another thirty
years of living and needing growth. So I think what's reasonable. Many of
our retirees have sixty percent inequities and forty percent in more consertive allocation. Now,
if you if you have that felt a little bit too aggressive, you
could do the other way around. You can do forty percent in equities sixty
percent in a more conserve allocation. But I do think having something inequities as
you approach retirement is fine. You know, I think going all in the
conservative fund is probably you're giving up some growth that you would really going to
need over time. So this is a more of a personal discussion and it's
not you know, I always say your risk tolerance, there's no right or
wrong answer is what fits best for you. But I would say at least
having forty percent and as much as sixty. I mean, we have many
retirees that have eighty percent in stocks because as we've talked about before in the
radio, we put away two years with the distributions in a more conservative fund.
So again, there's so many nuances to this, but I would absolutely
encourage you to call into our office and set up a time to talk about
your own personal situation and make sure that we had that plan in place for
you. It's going to give you a level of comfort when you make that
decision to retire. Thank you, Thank you so much, and I'm glad.
I'm sure he's listening. And I'm glad you said forty because I said,
if he wanted to be conservative, twenty five. But I'm telling you
there were years ago when he didn't know the passwords, and only I did.
I put us one hundred percent. So he was very happy about that.
And right before all the rises, right after COVID, we took it
out and we're ultra conservative. And I'm crying every day I think of that.
But you know what, you can't cry over spilled milk. So yeah,
that's why. I'm glad you said the forty Yeah, thank you so
very much. And yes, yes, now I'm sure he'll be more motivated
to get in there and make the call and come see you guys. Sounds
great, Carrie, You take care now, thanks you too, bybye,
okay bye. So that's a great you know question that carry asks. You
know, it's a question that we hear quite often with our clients and prospective
clients. And you know, I'll tell you you have to I would,
well, this is what I would say. If you are in your fifties
or you have any big changes in your life, you're you know, many
times our clients are executives. They got a lot of stock conversation, they
got to make decisions with they're switching jobs, you're getting married, you're getting
divorced, you loss a spouse. You know, you're within ten fifteen years
of retirement. In these circumstances, you need to get some guidance. And
you know, the only any way always say we'd love to come and talk
to you. We do have a half million dollar minimum with our clients to
come work with us, but we will always point you in the right direction,
whether it's working with a firm or working with another fiduciary. That's the
big thing is make sure that you're working with that fiduciary to get your guidance.
They're going to make sure that you have the right investment allocation. They're
going to make sure that your plan is in place, looking at state planning,
looking at insurance reviews, anything that you need to have. As we've
said before, we're our client's personal CFO and anything it's finance related we're going
to give them guidance on. But it becomes so important that you get that
in place, and it's going to make that decision to retire that much easier.
I see it all the time with perspective, clients coming in this level
of uncertainty, this level of stress or anxiety because they're trying to make these
decisions on their own. And I think about this, even though I was
always in an economics and finance person, I was in corporate finance for twelve
years. I didn't know personal financial planning, I didn't know portfolio management,
And now that I have twenty plus years in this, all this training,
I think it'd be very daunting and I could very well make mistakes. I
would try to do it on my own and planning like this. Uh So
I would encourage any listeners that, if you're in a situation like carry is,
to have that conversation with a fiduciary investment advisor. You know, we
always we'd be loved, love to have a conversation with you. And as
we said before, even if we can't help you, we'll point you in
the right direction. We'll make sure you get the right person to talk with.
We're gonna go back to the phone lines we have, Rick from half
Moon. Ricky there, Yes, I am. How are you doing this
morning? Good morning, good morning, good good getting ready for the big
game. Yeah, it's right, everybody is right. It's gonna be exciting.
Ye should be, Yeah, it should be. What can I help
you with? So it's can continue in the conversation about asset distribution diversification.
So I'm seventy and so I'm retired, and when he's retired, I have
I am not I have around sixty percent of my portfolio inequity, thirty percent
in bonds and then and then ten percent and cass. Okay, So I
think it's I think it's still important to be diversified versus I know, going
one hundred percent in equity, and also how many I've always thought I should
have at least a couple of years of cash on hand in case something drastic
happens with the market. What would you what's your thoughts and all of that.
