How to Take Advantage of Trump’s Tax Cuts!

Episode 20: Audio automatically transcribed by Sonix

Episode 20: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Speaker1:
Any examples used are for illustrative purposes only, and do not take into account your particular investment objectives, financial situation or needs and may not be suitable for all investors. It is not intended to predict the performance of any specific investment, and is not a solicitation or recommendation of any investment strategy.

Speaker2:
Welcome to All Things Financial, the show that helps upgrade your financial literacy. Trey Peterson and Yellow say cuts are retirement planning specialists here to provide a unique and conservative approach to managing your money. Now here are your hosts, Trey Peterson and Yellow say coots.

Speaker3:
Hello. Welcome to all Things Financial podcast. I'm Trey Peterson and the Lazy Coots, and we are retirement planning specialists who specialize in helping those in and nearing retirement. So whether it's helping with income planning tax strategy, investments, health insurance, Medicare, Social Security, we have built a team that has an expert in every area so that you have a one stop shop for good holistic planning, uh, even including estate planning. And today we have episode number 20. Y'all say, can you believe we started this this year in today's episode 20 already? Man, we've gotten so much better. You know, I think with each episode it's it's just exponential growth and development. In fact, we haven't even shared any of them yet. So, uh, we're going to share. We're just about to we're we're just about to have a library built up. And, uh, part of that is just to, to mostly to be able to provide, uh, value for many of our existing clients, but also anyone who's interested in some of these topics, who's getting ready to retire. I think they'll find it extremely valuable. Well, I think your goal is not to introduce two episodes, but to get to the 20 mark. And so anyways, excited to share this with more of you. Uh, we've got a great day to day.

Speaker3:
We're going to talk about how to take advantage of Trump's tax cuts. Many of you are likely aware that the Trump tax plan, uh, expires at the end of 2025, unless Congress steps in. So we've got a lot of great things today. We're going to talk about what Pre-retirees and those who are already retired should be doing to maximize the lower tax brackets that are likely to expire. Um, I'll just say this really quick. Our podcast, you can find us on YouTube. You can find us on any of the regular podcast apps. Just search all things financial and episodes of yellow C and I, or one of our associates, Ryan and I or Ryan and Yellow will pop up and you kind of get to hear from a couple of us, so that's kind of fun. Uh, if you are preparing for retirement and you've never had a tax analysis, being that we're focusing on taxes today, I just want to invite you to do an analysis, a complimentary analysis, to get a second opinion on. Is there anything else you can be doing to keep more of your 401 K, your 403 B your TSP your 457? Uh, you and I were big believers in paying all the tax that we owe, but now leaving it tip on the table.

Speaker3:
And that's what today's episode is about. So I'm going to hit an overview and then yellow, say, I want you to jump in on the wisdom of the day or quote of the day. So one, Trump's tax cuts are set to expire. We're going to address how to address that. We are going to talk about uh, listener mailbag. There's some questions that we've been getting that people have been asking. And we want to share those with you in our responses. Then we're going to talk about an inflation demonstration. Why buying power is down. We obviously don't have to explain that. Everybody feels that you go to the grocery store, anybody that's retired and they're on a fixed income, you know, since 2020, things are up well over 20%. And we're feeling it. Young families are feeling it. Retirees are feeling it. So we're going to talk through that a little bit. Planning for inflation throughout your retirement and then Social Security the Cola the cost of living forecast. How does that work every year. We'll talk about the ten year average which is ten, 2.75%. Uh, even though in the last four years, the LSA, we've seen that cola as high as over 8%. So a lot of things for today. Let's start with the quote of the day LSA.

Speaker4:
And now for some financial wisdom. It's time for the quote of the week.

Speaker3:
All right. This was a good one here. Uh, higher taxes never reduce the deficit. Government spend whatever they take in and and then whatever they can get away with. So that one's by Milton Friedman. And, uh, I think it's a it's an interesting quote. You know, during the 1960s, he was one of the biggest advocates opposing Keynesian government policies. Of course, he was a professor at the Chicago School of Economics. Um, and for those of you who don't know Keynesian economics, that's simply, um, you know, Keynes advocated for federal spending to mitigate, mitigate downturns in the business cycle. And I think we've seen a little bit of that. Right. Federal spending recently, uh, quantitative easing. So his whole his whole idea was that government governments should play an active role in their countries economies. And where Friedman was a little bit different today. I think we talked about this before the podcast. Uh, you know, he he argued that a, a small, steady expansion of the money supply was the preferred policy. Yeah, right. So, you know, when it comes to our federal budget, uh, the US Constitution gives Congress the ability to determine how much they're going to spend, right? So they're going to decide, uh, Congress is going to get together and they're going to decide, how much are we going to spend in the upcoming fiscal year. And then whatever budget they come up with, the president has to approve that.

