Speaker 1: We're joined this morning by our retirement planning professionals from
Speaker 1: Class Financial, CJ. Closs and Nate Briby. Don't free. You
Speaker 1: can learn more about Class Financial on their website coss
Speaker 1: financial dot com. That's coss k l aa S Financial
Speaker 1: dot com. Great website and resource there. Of course, not
Speaker 1: only can you get to know Coss Financial their separate divisions,
Speaker 1: how they can help you or if you're an employer,
Speaker 1: some great options there for you. You can also learn about
Speaker 1: the team and oh there's more. You can sign up
Speaker 1: for the weekly market Pulse newsletter that available to you
Speaker 1: at Cossfinancial dot com. Tell phone up for the office
Speaker 1: right here in Madison six oh eight four four two
Speaker 1: five six three seven. No charge for that initial gets
Speaker 1: to know the appointment tech Loss Financial. It will be
Speaker 1: complimentary to you again their number six oh eight four
Speaker 1: four two five six three seven. If you've got a question,
Speaker 1: get you on the air this morning at six oh
Speaker 1: eight three two one thirteen ten at six oh eight
Speaker 1: three two one thirteen ten. As mentioned joining us this
Speaker 1: morning is CJ. Closs and Nate Briby. CJ.
Speaker 2: How you been I'm doing great, Happy snowy day, Sean.
Speaker 1: It is is a very happy snowy day. And did
Speaker 1: you beat it? By the way, I gotta ask a CJ.
Speaker 1: Did you beat the snowfall on your way in this morning?
Speaker 1: Or did you catch you?
Speaker 2: It caught me. It took me a little bit longer
Speaker 2: to get in here. I was rushing indventure, I was
Speaker 2: ready for the show.
Speaker 1: Well, it's great to have you this morning, Nate. How
Speaker 1: have you been.
Speaker 3: I've been doing good. Happy holidays and Merry Christmas to
Speaker 3: everyone out there.
Speaker 1: Merry Christmas to you as well, and it's great to
Speaker 1: have you along. How was your driving? Not too bad?
Speaker 3: Not too bad. We didn't get any snow down here.
Speaker 3: That was yesterday.
Speaker 1: Oh yeah, yeah, you're lucky you're down. You're down in
Speaker 1: the Rockford location this morning, so you get to uh,
Speaker 1: you get to work out of that office. So yes,
Speaker 1: we've got a great a great conversation head involving Roth.
Speaker 1: IRA's four Roth four oh one K. It's also conversions,
Speaker 1: really important stuff to know, and we're gonna get a
Speaker 1: lot of great information from CJ and Nick. Nate as
Speaker 1: the program rolls on. This morning mentioned the website class
Speaker 1: financial dot com. Also they're telling phone number six so
Speaker 1: eight four four to two, five, six, three seven one
Speaker 1: of the things I haven't mentioned yet, and it's a
Speaker 1: biggie Class Quiz question a week we'll be doing one.
Speaker 1: Maybe a chance for you to win yourself a nice
Speaker 1: little holiday gift. This week a chance to win a
Speaker 1: twenty five dollars gift card to Texas Roadhouse from our
Speaker 1: friends at Class Financial. Tell you a little bit more
Speaker 1: in detail how you can win the Class Quiz Question
Speaker 1: Week prize a little bit later on the program, but
Speaker 1: just a little tip. It pays a number of ways
Speaker 1: get some great information. Also chance to win if you
Speaker 1: pay close attention to the program. And before we start
Speaker 1: on this week's topic, as a matter of fact, let's
Speaker 1: take a look back at last week's Class Quiz Question Week.
Speaker 1: Get the question and the answer there as well.
Speaker 4: Yep, and as always, thanks everyone for continuing to listen.
Speaker 4: We really enjoy the show and hope you get a
Speaker 4: lot out of the information as well. So congratulations Tory
Speaker 4: won it from last week. Jeremy of Madison, who correctly
Speaker 4: answered the true or false question of IRA contribution levels
Speaker 4: in twenty twenty five, will remain the same at seven
Speaker 4: thousand dollars. If you're under the age of fifty and
Speaker 4: the correct answer was true. Fun fact with those those
Speaker 4: do get adjusted each year for inflation.
Speaker 3: I believe in like one hundred dollars increment.
Speaker 4: So the government says inflation last year was mild, so
Speaker 4: there was no adjustment there. But those do tend to
Speaker 4: adjust one hundred dollars increments throughout the years.
Speaker 1: Nice work, Jeremy, and you could be like Jeremy as well.