Okay, great, Well, initially I think that allocation seems very reasonable.
As I mentioned, many of our retirees are in our with our growth
and income which is sixty forty, so that would really reflect what you have.
And then what we do as well is we put any distributions that our
clients are taken on a monthly basis and we put it into more concervative allocation.
So it's kind of like your two years worth of cash now now right
now, you can get five and a half percent on a money market in
cash, but for the years prior to this, it we get very little.
So we didn't want to keep it in cash cash, but you know,
keeping it more conservative fun. So I think you're very well allocated.
Are you taking distributions from your portfolio? No, I haven't, and I'm
not. I don't have to make any required ones yet. But I think
they pushed that, they pushed the age out on that. I mean,
you have to make the r m D they call that's right at age seventy
three now, and it was seven and a half a few years ago,
so yep, they did push it out. So do you have a pension?
I do, okay, So yeah. The only thing I would say
is, you know, because you have a pension private so security. It
sounds like you're in a good financial spot. You could be more aggressive,
right, I mean if you want it to be. You don't have to
be, but you could because you don't have to be too concerned about market
volatility. I still think being like eighty twenty so eighty percent inequity and twenty
percent in bonds, cash and alternatives is okay. But you could be more
aggressive because you don't need to worry about distribution. So that again, this
is where it's a personal decision. You may say to me, Marty,
I sleep better at night at a sixty forty portfolio and I'm good with the
growth I get in a year like twenty twenty three. So that's the question
you have to ask yourself. I mean, we actually the last two years
are actually let's say three years between twenty one, twenty two and twenty three.
You had opportunities to see how your portfolio performed both in a bear market
where the market is down by twenty percent and in a big bull market.
And if you're happy with it, then you're good. But if you either
you know, were frustrated because you didn't have the growth or you were really
nervous because you were down so much, now it's a good time to assess
your allocation and make changes where appropriate as good. Thanks for that advice,
you got it. Enjoy your Sunday and enjoy your Super Bowl. Same to
you. Okay, thanks, Yes, folks, this is a I'm telling
you, this is a good time right now to assess your allocation, in
particular if you think that you were too aggressive before, meaning that in twenty
twenty two you were very nervous with the market being in a bear market territory
or as in Carry's situation, now she already is too conservative. But if
you were approaching retirement and you've been you know, in a let's say,
in eighty twenty allocation or all equity portfolio, then this is a good time
to take that step back and become a more little more conservative, because not
only are would you be selling equities while they're at all time highs, but
you would be rebalancing into bonds while they currently have a good yield. So
certainly not a bad time to make that change. But even let's say it's
the other way around, like Lacarrys, let's say you were too conservative,
it's still a good time to reallocate and to increase your allocation to stocks.
As I was getting ready for the show today, I was I always kind
of looked through and think about some of the meetings and conversations I've had with
clients and the topics that came up, and two clients that stood out.
They're just great folks. We've been working with them for more than ten years,
and I will tell you to a t what these two clients did is
they were just very good from a financial perspective. They did not overspend,
they have good incomes, but they were always aware of what they were spending.
And so with that, you know, I always stress the importance of
budgeting, and you know, I always say it doesn't have to be a
you know, a budget that figures out every detail and line on them,
but just big picture, where are you spending your money, what categories,
and it just allows you to track. From a monthly perspective, are you
within the range that is acceptable that you had talked about in your budget.
So that is just so important. If you're not budgeting and you're struggling right
now from a cashblo perspective, you have to put in a broad based budget
that allows you to understand where is your cash going. And in that budget,
I always say, the first thing you need to be doing, either
right before or right after you're paying your taxes is saving. Right it could
be saving in your emergency emergency reserve fund, which is the cash that you
need to cover unknown expenses. It could be saving for retirement, It could
be saving for your kid's education, or it could be saving for a house.
Whatever you're saving for. Those dollars are the first dollars you go in.
It's in the same category as paying tax. You just go ahead and
you do it. And then everything else after that is a variable cash flow
that you can spend how you want, right and someone's going to be fixed
if you have a mortgage, whatever. But again that is after that savings
element, and if you have a budgeting piece, you're going to be successful.