Speaker3:
So every year they decide on the amount of discretionary spending and they provide resources for the mandatory spending. Well, I know that in the last 50 years, the government's had a surplus only four times, with the last time being 2001. When we were talking, I think one of us said 2021. And I was like, no, that's not right. And, uh, you know, so we run a huge budget deficit and nobody even asks anymore if we have a surplus or a deficit. We just know that we're running a deficit. You know, I don't know how often you and Alicia do this, but Steph and I, once a quarter, we sit down and we look at what did we save, what did we invest, what did we spend. And it's so funny because, uh, Steph never asks me what's the deficit. You know, she says, what are we saving and where did the money go? Because you can't run your household in a deficit. How are we as a government? You know, if you look, since 2001, running in a deficit every single year, and you look, I was having a conversation with one of the families that we get to serve yesterday, and it's like, man, for the three years that they've been with us, you know, the Dow Jones, uh, through everything is still up. The S&P is up. We've had a lot of volatility. But things are up. And obviously depending upon when people started with us.

Speaker3:
Um, you know we're we're seeing the market continue to do well despite inflation. So there's some there's some nervousness. I know amongst people that we have conversation with of what's next. Yeah. So what you're saying is the government's been doing a stellar job in terms of the national budget, right? Yeah, yeah. You know, occasionally, you know, we run into people from time to time. And I'm not trying to pick on anybody that, you know, they, uh, they spend more than they bring in. But I don't think anyone can do that for as many years as we've managed. I mean, since 2001, that was the last time we had a surplus like that. That can't be a strategy that works. And obviously there's some problems with that. So, uh, you'd, uh, you'd end up in prison if you did that every year for 20 years. Yeah. Well, and a lot of people don't actually, they don't realize this. Like, where does the government get the money to spend? Like, where does that come from? And really, I mean, the government doesn't generate revenue. They don't like provide goods and services for the most part, Uh, they collect taxes and and then they borrow. Right. The government, it's it's either government tax collection or borrowing. Excuse me. Outer notification popped up. So, um, you know, the government, they spent a variety of goods and services programs to support the American public.

Speaker3:
But then the biggest expense, one of the bigger expenses that we've recently had to had to consider, especially as this continues to grow, is the interest that we've incurred from borrowing. So last year we spent $6.13 trillion, which of course, as you mentioned, is more than what we collected. Right? So that's how we resulted in a deficit. But one of the ways that we pay for things, especially when we operate under a deficit, um, we borrow money by selling U.S. Treasury bonds, bills, other securities, and that's what's referred to as the national debt. The national debt is all of the borrowing associated interest owed to investors to purchase all the securities that that we put together. Um, and at some point, the question is, you know, what? If people don't want to buy us anymore? What position does that put our country in when US debt isn't as attractive as it once was? Because of how much, how much debt we have out there, right. And for now, maybe that hasn't been a huge issue, but that's certainly a concern that we have to consider. Absolutely. Well, and then, you know, going into Trump's tax cuts, one of the things that a lot of people probably know this, but you and I, uh, we teach, uh, a handful of classes a year in the Burnsville, Lakeville, Shakopee, Apple Valley, New Prague, Elko, Newmarket, Eden Prairie, Bloomington area, and really, you know, within 20 miles of our office.

Speaker3:
And we teach four different classes. We teach a class on Social Security and Medicare for those that have not started their education. Or maybe they want to further their education on how to make sure that they get those two things right in their retirement. We teach a class on estate planning, which I think is really important. You say you and I, neither of us benefit from anybody setting up a will or a trust other than our clients have a smooth succession plan and they protect their money from the government. So we have the estate planning class and then we have a class called Taxes and Retirement, which is the discussion today, which is minimizing your taxes. If you have an interest in joining one of our classes, they are complimentary. We hold them at libraries and universities right here, right around our office. And you can reach out to us at the phone number below or at my email or Yale's email, which is just our name at G Wealth.com Trey at G wealth and yellow G wealth. But one of the things I want to talk about is three big changes that are coming up that are related to the expiration of tax breaks. One of the things I've been starting off our classes saying, hey, if you only get one thing out of today, you need to know that at the end of 2025, unless Congress steps in our tax, uh, our, our current tax map is going to change.

Speaker3:
And there's a lot of tax cuts that are going away. So one of the things I encourage people, specifically those that are retired or are about to retire, maybe they're working part time so their income is lower, or maybe they're still in that 12% tax bracket, as you seriously need to look at getting some money out of your IRA into a Roth in 2024 and 25, because it's really likely that you're never going to pay less taxes on those monies than you will this year and next year. Yeah. So provisions. Yeah. So you know, the the tax brackets today are basically they start at 10%. They go to 12, 22, 24, 32 and 35, with the highest bracket for us being 37% right now. Uh, prior to the Tax Cuts and Jobs Act, uh, the brackets started at 10%, just like they do now. But then rather than going to 12, they went to 15%. And then instead of the 22% tax bracket, we had the 25% out of the 24, we had the 28% bracket, and the highest rate went up to 39.6. So I don't really talking about a couple of percent, but you know, when you can translate the percentage to the number of dollars you actually have to spend, that can be significant. Now we of course, we still have the same number of tax brackets.