Speaker 1: This week's chance to win again a twenty five dollars
Speaker 1: gift guard at Texas Roadhouse. By the way, if you
Speaker 1: missed last week's program or any of the shows even today,
Speaker 1: I know for a lot of folks, maybe I you're
Speaker 1: stopping in stepping into the coffee shop to pick up
Speaker 1: some mott Coco or a mocha, you missed part of
Speaker 1: the program. You can always listen back at class Financial
Speaker 1: dot com. That's Claus k l aa s Financial dot
Speaker 1: com so CJ. Today, our overall retirement planning topics going
Speaker 1: to revolve around Roth iras, Wroth four O one k's
Speaker 1: and Roth conversions. What should we know there?
Speaker 2: Yeah, I'm excited for the topic today to have Nate
Speaker 2: Briby on. He's one of our super smart kind of
Speaker 2: math nerds and really truth be Told has helped our
Speaker 2: organization get sharper around things like roth contributions, pre tax contributions,
Speaker 2: conversions and exactly when they make sense. So excited to
Speaker 2: have him on and kind of talk about this. But
Speaker 2: as many people know, you may have several options when
Speaker 2: it comes to storing away money in your retirement accounts,
Speaker 2: things like four to one k's, four h three b's Iras.
Speaker 2: Of course, it depends on where you work and what
Speaker 2: options are offered to you, but there can be multiple
Speaker 2: savings options. Now most people know traditionally these plans have
Speaker 2: or people have added money to these plans from their
Speaker 2: paychecks to to traditional aka pre tax contributions, whether it
Speaker 2: be to their four to oh one K or IRA.
Speaker 2: In the industry, we call these traditional contributions because they
Speaker 2: have been around the longest. And the idea of this
Speaker 2: is that, hey, when I put money into these plans,
Speaker 2: I get a deduction. So if I make one hundred
Speaker 2: thousand dollars a year and I put ten thousand dollars
Speaker 2: into the traditional aka pre tax portion of my four
Speaker 2: to one K plan, I only pay tax on ninety
Speaker 2: thousand dollars because that ten thousand dollars was put in
Speaker 2: pre tax to my retirement plan. Now, when you do
Speaker 2: that hypothetically, that ten dollars then grows what's called tax
Speaker 2: deferred all the way out until you get to retirement.
Speaker 2: So if you think about it, my original ten thousand,
Speaker 2: I never pay tax on the growth I have not
Speaker 2: paid tax on it's been compounding over all of those years,
Speaker 2: so that when I get into retirement and I'm say
Speaker 2: sixty five years old, and I go to pull money
Speaker 2: out to live off, of of course I pay income
Speaker 2: taxes at that time. Now here's where it changes. Back
Speaker 2: in nineteen ninety seven, wroth irays were introduced and became
Speaker 2: a way for people to begin saving retirement dollars with
Speaker 2: after tax money. Since the contributions to roth irays are
Speaker 2: non taxable or are not tax deductible on the front end,
Speaker 2: that means that when you put in again, in my example,
Speaker 2: if I make one hundred thousand, and I put ten
Speaker 2: thousand dollars into a wroth four oh one K or
Speaker 2: wroth ira and actually, let me take a step back.
Speaker 2: I make ten thousand dollars and I put seven grand
Speaker 2: into a roth iray, I'm going to stick with real
Speaker 2: numbers here. If I did that, I still pay tax
Speaker 2: on the full one hundred thousand dollars because WROTH contributions
Speaker 2: are done with post tax dollars. Therefore, in that example,
Speaker 2: when I put that seven thousand dollars in, I've already
Speaker 2: paid tax on the seven thousand. The growth is then
Speaker 2: still considered tax deferred or tax free if you leave
Speaker 2: it in there until retirement, so or until age fifty
Speaker 2: nine and a half under most circumstances. So the idea
Speaker 2: of this being simple. Hey, the most long standing rules
Speaker 2: around retirement savings were the traditional pre tax contributions. In
Speaker 2: nineteen ninety seven, Roth iras were introduced, whereby we could
Speaker 2: put money into post tax with tax free growth. And so,
Speaker 2: of course a lot of people just want to know, like, well,
Speaker 2: Nate CJ, which one is better?
Speaker 1: And truth be told, there is a lot.
Speaker 2: And I mean a lot of misinformation when it comes
Speaker 2: to which one of these is better. You'll have people
Speaker 2: say things like, well, everybody knows taxes are going to
Speaker 2: go up, so you should do all WROTH pay the
Speaker 2: taxes today so that you don't have to pay them
Speaker 2: in the future. Man, oh man, you all We've done
Speaker 2: this for a long time, and I can say that
Speaker 2: is really bad guidance. I just would not suggest you
Speaker 2: take that guidance. And that's not me disagreeing that taxes
Speaker 2: may not go up. That's that's a separate issue. But
Speaker 2: the notion that you should do all wroth just because
Speaker 2: it grows tax free and everybody knows taxes are going
Speaker 2: to go up, you are missing a ton of nuance
Speaker 2: in that statement. So what we're trying to do today
Speaker 2: is to say, hey, pre tax has been around for
Speaker 2: a while, we've got wroth, Which one should you be doing?