And then the other thing that these clients did. They were okay with
being invested either at eighty percent in equity or up to one hundred percent in
equity in a number of their accounts. And you know, we've been able
to manage these accounts for them. We've done a very good job over the
decade plus that they've been with us, and they've let us do our job,
right, they have not interfered with us. They've they've let us do
our job. And you know, we have a reporting software that clients can
go on and look at everything from their portfolio and it looks at it by
either account or an aggregate, and it looks at it. You can look
at performance by position, so a lot of information. And there's one pays
called the capital Flows page, and it shows the portfolio of value over time
along with the principal mount that you either put in or took out of the
portfolio. And I always love to, you know, work with clients where
they've been with us for a long time and we see this mountain of blue,
and that blue is the value of the portfolio. So the principal mount
in these cases pretty much has started to take some distributions. They're moving into
retirement. But the principal mount is this big, huge mountain of blue and
that's the value of the portfolio that has grown over time because they're smart,
educated investors that in this case they allowed us to do our job and be
successful and they were not concerned with having allocation to stocks. Right. It
cannot stress that enough to you that you've got to feel comfortable that over time
stocks will recover from volatility like we saw in twenty twenty two. And you
know, the big element is you have if you're a stock investor, just
ask yourself this question. Do you think that over time that the US economy
will grow and you think that over time the companies in the US economy will
be able to find ways to increase profitability, whether it's through increased sales,
lower cost increase profitability, maybe selling overseas, whatever the case may be.
If you can answer that question yes, then you should, you know,
feel comfortable investing in stocks. There was just a I've talked about this before,
and in particular we'll bring it up because of the Super Bowl being in
the Las Vegas. But when you look at the odds of casinos winning,
right, so you know, if you go to Vegas or go to any
casinos. What are the odds of the house winning? And the odds are
around fifty percent, right, a little over fifty percent. If you are
investing in the market, the odds over different time periods, let's say ten
years, it's like ninety nine percent that you're going to be positive. Ninety
nine percent chance that you're going to be positive with the stock market. So
again you think about just having that long term perspective and how important it is.
I can't stress it enough. And again that's where our firm comes in
and gives good guidance to our clients to make sure they're doing the right things.
Well, folks, we'll go to commercial break, but come back and
join us as we continue to take your questions. You're listening to Let's Talk
Money, brought to you by Bouchet Financial Group, where we help our clients
prioritize their health while we manage their wealth for life. Come back and join
us, folks. Welcome back, folks. For those of you just joining
us, my name is Martin Shields and I'm your host today for Let's Talk
Money. I give you my colleague Steven Bouchet. I well deserved break and
it's great to be here with you as always to answer any questions you may
have regarding your investment management or financial planning situation. And you can give me
a call. You can reach me at eight hundred talk WI. That's eight
hundred eight two five five nine four nine. Again it's eight hundred eight two
five five nine four nine. So I was talking about the weather and the
fact that we're boy, we've had a lot of very mild days this year,
and as you know, if you're a listener, I have it ice
rink in my front yard. This is our fifth year of doing it,
and my son, who's a senior at Saratoga is as a hockey player and
he has his buddies that come over and skate and we we called the rink
our science project because it's any given day, depending on the weather and whatever's
going on, we're detributing what to do with it. And we had we
had some great days skating this week. You just got to have the weather
that the temperature down in the low twenties or the teens at night, and
it's fantastic even if it gets into the mid thirties during the day. But
obviously with the being so warm in the rain now we have kind of a
QUASEI pool slash a large block of ice in the front yard, and so
hopefully this week, I think it's going to get colder again so we can
get back skating. And I was supposed to be doing a hike at the
high Peaks. I'm doing the forty six ers and I was going to be
doing it this past Saturday yesterday, and they had to cancel it. I
was doing it with a group because of the warm temperatures and the rain,
because you go over a couple of creeks that could be running very high with
that, so it was unfortunate. But I decided to go skiing instead with
my son, and conditions were great at the gore. The other thing is
we did have some rain, so you know, as I always say,
it's all about the right gear, so you have the right gear to stay
warm. But you had to be okay with a little rain which came down
and we basically spring skiing beyond that. But I hope that you're able to
still get out today and enjoy this warm weather. It's great to be able
to get up for a walk or even a bike ride or whatever the case
may be, and then get ready for the Super Bowl. There, we're
going to go the phone lines. We have George from I don't need Georgie
there. Good morning. How are you doing today? I'm doing well.