Speaker3:
And and I remember back then, right before the, uh, Tax Cuts and Jobs Act was enacted, there's a lot of speculation, like, what are they going to do to the brackets? Are we going to have more brackets, fewer brackets? And of course, they ended up keeping the same number of brackets. They just changed the percentages a little bit. But that could be significant. And something that for sure that, you know, there's you know, obviously there's a lot of speculation today and what you can do, but it's something that needs to be talked about and it needs to be implemented in terms of planning. Right. Well, let's talk about those three key provisions to the Tcja, which is the Tax Cuts and Jobs Act. Number one is lower federal income tax rates. So what they did is they lowered it from 39.6 to 37%, the highest through 2025. The highest bracket, of course. Uh, the second thing they did is they increased the standard deduction. So obviously, one of the big things that happened is, you know, almost nobody itemized anymore. Do you remember the percentages on that by chance who itemized before Trump's tax plan? Who does today? I want to say it increased by like over 60, 70% of the amount of people that just take the standard deduction now because of what Trump did. So don't hold me to that. But something like that, uh, which just simplified things, which I think simple oftentimes is better.

Speaker3:
And then number three, higher gift and estate tax exemption. Do you want to talk about those numbers. Yeah. So when it comes to that of course, you know if you're a if you're a higher net worth individual and you want to make sure that you're not going to go over the gift tax exemption limits, uh, the estate limits there, um, it reached 13.61 million per individual in 2024. So, you know, it's going to it's going to revert back to the previous level just like everything else. Um, if nothing is if nothing changes. So if that's if that's a concern for you, I mean, obviously most people aren't bumping up to those limits, but if that's something that you, you have questions on, we can certainly help with Ryan or estate planning attorney and of course, anything that we can do on our end as well in terms of financial planning. Yeah, great. Two key planning recommendations. So you're listening and you go, so what do I do about it. Tax. You're going to go up. Number one accelerate your income. If you've never sat down with a retirement planning specialist, which is very different than a generalist as far as financial advisors go, the build out a tax map for you. I want to strongly encourage you to do that. And what that would look like is where do you pull money from and what order you say? I would say one of the biggest questions I get is people come in and they go, Hey Trey, I've saved all this money.

Speaker3:
I've got a 401 K, I've got a Sep, IRA, I've got a Roth account, we have a joint account. You know, they have all these different investments and they go, when do we pull from each bucket? How do we know what to touch first, what to touch last? One of the questions I get a lot is we bought this annuity ten years ago or 15 years ago. We don't know how that works. Hey, we bought this REIT, this real estate investment, uh, five years ago. We can't get out. How does that work? So you may have different components to your investment that it made time and made sense at the time to purchase them. But you've never reviewed to say, are we still in the right investments based on our expenses, our projected retirement date, and keeping our taxes under control? And I think that's one of the things that we do really well for people. So number one is consider accelerating your income. It may be time to start pulling from the IRA and take a break from the checking savings or the non-qualified assets. You know, we can help confirm that. So uh, as far as pulling from some of those accounts, it really can accomplish a couple of things. Now, obviously, there's some people that are really concerned about the expiration of the Tax Cuts and Jobs Act, and that's their sole motivation for taking or for accelerating their distributions.

Speaker3:
In other words, you're saying, hey, I don't know what the tax brackets are going to be going forward, but I know they're probably not going to be any lower than what they are today. So what you end up doing is pulling from those pre-tax accounts a little bit sooner, maybe a little bit faster than what you normally would do if all things were to stay the same forever. Right. Um, but and that's a great strategy because it accomplishes a couple of things. One, you, you do what you want, you get that money out at a lower rate, and two, you lower the IRA balance, which ends up ultimately lowering how much you have to pull from in terms of RMDs in the future. And if we think that rates are going to be higher in the future, what's better than reducing our forest distributions at a later date by taking out distributions earlier today, accelerating those distributions, as Trey mentioned? Yeah. The other big thing for those of you that, uh, maybe you've done a great job building that nest egg or you've sold some real estate, the other thing to consider in 2024 and 25 is, uh, lifetime gifts. There's a good chance that those numbers are going to go down. And if you're somebody that is maximizing or you're considering maximizing gifts to maybe your kids or grandkids or you know those that you care most about, these are two key areas that you may be able to give more than you will be able to in the future.

Speaker3:
So something important to consider, uh, if you're concerned about taxes. One of the things that we do is we build out a tax map. I touched on that earlier, but one of the questions I get is people will say, hey, I've got somebody that prepares my taxes, uh, over here, and I've got a financial advisor that I've had for 20 plus years that I trust. Where do you guys fit into that? And what I tell people is, you know, we have 4 or 5 different services and you may take advantage of one of them or all of them, but you're not limited to all or nothing. And so one of the things I do like to let people know is you may have a great advisor and you may have a great tax preparer, but do you have a great tax strategist? And if you don't, it may be worth a conversation. Or we actually fit in right between those two people. So just something to consider for those of you that are listening that are saying, hey, I've got a great tax preparer, I've got a great advisor, how would you guys fit into that? Yeah. And I think that most people that that come in, they have a financial advisor.