Speaker 2: And what are the factors that you should be considering?
Speaker 1: Talking this morning with CJ Closs and Nate Briby. They
Speaker 1: are our retirement planning professionals from Class Financial. You can
Speaker 1: learn more about Class Financial the website class financial dot com.
Speaker 1: That's colss k l aas financial dot com. There's allf
Speaker 1: for number six So eight four four two five six
Speaker 1: three seven And then I'm gonna get on the air
Speaker 1: this morning, So wait three two one thirteen ten. That's
Speaker 1: three two one thirteen ten. So CJ, what do we
Speaker 1: need to know then when it comes to iras.
Speaker 2: Yes, so roth irays just quick update, and Nate kind
Speaker 2: of hinted at this at the beginning, But roth iras
Speaker 2: uh do have restrictions in terms of how much you
Speaker 2: can put into them. So in the year twenty twenty five,
Speaker 2: so come next year, if you are under the age
Speaker 2: of fifty, you can put in a maximum of seven
Speaker 2: thousand dollars into a roth ira or eight thousand dollars
Speaker 2: if you're over the age of fifty, and that that
Speaker 2: extra one thousand dollars is called a catch up contribution,
Speaker 2: So seven thousand or eight thousand, depending upon your age. Now,
Speaker 2: just like with traditional iras, you do need to have
Speaker 2: earned income to make contributions. If you have if you've
Speaker 2: earned less than the maximum contribution limits. So think if
Speaker 2: I if I earn six thousand dollars, then that is
Speaker 2: the maximum that I can contribute to that roth account
Speaker 2: because I have to have enough income to offset my
Speaker 2: full contribution. So IRS sets high limits. If you don't
Speaker 2: earn an enough to meet that high limit and you
Speaker 2: want to put that all into an account, you can
Speaker 2: still put one hundred percent of your earnings up to
Speaker 2: those caps I just mentioned. Now, Interestingly, outside of these
Speaker 2: contribution limitations, There's also then what's called an income limitation.
Speaker 2: So depending upon your tax filing status and how much
Speaker 2: you're modified adjusted gross income is. If you're single or
Speaker 2: head of household, your contributions are allowed into a roth
Speaker 2: IRA with income under one hundred and fifty thousand, and
Speaker 2: then it phases out between one point fifty and one
Speaker 2: sixty five. If you're married filing jointly, contributions are allowed
Speaker 2: with income under two hundred and thirty six thousand, and
Speaker 2: they phase out between two thirty six and two forty six.
Speaker 2: Now some of you are going, huh, well again, Unfortunately,
Speaker 2: our industry loves complexity, and I shouldn't even say our industry,
Speaker 2: we don't love it. The irs puts this complexity upon us.
Speaker 2: So what we're getting at here is you can only
Speaker 2: put so much in seven or eight thousand, depending up
Speaker 2: on your agent that's doing a roth IRA, you have
Speaker 2: to have enough earned income to offset that contribution, and finally,
Speaker 2: you can't have too much income total in the form
Speaker 2: of modified adjuster gross income, otherwise you're not eligible to
Speaker 2: even contribute. Have we sufficiently confused you? Now? Nate and
Speaker 2: I do this in our sleep, because we've done this
Speaker 2: for so stinking long that we can take about two
Speaker 2: seconds to figure out whether or not somebody's eligible and
Speaker 2: how much they should contribute, and even if they should
Speaker 2: be contributing. But another thing to be aware of again,
Speaker 2: ROTH contributions are post tax. They grow tax free. Well,
Speaker 2: interestingly enough, your contributions that, when in post tax, can
Speaker 2: be removed at any time without any tax or penalty.
Speaker 2: Let me repeat that. Yes, unlike with a traditional IRA,
Speaker 2: where you get a deduction and you can't touch any
Speaker 2: of that money unless you meet an exception or get
Speaker 2: to retirement, in the case of a roth IRA contribution,
Speaker 2: when you put in the seven grand in my example,
Speaker 2: you could a year later say, oh, man, I made
Speaker 2: a mistake. I need to pull that back out, or
Speaker 2: ooh I need that money for kids college education. And
Speaker 2: the accumulation of all of your contributions can be removed
Speaker 2: at any time without any tax or any penalty. The
Speaker 2: growth must stay in there generally until age fifty nine
Speaker 2: and a half or five years, whichever comes later. More
Speaker 2: to come on that in the future. Now, as we
Speaker 2: all probably understand, this whole decision around roth versus pre tax,
Speaker 2: as I said, is much more nuanced and complex than
Speaker 2: just your belief around the tax code. What Nate and
Speaker 2: I would say is most of the people that we
Speaker 2: work with should be doing and do perform pre tax contributions.