How are you? I'm fine? Thanks. I have a sort of a
quick question. It's actually not for me for a family members of an annuity
which I which I know you're which your boss doesn't like too much. Yeah,
yeah, yeah, What can I help you with? Well, the
person's retiring, uh, and they have a lot of pretty large amount in
an annuity. I guess it was part of the retirement package or whatever when
years ago when they got into it. But anyway, what we wanted to
find out is is there a fear anything to close that out and roll it
into an eye a regular eye r A with like t Rode Price or Vanguard
or something. I mean, to close out an annuity. What's involved in
that? Yes, So that's one of the reasons that you know, Steven
and our firm, we're not huge fans of annuities because depending on the annuity,
there can be fees. So usually annuities have surrender penalties for the first
eight, ten or even twelve years. So the way they set up is
if you're just bought the annuity, you want to cancel it within the first
year. It's usually it could be as much as eight or ten percent penalty
to get out. Now, every year that goes on, that penalty gets
reduced. So if they've had it for ten fifteen years, there's a good
chance at least yeap, so there's a good chance they can cancel that annuity.
And is it in an IRA? I don't know that. I don't
know if it's titled that, but it's a retirement fund. Yes, okay,
So if it's in an IRA, then you can cancel that and then
just put it into cash and get it invested. If we're not in an
IRA, you have to be aware that if you cancel that annuity, you
could have a taxable event where any gain in that annuity is considered ordinary income,
not long term capital gains, but ordinary income, and when you cancel
it, the whole any of the gain comes out as ordinary income at that
time period. So that's it. Yeah, So that's a big you know,
is it? If the big question is if it's in an IRA or
not? Makes that determination as to how you want to handle that. Oh
okay, okay, okay. That's sort of answers this, thank you very
much. You gotta George take care now. Yep. But so you know,
let me just go on that for a little bit, because I think
it's important to communicate that as just annuities on themselves. There's nothing wrong with
an annuity, right, and there could be situations. We do have a
couple of situations where clients who have no kids are not worrying about transferring money
to the airs. They were concerned about longevity where we got them into an
annuity kind of protects on the backside that they're not even going to take the
annuity until they're seventy five years old, and they just wanted it for peace
of mind, for cash flow if they were to live for a long time,
and it's just protecting themselves in that regard. So there can't be situations
where, depending on the person and their situation, an annuity can work.
But it works best when you take money that is not in an IRA that
would be taxed as it grows, and then you put it in the annuity
and then you annuitize it, right, And when you innuitize an annuity,
really what you're doing is you're taking that lump some amount and you really turn
it into a pension that's going to be guaranteed for that the rest of that
person's life, right. And but the problem with annuities is they're sold to
people and they're and they're sold with this concept of guaranteed without people understanding what
they're going to use them for. And so you know, and with that,
there's a high commission charge that people don't usually know they're paying that can
be five, six, seven, eight, nine, ten percent that that
selling the annuities at getting there's high annual expense ratios with annuity that can vary
anywhere from one percent up to two percent or greater. And there are penalty
fees to try to get out of that annuity within the first eight, ten
or twelve years, like we talked about with George. So that's the problem
with annuities is that they're sold in a way that most people don't understand what
they're buying and they don't really understand even how to use it. Because here's
the thing is, if you're not going to annuitize an annuity, if you're
not going to put it into a stream of payment payments, you really in
most cases don't want an annuity. There are much better ways to get money
invested that are more tax efficient, that are more flexible, more liquid than
an annuity. And I always say, before you buy an annuity, you
should absolutely be talking to a fiduciary to get guidance on somebody who's not selling
that annuity. Right, it's very difficult to assess if it's the right thing
for you when you're getting only guidance from the person who's selling that adity to
you. And you know, here's the other thing that's important. Remember with
our clients right now, we manage over a billion dollars close to one point
two billion dollars for our clients. With any of them, if they decide
to go a different direction, they just let us know and we can just
delink them from the institutional side of Charles Schwab their account's move to the retail
side and nothing changes. We could do that within twenty four hours or less.