Speaker3:
And I can't stress the importance of getting a second opinion. Right. That's that's critical. Right. There's nothing wrong with getting a second opinion. In fact, if your advisor encourages you not to get a second opinion, I would go out and get a second opinion. And even though you might have an advisor, you might have a tax planner, you might have someone who's helping you with Medicare. One of the things that our clients are always happy about is the fact that they can come to one place and they can have all of those people, all those different personalities, all of those different, uh, experts in those areas all in one place. It's a huge benefit when they can communicate with each other versus having to fill in your CPA on what your advisor said and having to go back and forth to see, hey, what's your advice compared to what his advice is? So it's just it's really nice to have it all in one place. Certainly we're not trying to sever any relationships, like if you have a tax planner who you're happy with and they've been preparing your return for the last 15 years. Yeah. Maybe you don't want to switch. Maybe you don't want to fill somebody else in on all the all the contacts that that goes into that. And it's maybe just easier to keep that relationship intact.

Speaker3:
And that's perfectly fine too. Yeah. Really good. We got some questions from some listeners I'd love to go over. Uh, so let's let's read some of these off. I think people like to hear from listeners also. Number one, can you explain the difference between a Roth IRA and a traditional IRA? Which one is better for somebody currently in their 40s? Yeah. Let's say will you touch on I actually this is a great question. One of the questions we get, you know, in a lot of the families that we meet with, they're already in their late 50s, early 60s. Uh, do you contribute to a Roth all the way until retirement? How do you know when it's too late and you should just put money in the pre-tax bucket. You also say, what are your thoughts on that? So is he on the surface. And questions from Elizabeth. So thank you, Elizabeth, for the question. Uh, on the surface it seems like an easy answer. Like, you know, we should just be able to fire off a quick answer here, but it's actually a little bit more complicated. And without knowing her specific situation, it's really hard to say. And here's what I mean by that. If Elizabeth is actively contributing to her employer sponsored plan and she wants to make an IRA contribution, that contribution may not be deductible, right? Her her best, her best course of action for her might be the Roth IRA.

Speaker3:
Like on the surface of it, though, like, what are the differences? Right. So a Roth IRA, that's money that you've already paid taxes on. When you make a contribution, that money has been taxed. It goes into the Roth IRA, and then it continues to grow. And then eventually when you pull the money out after 59.5 without penalty, uh, you get everything tax free. The amount you put in initially that was already taxed. And all of the growth is also tax free. So most of the time we we joke like if you could pick, if you could just wave a magic wand, like where would you have all your money had? You'd have it in the Roth IRA, right? Growing tax free for you to enjoy and use eventually in your retirement without having to pay any taxes on the gain. However. Right. Most of us, maybe in our 40s. What if Elizabeth is a high earner? High income earner? What if she needs every dollar she has? And for her, the advantage isn't necessarily getting an after tax, um, contribution that provides no tax relief for her in in any specific year. Right. If you contribute to a Roth IRA, there is no tax benefit to you in that year. You pay taxes on the contribution, then you get it in there. Whereas in a traditional IRA, every dollar she puts into a pre-tax account, whether it's a traditional IRA or her 401 K at work, that lowers her tax bill for that specific year.

Speaker3:
So depending on on, um, how much how much room she has in her budget, depending on what she's looking to accomplish, what bracket she's in, um, you know, maybe the traditional IRA, that contribution, maybe that's attractive, or maybe if if Elizabeth has too much income that might prevent her from making a Roth contribution because there's income limits on that. Or maybe Elizabeth's spouse is working in and the spouse is contributing to the employer plan. So there's a lot of different variables. That's what I'm getting at. And so it's very difficult just on the surface to answer that question. And that's why it's important to sit down with somebody so that we can talk through all of these questions and give you some good advice, because there is a right answer. And there somewhere it's just with a limited amount of information, it's difficult to to give you something with certainty. Yeah. I mean, there's a rule of thumb. If you can max out your traditional IRA, your 401 K, you should be maxed out your Roth account. Are there exceptions? Absolutely. But when we look at most situations, maxing out your Roth IRA is something that you're not going to regret. One of the things I like just taking the question then, Trey no, it's good, I think I think people like, you know, we have different perspectives, even though we get to the same answers.

Speaker3:
So I think it's really good. Uh, the other thing that everybody knows is that, you know, before age 59.5, you know, once you put money into a Roth, you can't touch it for five years. Um, but there is a rule that you shouldn't touch it. For how long? And can you touch on that for a second? Yeah. Well, I mean, it really depends how you make the Roth contribution or the Roth conversion. There is a five year rule. You can always get the money out of the account that you put in without, um, without having to deal with, uh, the penalty. Uh, but the earnings on the, on on the Roth IRA. The earnings have to be there for five years. Otherwise those get penalized as well if you remove those from the account. Um, there's a handful of studies that talk about not touching it for ten years for. Yes. Yeah. And it really the biggest reason is if because it's after tax dollars, you're probably putting in a smaller amount into the Roth IRA. So you're giving up some of the yield over time. So it has to be in there for a long enough period of time where it can actually have a gain. That's that's meaningful. Right. So if it's if it's in there for less than ten years, maybe it doesn't make sense. And we run into this all the time when somebody's looking to do a Roth conversion.