Speaker 2: They're not doing roth IRA or wroth for one K contributions.
Speaker 2: And the reason is because most of the people that
Speaker 2: we work with have a lot higher total income while
Speaker 2: they're working, then they will need in retirement to live
Speaker 2: the same lifestyle. Let me repeat that, the vast majority
Speaker 2: of people we work with, and truth be told, the
Speaker 2: vast majority of Americans need more income while they have
Speaker 2: children at home and have a mortgage and are trying
Speaker 2: to save a retirement. They need a lot more income
Speaker 2: in their middle income years, then they will need in
Speaker 2: their retirement years to live the same lifestyle. And therefore
Speaker 2: you could benefit by saving the say twenty two or
Speaker 2: twenty four percent income tax bracket, pushing it out into
Speaker 2: the future when you may be in the twelve percent bracket.
Speaker 2: And final thought here for those of you who are saying,
Speaker 2: but CJ, everybody knows taxes are going up. Even if
Speaker 2: you're right and taxes go up, I highly doubt that
Speaker 2: a Republican or Democratic president is going to say, let's
Speaker 2: take it from those low income retirees. Okay, so if
Speaker 2: BRACK are going to go up, they're going to go
Speaker 2: up on high income individuals. Not and I could even
Speaker 2: say middle So let's say middle or high income innative individuals,
Speaker 2: not lower income debt free retirees who are in the
Speaker 2: twelve percent bracket. And this is not conjecture. We have
Speaker 2: actually tracked the US tax code since inception. We have
Speaker 2: all the data going back to when it began, and
Speaker 2: that has played out to be true. So long story short,
Speaker 2: this whole pretax versus roth contribution. Unfortunately, you need to
Speaker 2: talk to a qualified advisor or accountant to get good guidance.
Speaker 1: Talk this morning with CJ. Class and Nate Briby. They
Speaker 1: are our retirement planning professionals from Class Financial. The website
Speaker 1: class financial dot com. That's coss k l aasfinancial dot com.
Speaker 1: Great website and resource to learn more about COSS Financial.
Speaker 1: The telephone number six oh eight four four two five
Speaker 1: six three seven. Don't forget no charge for that initial
Speaker 1: get to know you appointment at COSS Financial. It will
Speaker 1: be complementary to you. All I got to do is
Speaker 1: pick a phone schedule that appointment at six oh eight, four, four, two, five, six,
Speaker 1: three seven. We'll continue our conversation with c J and Nate.
Speaker 1: We'll talk about maybe you have access if you have
Speaker 1: access to roth ro one K, should we consider contributed
Speaker 1: to one. We'll get the details on that and so
Speaker 1: much more next as Money in Motion with Coss Financial
Speaker 1: continues right here on thirteen ten. W IBI chatting this
Speaker 1: week with CJ. Closs and Nate Briby. They are our
Speaker 1: retirement planning professionals from Class Financial. Their website Class financial
Speaker 1: dot com. That's Claus k l a A s financial
Speaker 1: dot com. A great information about Coss Financial. Also an
Speaker 1: opportunity to sign up for the weekly Market Pulse newsletter.
Speaker 1: And you said, can subscribe or listen back to the
Speaker 1: podcast again that available to you at classfinancial dot Com.
Speaker 1: Talking this week about roth iras Roth four oh one ks,
Speaker 1: roth conversions a lot, a lot of really good benefits.
Speaker 1: As we as we talk about these options for folks
Speaker 1: and Nata, I've got to ask, if you have access
Speaker 1: to a Wroth four oh one K, is that something
Speaker 1: we should consider contributing to?
Speaker 4: Well?
Speaker 3: Maybe?
Speaker 4: Okay, So the ideal way to save is to defer taxes,
Speaker 4: meaning save pre tax when you're in higher tax brackets
Speaker 4: and pay taxes when you're in lower tax brackets, meaning
Speaker 4: contribute to.
Speaker 3: The Wroth side of the plan.
Speaker 4: But how will you know if you'll be in a
Speaker 4: higher or lower tax than during your working years. Admittedly
Speaker 4: you won't, especially if you are decades away from retiring.