And you know, all we always ask from our clients is just to
communicate with us in case we're going down one direction and they think we should
be going to another. But you know, we lose very very very few
clients in any given year but they could they can. There's nothing that's committing
them to working with us beyond just the service we provide and the value we
give them. Whereas with any investment, this is so important. With any
investment, if you're giving up liquidity, which is what I've just describing their
ability to change course with your investment decision, if you're giving up liquidity,
if you're giving up transparency, that you should get paid an awful lot more
money for that investment. Right. So, with an annuity, you're giving
up liquidity, you really you know, you're committing for ten to twelve years.
You're also paying higher fees, and in many cases you don't have the
same visibility into your investment that you might otherwise have. So in that regard,
you should be getting compensated a great deal more. And I just really
would stress you know, whether it's you or you know, a parent,
or a sibling or a colleague, whoever it is, before you get into
an annuity, make sure you have a conversation with somebody who's an investment froduciary
that knows this space, that's not selling that annuity. You can't stress that
enough. That is one of the most important things that you could be doing,
and very important do you remember that we're going to move on and talk
about different raws. There's a number of different ways to invest than a wroth,
and there are a great investment and I always say, even if you're
putting money into a traditional foreill and K or pre tax IRA, which is
fantastic, especially if you're in a high tax bracket, trying to put money
into a wroth is the same concept is diversifying from a tax perspective, because
with a wroth, once you put that money in through the wroth, it's
post tax dollars. You've already paid taxes on it, but it grows tax
free. So what is ideal is if you're retiring and let's say you're fortunate
enough you've saved two million dollars, which you can do if you're smart with
your investing and you start early, and you have half in a wroth,
half in a pre tax Now any of those dollars you take out of that
wroth, you never pay taxes on it. So you can imagine from a
financial planning perspective, that can be very advantageous to have a large sum in
an account where you never pay taxes. When it comes out unlike the pre
tax dollars. All those dollars to come out, both the dollars went in
there and the growth you pay at ordinary income taxes, right, not even
long term capital gains which would have in a taxi account, but ordinary uh
income tax brackets. So it's still advantageous, but it can be kind of
expensive to get dollars out of there. And that million day and that pre
tax is not the same, it's not as good as the million dollars that
you got in the raw. Off Now you know again the advantages. You
didn't pay taxes to put it in there, which can be very advantageous when
you're a high income earner. But it's just again really important. So a
couple of things with the raw before I do just again reminder, if you
have any questions, you can give me a call. You can reach me
at eight hundred talk w guy. That's eight hundred eight two five nine four
nine again eight hundred eight two five five nine four nine. So one of
the things that we've been doing some of our clients is what's called an individual
four and K, and all that is is when you have a company where
you're the only employee of that company, which can be the case depending on
maybe your consultant or maybe you know you just have a business where it's it's
just yourself and if you do it very well with that, you can have
an individual fall and K where you set it up just for yourself. And
in twenty twenty four, between the employee amount and the fifty plus ketchup amount
and the employee er amount, you could put up to sixty nine thousand dollars
sixty nine thousand dollars either pre tax into that individual fall on K or now
they have a raw fall on K that's an individual fall and K. So
we have a number of clients that you know, the way that the small
business is structured, they're able to write off a lot of expenses with their
small business and then so their income is not too high relatively speaking from a
tax file perspective. But now we're able to set them up in the individual
wraw full and K. And this is new, the individual raw case that
haven't been around really, which rob they just started off from this year and
even with other custodians it would just the last couple of years. So you
think about that, if you could put away whether it's sixty nine thousand dollars
pre tax. If you have your sole business owner for yourself, that's fantastic,
or even up to close to sixty nine thousand dollars in a WROTH.
If you're a small business owner and you set up an individual WROTH phone K,
it's also fantastic. So just something to be aware of if you are
a business owner where you're the only employee, it's a great avenue. It's
really better than what's called a sep iray. It's better than a simple iray,
it's better than an individual account. It's just really one of the best
ways to put away a lot of dollars, either in the WROTH or pre
tax in the traditional individual fall and K. So something to be aware of.