Speaker3:
And the question we ask is, are we going to be using this money within the next ten years? If you're going to make the conversion, if you're going to pay the taxes to get the money in the Roth IRA, and then you're going to deplete the account before it has a chance to grow, That's probably not going to be worth it. So a lot of the studies that Trey is referring to say, hey, it probably should be in there for at least ten years. It probably you probably should be able to take that portion of money and just say, hey, I'm not going to touch this for a period of time. And ten years is probably the minimum. Well, actually, that goes great with Renee's question. So, Renee, she asked, what are the most common mistakes that you see people make when planning for retirement, and how can I avoid them? We worked for the past 30 years to build our nest egg, and I'm worried about potentially making a mistake. You only say one of the reasons I love what we do when I say that, I mean, like, I love what we get to do because unfortunately, we do see people make mistakes. And you're like, man, that person worked 30, 35, 40 years and they just cost themselves tens of thousands and sometimes more than that because they just didn't know something.

Speaker3:
Yeah. So whenever you're looking at a conversion, like if you just, uh, have a simple example, imagine you have, you know, ten shares of Apple stock, uh, whenever you convert ten shares from your IRA to your Roth IRA, uh, imagine if it's, you know, if the value of ten shares and I can't remember the apple's currently selling for. But imagine it's like ten grand. Imagine you have $10,000 that you're converting from your traditional IRA to your Roth IRA. But now the market's down. Now those same shares are worth $10,000. They're worth $7,000, for instance. So now you get to convert, uh, ten of those shares to your Roth IRA. But now you're only introducing $7,000 of taxable income instead of $10,000, but you got the same number of shares from your traditional IRA to your Roth IRA. So that could be a way to look at it where when the market's down, we can actually do those conversions and we can get them at a discount, right. We're transferring the same number of shares. But now the price of the shares is lower. So it allows us to to pay less in federal income taxes to accomplish the same thing. And as Trey mentioned, you know, having some of the more aggressive funds within your Roth IRA, that's a fantastic strategy because, you know, really, whenever we're considering how to invest, whatever, we're looking at a risk profile for a client and trying to determine what's the most appropriate one.

Speaker3:
We're looking at investment time horizon, right. How long are you going to be retired? How long are you going? How long until you need the money in that account. And that really determines a lot of that. So since typically we're pushing to have the Roth IRA there as long as possible, the funds in the Roth IRA that allows us to be a little bit more aggressive on the investments within the Roth IRA. Yeah. That's good. Well, okay. So that's good. So number one, invest your Roth in the right investments to maximize it. Number two. So number two and we're not going in any specific order. But one of the other huge mistakes that we see people make is that while they have a plan to grow their money, they don't have a spend down plan on how to pay the least amount of taxes. If you're watching this podcast and you only write down one thing you need a spend down plan, you need to know where you're going to pull from and when and if the market takes off and we have a bull market, how does that change where you pull from versus a bear market? 2022 was a great example. If you Google it. Most people weren't pulling from their stocks because they were down 20 to 30%. So historically, they go to pull from bonds and bonds were down. According to Google and Fidelity, an average of 13 to 15% in 2022.

Speaker3:
So if that were to happen again, do you know where you're going to pull from? Do you have a bucket of money to pull from? The other thing I would say is, you know, when you think about distributions, one of the things that scares people is you've spent 30 plus years getting a paycheck from work or your business, and whether that's weekly or bi weekly or monthly. And now all of a sudden you're going to stop that paycheck, you're likely going to turn on Social Security, maybe you're going to turn on that pension, and now you're going to take a paycheck from your retirement nest egg, a bucket of money that you train yourself your whole life never to touch. In fact, that only have you not been touching it, you've been adding to it, and now you're going to stop adding to it, and you're going to pull money out. Do you know where you're going to get your monthly paychecks? So we call it paychecks and play checks. It's not just about getting the money, but it's about where do you get it from? So two things. Number one, how do you invest the Roth? Number two, what is your spend down plan look like? I'm going to give a third. And then you'll say I'd love for you to add one of the other big things that we see a lot of people make mistakes on is Social Security.