Speaker 3: It will be an educated guess.
Speaker 4: And of course the tax code is written in pencil,
Speaker 4: not pen right, So here at COSS, part of our
Speaker 4: financial planning process is to make tax projections based on
Speaker 4: your situation and make recommendation we think you should be contributing.
Speaker 4: And it's not as simple as just comparing marginal tax brackets.
Speaker 4: By the way, it's actually comparing what is known as
Speaker 4: effective marginal tax rates.
Speaker 3: So we don't have to get in that today.
Speaker 4: But think, for example, if you're in the twenty four
Speaker 4: percent bracket today, you say I'm going to defer thirty
Speaker 4: thousand dollars into my four when four percent tax on that,
Speaker 4: and then say at sixty three you're retired, and we'll
Speaker 4: talk about a Roth conversion. In a second, you're on
Speaker 4: the Affordable Care Act for health insurance, receiving premium tax credits,
Speaker 4: and you're drawing your Social Security. There is a world
Speaker 4: while all still being in the twelve percent tax bracket,
Speaker 4: there is a world where your effective marginal rate on
Speaker 4: converting that thirty thousand dollars is much higher than twenty
Speaker 4: four percent, actually, up to somewhere near thirty percent when
Speaker 4: you look at the effect of losing premium tax credits
Speaker 4: and taxability of Social Security. So way too much information there,
Speaker 4: I'm sorry, but you just have to understand it's not
Speaker 4: as simple as comparing your marginal bracket at the end
Speaker 4: of the day. So, like CJ said, what we see
Speaker 4: in practice, however, is most of our clients will be
Speaker 4: in a lower bracket in retirement than they were during
Speaker 4: their working years and should be contributing pre tax potentially
Speaker 4: while they're working.
Speaker 3: Especially if they're a dual income household.
Speaker 4: By the way, I hate rules of thumb truly, but
Speaker 4: one here, maybe if you're in the twenty four percent,
Speaker 4: it may make sense to differ pre tax, so you know,
Speaker 4: lower tax brackets like ten or twelve percent, it may
Speaker 4: make sense to defer wroth. You know, obviously the exception,
Speaker 4: you know, the one we always see as if you're
Speaker 4: younger just starting your career and not earning much ROTH
Speaker 4: deferrals into a four to one K plan may make
Speaker 4: sense once again in that ten or twelve percent bracket.
Speaker 4: So a lot to know about Roth Fourah one k's
Speaker 4: their first offered as an option to retirement plans back
Speaker 4: in two thousand and six, obviously after ninety seven when
Speaker 4: roth iras were introduced and have now grown to be
Speaker 4: included in almost ninety percent of plans. One important thing
Speaker 4: to note is that there are no income limits when
Speaker 4: contributing to a ROTH four oh one K like there
Speaker 4: are with roth Ira contributions, which makes me think it's like, well,
Speaker 4: wait a minute, if you are making a half million
Speaker 4: dollars plus a year and have a high income, should
Speaker 4: you be contributing to a ROTH for one K at all?
Speaker 3: You know, I don't think that's as helpful as people think.
Speaker 2: It is.
Speaker 4: The maximum you can contribute in twenty five Okay, now
Speaker 4: this is to a retirement plan four to one K.
Speaker 4: A ROTH Foil one K would be twenty three thousand,
Speaker 4: five hundred and then up to thirty one thousand total
Speaker 4: with the ketchup contribution there if you're over fifty. Now
Speaker 4: a fun new super Ketchup has been introduced recently through
Speaker 4: Secure two point uh Secure Act two point zero. That are,
Speaker 4: if you are just age sixty to sixty three, so
Speaker 4: those four years, your ketchup contribution is actually eleven thousand
Speaker 4: and two fifty, making your maximum annual deferral on either side.
Speaker 3: Com to be thirty four thousand and seven to fifty.
Speaker 4: And to further complicate this, there's talk that higher earners
Speaker 4: of that super ketchup contribution having to make those Ketchup
Speaker 4: deferrals to the WROTH side of the plan, potentially starting
Speaker 4: in twenty twenty six.
Speaker 3: So there we go.
Speaker 1: Oh my gosh, and Nate, anything else we want to
Speaker 1: we want to be aware of. I know there have
Speaker 1: been some some changes, some changes around rmds, haven't there.
Speaker 3: Yes, yeah, absolutely so.