The other thing is what's called a mega backdoor WROTH conversion, right,
mega backdoor Wroth conversion. And what this is is that you're let's say you're
in a fall and K plan and you max out your contribution, which for
twenty twenty four is twenty three thousand dollars for the employee, and let's say
you even get a match from your your employer, so there's maybe a profit
sharing match or what's called a safe harbor match on that. But again you
can put up to sixty nine thousand dollars in there. So let's say you're
fifty and older, so you're maxing out your total employee contribution at thirty thousand,
five hundred. Now you can put an additional thirty eight thousand, five
hundred in as post tax. It's not as a ROTH, it's a post
tax contribution, and then you can convert it into a ROTH in that plan.
So again, just go through this. You're maxing out on in your
dollars as an employee, and that's the Let's say you're fifty and older,
so that's the thirty thousand, five hundred. Now you're going to put in
additional dollars, not get any tax benefit, and you're putting it in just
to the normal side, the pre tax side. But it is a post
tax contribution. That's where it gets a little complicated. You're not getting a
tax deduction for that contribution. It's post tax, and then you do the
megabackdoor roth conversion is when you convert those dollars into a WROTH. So it
is a great way for individuals that are high incomers that can't contribute to a
wroth to be able to make those contributions, and you can. Obviously,
it's up to thirty thousand, five hundred thirty eight thousand, five hundred,
so it's a sizeable amount of dollars that you can put in post tax and
then convert it to a wroth. Now, the only caveat to this is
your plan has to allow you to do this, right, So some plans
don't allow you to make any additional contribution as an employee above the thirty thousand,
five hundred, even though a defined contribution plan, which is what a
foreign K plan is, allows the rules allow you to put up to sixty
nine thousand. Each plan has a planned document that really is the document that
governs the full one K plan, and so if your plan document does not
allow for it, you just can't do it. So you can check with
your HR manager to see if it's allowed. So what you really need to
check with them is if you can put in post tax contributions above that thirty
thousand, five hundred amount. And if you can, well, then you're
going to be able to and you have a wroth component. You have to
have a wroth component of your full one K plan. So if you have
those two criteria, then you can do a mega backdoor wroth. And you
know, you could do another as I mentioned thirty thirty eight thousand, five
hundred, but you don't have to. You can do it ten thousand,
you can do twenty thousand, whatever that number is. But it's a great
way to save more dollars, especially if you're if you're in the income phase
out level for a ROSS, which many high income earners are phased out from
being able to contribute. Now you can also do a backdoor wroth contribution.
So that's where you if you're phased out from contributing, either as an individual
or couple, you can put money into a traditional IRA and then turn around
and convert that into a WRATH. Now, the only requirement to be able
to do that, or reason that where it's going to work well is if
you don't have any outside pre tax iras. And the reason for that is
when you convert those dollars, you have to do a weighted average of any
of your outside iras. So for example, let's say you had an outside
IRA that was let's say it was one hundred thousand dollars and you did the
seven thousand dollars into a traditional IRA and then converted it, well you would
not be you would only be You have to kind of look at the total
value of your accounts, which is the one hundred thousand plus the seven thousand,
so it's one hundred and seven. So when you do the weighted average
of that conversion, most of those dollars that you'd be converting would be taxable.
It would not be your post tax contribution that you put into into the
traditional IRA. So that's why if you're going to do a backdoor WROTH contribution,
it's a great tool to be able to contribute to a WROTH if you're
above the income levels. But you really only want to be doing it is
if you don't have a pre tax IRA as well, and that could be
the case. You could have money in your full and K but not money
in a outside IRA. And then you know the final element I want to
bring up as far as a WROTH opportunity is with five twenty nine plans,
and really five twenty nine plans are a great tool for grandparents and parents to
be able to save for their college education for the kids or grandkids. You
can put there's really no limit out of how much you could put in there.