Speaker3:
They think Social Security is synonymous with retirement. I retire and I turn it on, and for some of you, that is the right answer. But for many of you, consider delaying your and if you're married, your or your spouse's benefit. Typically, a good rule of thumb is whoever has the smaller benefit. We start as early as we can. Whoever has the larger benefit, we wait until at least full retirement age and then, depending on your expenses and assets, may be. After that, you'll see other mistakes around Medicare or other things that you can think about that we see people make. Yeah. One thing I want to add to the Roth conversation, um, sometimes whenever you, you, you go through your software and you put everything on, on, um, in one of the scenarios that we, we often do for our clients, we run a number of scenarios to kind of help you make a good, better or best decision. Um, we look at that and sometimes the Roth IRA isn't necessarily really doing conversions to a Roth IRA doesn't. It doesn't always play out well in terms of our software. And I want to say that that's not always the biggest reason to do a conversion. Some of our clients, they look at that and they say, hey, you know what? It's kind of a toss up. We don't know what's going to happen to the tax code.

Speaker3:
We don't know how this is really going to help our plan. But what we do know is when we get closer to the end of our retirement, we end up with a lot more in our Roth IRA, a lot more dollars in that account, even though our total nest egg maybe hasn't necessarily been impacted or isn't isn't growing at a certain rate because of the conversion. And the reason why they do it anyways is because of legacy planning. Some of our clients have told us that, hey, you know what? We really hope that whatever we pass away that the last check, we hope it bounces. Other clients have said, hey, you know what? We want to make sure we live a very comfortable retirement. We get to do what we want to do. We get to do all the leisure activities. We get to go out to eat, we get to go on vacation. We get to do everything we want to do. We're not super concerned with leaving anything behind. But if something's left behind, sure. Why not? We want the kids to have it. Maybe we want a charity to have it. And other clients have. Absolutely. They have a stated goal. They have an objective. They want to pass up a certain dollar amount onto their onto their beneficiaries, whether it's their children or whether it's their church or their charity of choice. And for some of those people, some of those clients in that latter category, uh, it's absolutely important for them to get money into a Roth IRA because they want to pass it on to their children, and they don't want their children to be burdened with the taxes now burdened with the taxes.

Speaker3:
Right? That that's it depends on on how you look at taxation. But imagine if your son or daughter, um, maybe they're doing really well, maybe they're at the height of their career and now they're going to inherit an asset from you. And if it's an IRA or a Roth IRA, it doesn't matter. They need to deplete that account within ten years. So if you're giving them an IRA that they have to deplete in ten years, they might be introducing a lot of taxable income that there may or may not need. Whereas with a Roth IRA, although they still have to deplete the account, at least they're not changing and moving them and moving themselves into a higher tax bracket. So there's other implications to write. If you have children who maybe have, maybe you have grandchildren who have special needs, and that could really impact the income situation that you're for your son or daughter potentially. You know, there's obviously there's a lot of things we can talk about, but that's one thing that I want to I want to mention that obviously there could be an immediate benefit, there could be a benefit for you, but sometimes the benefit is for your beneficiaries.

Speaker3:
On the Roth. Really good. Another question from Jim from Savage. So not too far from us. I'm 50 years old, but I haven't started saving for retirement because I run my own business. I make a good living 150,000 a year for the last ten plus years. What step should I take to catch up? One of the things that we see a lot yellow say is, man, small business owners are some of the hardest working people that I've ever met. There's kind of this inside joke that when you start a small business, you do it so that you can work, uh, 80 hours for yourself so you don't have to work 40 hours a week for somebody else. Now, obviously it's a little exaggerated, especially, you know, for you and I, we have a partnership where, you know, we know people that they do all of it on their own. And they do work 60 hours a week, um, 60 plus hours every week. But one of the things I love about what we do is we get to see a lot of people that have comeback stories. And so what do I mean by that? We have a client, really an amazing woman. She was married for 25 plus years. Her husband was a spender and she was a saver. And it came out that basically he had spent not just his money but their money, and they ended up getting divorced at 50 years old, literally this exact same question.

Speaker3:
And she realized she was making a little over 120 a year. But she goes, I have 15 years to make up for the last 25, 30 years. And so what she did is she shrunk her lifestyle. She reduced her house. I think she moved into a condo, actually. She got rid of a car payment. And from age 50 to age 65, she saved like 50% of her income. And that, you know, $120,000 income. She ended up having a nest egg of, you know, between her savings and her employer adding in and the market just performing really well. She ended up having like north of $800,000 from retirement that she put away over 15 years. So the answer to this, Jim from Savage is, well, it would have been better to start at age 25. The good news is, is if you get after it with a strong income of 150,000 a year, if you can control your expenses and start saving 25 plus percent of that, you have an opportunity between that and putting getting your business in a position where you can sell that to add to your retirement nest egg. I would say it's not too late. Uh, we've seen people do that, and if they get disciplined by saving and having their business set up for a sale to the right person, they have a successful plan.