Speaker 4: A special note with the ROTH four oh and k's
Speaker 4: a wonky rule a few years ago was that if
Speaker 4: you had a ROTH four oh one K and kept
Speaker 4: your money in that company sponsored retirement planned and reach
Speaker 4: your required minimum beginning date required beginning date age seventy
Speaker 4: three call it, you would actually have to take minimum distributions. However,
Speaker 4: if you rolled that money into a ROTH IRA, you
Speaker 4: would not be subject to r mds. That recently changed
Speaker 4: as well, so beginning this year in twenty four, there
Speaker 4: are no required minimum distributions from ROTH four and K plan.
Speaker 1: Really important note there as we talked with Nate Briby
Speaker 1: and CJ Closs our retirement planning professionals from Class Financial
Speaker 1: to website Class Financial dot com. That's Coss k l
Speaker 1: a a as Financial dot com. They're telephone number six
Speaker 1: so eight four four two five six three seven. So CJ,
Speaker 1: what about ROTH conversions? I hear a lot about that.
Speaker 1: Who might be a good candidate for doing that?
Speaker 2: I think that's actually still Nate sectional.
Speaker 1: Oh so I apologize? Oh no, I I apologize Nate.
Speaker 1: Yet it's all good.
Speaker 3: She doesn't want to still my thunder and this this
Speaker 3: is a fun one.
Speaker 2: So I wasn't.
Speaker 3: This is this is a good one. This is a
Speaker 3: great question. Seriously.
Speaker 4: So ROTH conversions, which are different from ROTH contributions, okay,
Speaker 4: allow individuals to convert existing pre tax retirement money into
Speaker 4: ROTH accounts.
Speaker 3: Okay.
Speaker 4: So I have one hundred thousand dollars in my four
Speaker 4: O one K or traditional ira that can be flipped
Speaker 4: converting into a ROTH ira at any point.
Speaker 3: Okay, So this.
Speaker 4: Can be done in any age and without the ten
Speaker 4: percent early which were all penalty if you're under age
Speaker 4: fifty nine and a half. Right, because I'm still keeping
Speaker 4: the money in a retirement plan, I'm not withdrawing it.
Speaker 4: I'm just paying taxes on it, which obviously, if you
Speaker 4: think about it, the government's happy to let you do
Speaker 4: it anytime because you're paying taxes sooner than you have
Speaker 4: to write. So that's the question is, you know, if
Speaker 4: we're essentially paying taxes sooner than you need to, why
Speaker 4: would you do that. You know, as we mentioned before,
Speaker 4: pre tax retirement accounts are fully taxable when distributed, whether
Speaker 4: that be to you, your spouse, or children if they
Speaker 4: inherit the money. So you're not going to be able
Speaker 4: to control the fact that that's going to be taxable
Speaker 4: to somebody at some point. But what you can control
Speaker 4: to some extent is what tax rate you pay on
Speaker 4: these funds. Right. So it does help to view tax
Speaker 4: brackets more as tax buckets, which can be filled up
Speaker 4: annually but are then emptied at the end of every year.
Speaker 4: If you notice you are in a lower tax year
Speaker 4: due to starting a new new job or a new business,
Speaker 4: starting a family, or maybe a spouse retiring and maybe
Speaker 4: wise to accelerate some income via a wrath conversion to
Speaker 4: fill up a lower tax bracket. So a good candidate
Speaker 4: for a wrath conversion may be somebody who has just
Speaker 4: retired and may not have claimed their Social Security yet
Speaker 4: or a pension, and has a large retirement account think
Speaker 4: a half million to million dollars plus and plenty of
Speaker 4: cash or non qualified investments to live off for a
Speaker 4: few years. This person could utilize their lower tax brackets
Speaker 4: and to accelerate income today at a lower rate before
Speaker 4: they claim their Social Security or pension and are subject
Speaker 4: to rm DS. One factor to understand the best one
Speaker 4: one factor to understand is well, how do you pay
Speaker 4: the tax on the wrath conversion? Right? Since it is
Speaker 4: tax in the year that you convert the money. While
Speaker 4: some may know that you could withhold the tax directly
Speaker 4: from the converted amount, that is not the most effective way.
Speaker 4: That is because you have less money actually going into
Speaker 4: the wroth account right due to withholding the money for taxes.
Speaker 4: So ideally we like to see our clients pay this
Speaker 4: tax from their bank accounts, thereby allowing the full converted
Speaker 4: amount to be placed in the roth account and continuing
Speaker 4: to grow tax free. So bearing that in mind, someone
Speaker 4: with a fair amount of cash at the bank would
Speaker 4: be a good candidate for wrath conversions.
Speaker 1: Yeah. Great to observation there and of course great tools
Speaker 1: as we talked this morning with Nate Briby and CJ Closs,
Speaker 1: our retirement planning professionals from Coss Financial, some really important
Speaker 1: stuff this week. Don't forget if you missed part today's program.