In New York State, each individual that contributes can get up to a
five thousand dollars deduction on the New York state taxes, So that would be
ten thousand dollars for a couple. Let's say your grandparents say you want to
contribute to your grandkids, So it's ten thousand dollars per individual that you're contributing,
So that would be you know, if you have five grandkids, that
would be five times that ten thousand, and you know with that the other
element, I'm sorry, it's just per person, so just be ten thousand
for the household. But with that, those dollars grow tax free. And
the other thing that's important is if it's a grandparent that's contributing, then that
individual that those dollars do not get considered for financial aid. If for a
grandkids, it's because it's considered those grandparents' dollars, So that's really valuable.
The other thing is those dollars can be used for room and board is as
well as the tuition cost, and they come out tax free. The big
thing with this too is now there's a rule that starts actually in twenty twenty
four that if the dollars have been in there for more than fifteen years,
you can go ahead and convert those dollars into a wroth iray up to thirty
five thousand dollars in total, and it would be at seven thousand dollars per
year. But you can convert that for your child or grandchild, so you
know, it kind of goes and alleviates the concern that some folks have,
which is if they set up a five twenty nine plan and their kids didn't
go to college, that those dollars could get stuck there. But now they
can convert those dollars into a wroth irray, which is a great advantage.
The other thing that it's very important too, is more and more five twenty
nine plans could be used from a state planning perspective because those dollars that are
in there, when the owner of those accounts passes away, then it is
not there's no requirement that you take those dollars out. So you think about
it. If you have dollars in a traditional iray and you pass away in
a goes to a non spouse, you have to take those dollars out within
ten years so it's a taxble event over ten years, whereas you can build
up that five to twenty nine plan into a sizable amount, and then when
the grandparents pass away, it goes on to the parents or kids. There's
no requirement to take those dollars out. They can stay in there and continue
to grow tax deferred. So really it's one of those things where you can
set this up as a grandparent or a parent. You can use it for
your kids or grandkids. If there's any dollars left over, they can convert
them to a roth, that's one thing they can do, and or you
know, they could potentially use them for their kids down the road, or
it can be moved over to you know, maybe one of your kids doesn't
have any children, but maybe another one does. It could be moved to
any of those kids. So there's a lot of flexibility. So I would
really encourage you when you're thinking about putting money to your grandkids, think about
the five twenty nine plans, because the other thing to remember is if you
open an account and what's called a UTMA account for your grandkids when in New
York State, when they turn eighteen, that is their account, right,
so you know you put ten thousand dollars in their twenty whatever that number is,
and you want to use them to use it for something, you have
to appreciate that when they turn eighteen, that's their dollars. They can take
those dollars and blow it however they want. And you know, many eighteen
year olds are not ready to receive a ten or twenty or more thousands of
dollars. So the other thing to appreciate is if you put those dollars into
a UTMA account that's in the child's or grandchild's name, that when they're they're
applying for financial aid, those dollars are going to be their dollars and it's
going to weigh very heavily against them. Whereas if you have a five to
twenty nine plan that's in the grandparents' name, it's not considered at all until
distributions are taken. So it is a very favorable account to use for contributions
for college and for financial aid. And so just something to consider. I
think it's very important that you do that. Well, folks, we're going
to be wrapping up here soon, but just want to remind you to go
into our website Bouchet dot com and we always have a lot of great blogs
out there. I think it to me, it's a testament to the real
talent we have in this firm that such smart folks writing on such interesting topics.
And also there's a video of our Stated the Economy presentation, which is
an event that we have every year and we've been doing this for about nine
years now, and we do it. We had one at the eighteen sixty
three Club in Saratoga at the Track and then one at Franklin Plaza and we
outline our thoughts on the markets and the economy. We go through some elements
that were new kind of investment ideas we're working with our clients on and it
really gives you a good flavor of what our thoughts are from an investment perspective,
portfolio perspective with the marketing and economy. And if you want to know
what was it looked like to be a client of ours, would highly recommend
it. And again you get to see the talent of our organization because boy,
there's just really great presenters with that, and I would highly recommend that
you go on the website, look at the blogs, and look at that
video. Well, folks, we spend an hour together. It's been great
to be here with you as always and look forward to coming back in the
week's coming up. You're listening to Let's Talk Money, brought to you by
Bouchet Finance Group, where we help our clients prioritize their health while we manage
their wealth for life. Folks, take care of yourself, take care of
each other, and enjoy watching the Super Bowl.