Speaker3:
You say, what do you want to say about that man? I thought you were going to take it in a totally different direction. I thought you were going to tell Jim to give up. I wasn't tracking with you. I'm just kidding. Uh, yeah. It's not too late. We've seen a lot of 50 year olds. Just like that woman who've been able to turn it around. Um, actually, it's a little bit more common than you would think. You know, usually when people are in their 50s, that's when the kids are finally out of the house. And that's, uh, when they actually have the opportunity to save. Everybody wishes they started sooner. But we have many, many examples of people who are in their late 40s, early 50s when that's really when they put it into gear and they're able to make a big difference. So I would encourage you to, to start, um, we talk about this all the time. Make it automatic. You don't want to have to think about it. You don't want to have to think about making that decision to contribute or not to contribute, depending on what's going on. Just know that, hey, you know, if you have if you make, I don't know, $12,000 a month or whatever it is, uh, you don't get $12,000, just you get $10,000 or whatever that number is after paying all of your taxes.

Speaker3:
Obviously, you know, with small business owners, uh, depending on the write offs and all the deductions that they're taking advantage of, I don't know what his net income is, but it needs to be lower than what he's living off of, and he needs to start saving. And for him, maybe that's a sep-ira. Maybe it's a solo 41K, some type of pre-tax account where he can lower his taxable income. As a business owner, he's probably already looking for as many deductions as he can get. So another one would be putting it into a pre-tax account, further lowering his taxable income. Obviously there's some implications there too, depending on the type of business structure he has, and we can certainly talk about that too. Yeah. So good. All right. Last one I'm considering authors Steve from Burnsville right here right in our city. I'm considering early retirement. I work as a welder, and I. And I can feel it taking a toll on my body. We hear that a lot from guys that are physically working. Uh, take a lot of my own health. What are the financial implications of retiring at 55 instead of age 65, you say when you think of retiring at age 65, what immediately comes to your mind? Um, I think of all the different variables that we plug into our software and how if you tweak any one of those variables, let's say you're off on expenses or you're off on inflation or you're off on rate of return.

Speaker3:
Um, the the more that gap widens between, like the day you retire and the time you pass away, the more each one of those variables, like, it's critical to get it right, but you can't get it right, there's a lot of guesswork that has to go into it. So I just think that it what it does for me is, you know, everyone's situation is different if if, uh, is it Jim? Oh, Steve, if Steve has a giant nest egg and he can sustain retire. I mean, he can maintain 50 years of retirement potentially, or whatever that ends up being for him. I have no idea how much he has saved, but what I do know is that it exposes him to, um, a wider range of possibilities in terms of success and failure, in terms of how long his nest egg will last. So, you know, without knowing anything, without knowing what he has for fixed or guaranteed income and what his expenses are and how much he has to rely on his nest egg. It's really difficult to say, but ten years makes a huge difference. I think the two big things that I think about, number one is we think about, uh, now your assets, instead of having to last from 65 to 85 for 20 years now, they have to last for 30 years. Think about the difference of increasing how long that nest egg has to last.

Speaker3:
You know, by what is that 50% that's significant. The other thing I think about is Medicare. Will you talk about what is health insurance look like, free Medicare for somebody? I mean, he's going to have ten years where he's going to be shopping the open market, paying for his own health insurance. A lot of times there's just from our own experience, there's a lot of sticker shock when it comes to that. And there's a reason why, you know, if people retire early prior to Medicare, they're trying to keep their income as low as possible, because here in Minnesota, maybe they're they're trying to qualify for miniature health tax credits. Uh, and that's totally determined by the amount of income that you have. Um, so like I said, it's really just difficult to say without knowing what his expenses are or what his standard of living is and, and how much he has to to help support that. Uh, probably at the age of 55, he's probably. Let's see. So he's a welder. I mean, I don't know what what the what the pension, uh, requirements are when, when he can, if he has a pension, when he can start receiving that, um, you know, so I don't know what fixed or guaranteed sources of income he might have to fall back on and what his income, how much control or flexibility he has in terms of that.

Speaker3:
So, I mean, it's a great question. Just without having all the additional information, it's tough to answer. It's just like all the others I've noticed, you're like a politician. You actually don't like to answer the question. No, no, it's not that. I just. There's there's so much there's so many variables that are unknown here. The one thing I can say is ten years adding ten years. Uh, I mean, that's that's good. Hopefully he has enough to maintain that, to sustain that, you know. Yeah. It's a big deal. That is a big deal. Uh, okay. Let me let me move into this. So if you're preparing for retirement and you're within five years of retirement and you hope you have enough, but you don't know that you have enough, I would encourage you to get a second opinion from yellow Sandy. What does that mean? That means that we do a complimentary analysis on looking at how long does your money last? What is your tax situation look like? I met with a couple last night and they've done a great job saving. And it's kind of interesting. You know, he's he's been making 170, 180,000 a year. And then out of nowhere three years ago, he's in sales. Uh, he made a half million dollars. Two years ago, he made 750. And this year he thinks he's going to make a million bucks. And so it's been really neat, is over the last three years, they've been able to increase their retirement nest egg by like $600,000, you know, with four years left of retirement, which obviously is very unique.