Speaker 1: It's always easy to listen back, just heading over to
Speaker 1: Classfinancial dot com. That's Coss k l Aasfinancial dot com.
Speaker 1: Listen to the podcast right. They're also more information about
Speaker 1: Class Financial on their website. Speaking of contacting Class Financial,
Speaker 1: pick phone, give me a call this morning six oh
Speaker 1: eight four four two five six three seven. Don't forget
Speaker 1: there's no charge for that initial get to know your
Speaker 1: appointment tech costs financial. It is complementary to you again
Speaker 1: their number six oh eight four four two five six
Speaker 1: three seven. We'll bring CJ back in and the next
Speaker 1: segment to walls through the COLS Quiz Question of the
Speaker 1: Week and wrap up this week's edition of Money in
Speaker 1: Motion with Coss Financial. We will do that next as
Speaker 1: Money in Motion with Coss Financial continues right here on
Speaker 1: thirteen ten. Wuib I chatting this week with Nate Briby
Speaker 1: and CJ Closs, our retirement planning professionals from COSS Financial.
Speaker 1: I hope you've had a chance to check out the
Speaker 1: website Cossfinancial dot com. If you have it, when you
Speaker 1: get into the office this morning, head on over there.
Speaker 1: Don't forget a lot of great resources and information available
Speaker 1: to you at cosfinancial dot com. They're telephon number six
Speaker 1: oh eight four four two five six three seven, no
Speaker 1: charge for the initial gets to know your appointment tech
Speaker 1: Coss Financial. It will be complementary to you. So, CJ,
Speaker 1: what if somebody wants to leave their assets to THEO
Speaker 1: so the grandkids. Does a Roth conversion in that situation
Speaker 1: make sense? And another thing to think about when it
Speaker 1: comes to making sense, how much should somebody consider converting?
Speaker 2: Yeah, great question. Well, as you can tell from what
Speaker 2: Nate was just going over there in this previous segment,
Speaker 2: Roth versus pretax is little more complicated than most people realize.
Speaker 2: Often there's a lot of misinformation surrounding this topic of
Speaker 2: roth versus pretax. And then finally, when you get into
Speaker 2: this progression or thought logic, around ROTH conversions, so these
Speaker 2: are not new contributions, but rather conversions. Then it can
Speaker 2: feel like Nate and I are talking about it out
Speaker 2: of both sides of our mouth. So let me explain
Speaker 2: what I mean. Most people, as we talked about before,
Speaker 2: should probably be doing pre tax contributions when they are
Speaker 2: middle to higher income earners in their prime of their
Speaker 2: earning years, maybe a couple higher income, because in retire
Speaker 2: they will need less dollars to live the same lifestyle,
Speaker 2: assuming they've paid off debt and children are grown. YadA YadA. Now,
Speaker 2: these are rules of thumbs, so be cautious. You should
Speaker 2: always talk to your advisor account about what you should
Speaker 2: be doing. But where we end up talking out of
Speaker 2: both sides of our mouths. Mouths is often will say great,
Speaker 2: now that you've done what we said, and you're debt
Speaker 2: free and you're in retirement and maybe you haven't turned
Speaker 2: on Social Security yet and you're sixty two years old,
Speaker 2: we go, now you should convert to ROTH. People say, say,
Speaker 2: what what do you mean? I thought you said I
Speaker 2: shouldn't be doing ROTH contributions, And we say, you shouldn't
Speaker 2: have been because while you were working, your top dollar
Speaker 2: was taxed at say twenty four percent. But now that
Speaker 2: you're in retirement, if we were to convert from pre
Speaker 2: tax to ROTH, you could convert in say the twelve
Speaker 2: or the twenty two percent bracket. Now, interestingly enough, this
Speaker 2: whole notion of conversions is really predicated on a lot
Speaker 2: of background assumptions. I'm not going to actually go into
Speaker 2: those assumptions. All I would say to you is, if
Speaker 2: you are trying to do Roth convert versions as a
Speaker 2: do it your self for strategy, warning, warning, warning, And
Speaker 2: this is not because I don't want you to do
Speaker 2: it on your own. It's rather because there are so
Speaker 2: many elements to consider when it comes to a Wroth conversion.
Speaker 2: I would highly suggest that you talk to at a
Speaker 2: minimum trusted accountant and at a maximum a good financial advisor.
Speaker 2: So many different considerations about how or when or why
Speaker 2: to do this. But here's the notion. If you have
Speaker 2: a legacy goal of saying, hey, I've saved more than
Speaker 2: I will probably need, I'm interested in leaving money to
Speaker 2: my children and grandchildren when I die, which is a
Speaker 2: lot of the people that we work with. By the way,
Speaker 2: a Wroth conversion could make a lot of sense because
Speaker 2: you are converting from pre tax to wroth. When you
Speaker 2: do so, you're paying taxes. By the way, you're doing
Speaker 2: at a lower rate than you would have done on
Speaker 2: the contribution side when you were working hypothetically. And finally,
Speaker 2: when you do that wroth conversion, all future growth on
Speaker 2: that WROTH money, as we just talked about previously, is
Speaker 2: tax free, so that when it goes to your children
Speaker 2: or grandchildren, they owe no income tax. And here's a
Speaker 2: final reason why that would matter, because ultimately your children
Speaker 2: or grandchildren under most circumstances are going to have to
Speaker 2: have that money out within ten years from the retirement
Speaker 2: account under new new legislation. And when I send a
Speaker 2: new legislation this is part of the Secure Act one
Speaker 2: point zero and two point zero that now it has
Speaker 2: to come out over ten years. And the problem is
Speaker 2: if you leave your children, say a million dollars in
Speaker 2: a pre tax retirement account, they got to get that
Speaker 2: money out in ten years and pay income taxes on it.
Speaker 2: Whereas if you leave them money in a roth account,
Speaker 2: they still have to get it out within ten years,
Speaker 2: but there's no tax implications as they pull it out.
Speaker 2: So just cannot suggest this enough. And then Finally, things
Speaker 2: to be mindful of. Obviously Nate was talking about, there's
Speaker 2: a lot more into these conversions than just your your
Speaker 2: marginal income tax bracket. There's this concept of effective marginal
Speaker 2: income tax brackets, and whether you're hitting Social Security what
Speaker 2: are called tax torpedoes, and whether or not your conversions
Speaker 2: are going to cause medicare penalties known as erma's. And finally,
Speaker 2: require conversions get very difficult once you've reached required minimum
Speaker 2: distribution age because r MD dollars cannot be converted to ROW.
Speaker 2: So again, everybody, I hope your your eyes aren't, you know,
Speaker 2: going into the back of your heads here. That's not
Speaker 2: our goal. It's rather just to make you realize these
Speaker 2: can be great, wonderful tools when used appropriately. So as
Speaker 2: you move towards these topics, consider talking to a good
Speaker 2: advisor or a good account.
Speaker 1: Great guidance as always from CJ. Class and Nate Briby.
Speaker 1: They are our retirement planning professionals from Class Financial. You
Speaker 1: can learn more about Class Financial on their website Class
Speaker 1: financial dot com. That's coss k l a as Financial
Speaker 1: dot com, teph upper for the office right here in
Speaker 1: Madison six so eight four four two five six three seven.
Speaker 1: No charge for that initial get to know you appointment.
Speaker 1: Tech COSS Financial h will be complimentary to you again
Speaker 1: the number six oh eight four four two five six
Speaker 1: three seven. Come on to hold on to that telephone
Speaker 1: number now because it's time four. The Class Quiz Question
Speaker 1: of the Week works like this. In just a moment,
Speaker 1: I'll ask you the class quiz question the week. You
Speaker 1: will then have ten minute of thirty minutes for today's
Speaker 1: program to call the Class Financial office right here in
Speaker 1: Madison at six oh eight four four two five six
Speaker 1: three seven. If you are the first gar correct answer
Speaker 1: to win this week's prize, which is a twenty five
Speaker 1: dollars gift card to Texas Roadhouse. This week's class Quiz
Speaker 1: question the week is this true or false? There are
Speaker 1: no income limits when contributing to a Wroth four oh
Speaker 1: one K. Is that true or is that false? Telephone
Speaker 1: number six oh eight four four two five six three seven,
Speaker 1: And again that's Class Financial's office right here in Madison. CJ. Nate,
Speaker 1: you both have a very merry Christmas, and thank you
Speaker 1: for doing the show and we'll talk real soon.
Speaker 3: Thanks Sean, Thanks Sean, take care, see you guys.
Speaker 1: News and doctor Marty Greer. Come your way next right
Speaker 1: here on thirteen ten wib I. This is Money in
Speaker 1: Motion with COSS Financial Asset Advisors, LLC, a registered investment
Speaker 1: advisor registered with the SEC. The contents of this show
Speaker 1: or for informational purposes only, and should not be considered
Speaker 1: individual investment advice. Class Financial does not offer tax or
Speaker 1: legal advice. Any opinion offered during the course of this
Speaker 1: show is the opinion of that particular investment advisor representative,
Speaker 1: and not necessarily the opinion of Class Financial News. Comes
Speaker 1: your way next right here on thirteen ten WIBA