Speaker3:
We don't see things like that very often. But the reason I say that is, you know, if you are, uh, having some big changes, whether it's a big increase in income or maybe due to health, it's a big decrease at the end of your career, you might hope you have enough, but if you don't know you have enough, or if you're missing a plan, you know, one of the things that yellow and I do so well is we help you put together a plan that's flexible, but it gives you financial peace. And I tell people all the time, we're going to talk about investments and taxes and Social Security and Medicare. But at the end of the day, our goal is to give you a plan so that you have financial peace. Maybe you're somebody that's listening and you've been saving and you've worked hard, but you've never felt financial peace over retirement. I want to encourage you to come get a second opinion and we'll be honest with you. You know, maybe that doesn't sound exciting because maybe there's a chance you have to lower your expenses. Or maybe we encourage you to work a little longer. Uh, but I would say more of the time, we're able to show people that they're going to be better off than they thought they saved, better than they thought.

Speaker3:
They can retire sooner than they think. And I think sometimes, even if there's hard conversations, having a plan as a result of walking through the conversation gives people a lot of financial peace. So if you've never had that financial peace and you want to pursue that, give us a phone call, send us an email. We'd love to go over that with you today. Uh, yellow, say anything that you want to add or I know we've talked about a lot today. There's more that we could talk about, but yeah, just on the topic of financial piece. Uh, it is possible to have financial peace and putting together a plan in place. Like, I think sometimes there's some hesitancy. People think that, well, I don't want to be sold something or I don't want to be told that, hey, I have to cut back my expenses. Um, you know, and all of these things, like, whenever I meet with somebody, um, I'm looking for all of the best possible solutions that I can think of. Right? We're putting everything through our software. We're running a number of different scenarios. We're trying to maintain some flexibility because life requires flexibility. And what we're trying to do is put together a solution that hopefully matches your goals and objectives. And I think that, you know, when people people leave our office, like, I think that that's it's never more obvious than when they leave right after they've had a meeting, after they had a sit down, and they can see the amount of time and attention that we put into our planning process.

Speaker3:
We treat everybody like it's the most important client because it is. It's your it's your retirement nest egg. Like nobody cares more about your money than you do. And you've worked hard for every single dollar, and you deserve to have somebody on the back end who's putting together a plan, who treats it that way. Right. It's your money. We want to make sure that we give you a solution that really is beneficial for you. That isn't a waste of your time, especially, you know, I think one of the biggest things is having peace in retirement. Like that's that's critical, right? Because you're no longer you're potentially no longer able to go back to work or at least earn at the level that you used to earn, right? Eventually we're all going to be 70 and 80 years old, so our options might be a little limited. So it requires some good planning on the front end to give you that financial peace. Right? No. So good. Uh, well, let's end with this. If you've never had a retirement plan put together for you, give us a call, send us an email. We'd love to give you a second opinion. I had a couple the other day.

Speaker3:
Wonderful people. Their advisor did a great job in their investments. They just missed the tax piece. So they're partnering with us on tax strategy. Had a couple two weeks ago. They had everything in place but a state planning. And we set them up with our attorney to get their trust put together. So the other thing I want people to know is however we can add value to you. What we're passionate about is improving what you have and whatever area that you need. That whether it's Medicare, Social Security, estate planning, tax strategy or investments, we'd love to have a conversation with you. The other thing I kind of joke about is we have a lot of people that go, hey, I've been with my guy for 20 or 20 5 or 30 years, but he's retiring in the next 1 to 3 years, and we're just looking to have somebody else that would be ready to take us on when he retires. Maybe that's you. We're going to be here a long time. Yellow saying, I've been in the business. Uh, I've been in since 2012. He's been in, what, 2015? And we're not going anywhere. We're going to have an office south of the river, an office north of the river, like we do in Saint Louis Park. And so if you're somebody that you go, you know what It would be good to have somebody in second place in case my advisor moves or retires.

Speaker3:
Let's start that conversation because we're here for the long run. So thank you for jumping on today. Our goal is to help you retire once. Retire. Well yellow say wrap it up. Yeah. So one last thing I want to add. We've had a number of people who've who've called in and they've asked for us to cover specific topics. And there's some good news, right. We've we've dedicated some of our episodes to some very specific topics, like we have an, uh, one of our podcast episodes is is only on long term care, like the entire thing. Uh, we've also covered Medicare extensively, Social Security. We have two, uh, podcast episodes that are on annuities only some great information there. Uh, if there is a specific topic that you'd like us to cover that we haven't covered already, uh, just reach out to us. We'll put it on our list. We really want to make sure that we're as as interactive as we can with our listeners, so that we can continue to provide good information. But like I said, there's a number of episodes. If you're looking for something specific that we maybe already have covered, just reach out to us. I'll send you a link to that specific podcast episode so you can have that available for you. Great. Thank you for joining us. You can find us all things financial on YouTube or any of your podcast channels. Have a great day. We look forward to episode 21 next week.

Speaker2:
Thanks for listening to all things financial. You deserve to work with retirement planning specialists who care about your money, and take a unique approach to your financial and retirement needs. Visit all things financial.com and set an appointment today.

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