Announcer:
It’s time now on KROS for Financial Focus, brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered Representative, Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer, Member of FINRA/SIPC, investment advisor representative Cambridge Investment Research Advisors incorporated, a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now here’s today’s Financial Focus program.
Nate Kreinbrink:
Good morning and welcome to this week’s Financial Focus brought to you each and every Wednesday morning right here on KROS. Well, this is Nate. I got Mike Steigerwald joining me today. It’s fall out there, a little rain today. We haven’t had rain regularly, pretty much getting back to probably March and now we’re going to have it almost every day.
Mike Steigerwald:
Yeah, it seems like it, there. This is a cold, damp morning. One that you want to stay in bed when you wake up.
Nate Kreinbrink:
We’ve had some of those lately. Although the weekend we had kind of pleasant temperatures during the day, a little cooler at night. We had a little campfire the one night, which makes it perfect to fall season, which means NFL is two weeks into the season. College football is raring in mid-season form already. High school athletics, homecomings. We’re starting to see those and some white streamers around town.
Mike Steigerwald:
Yes, yes. Always a thing here in town with homecoming and the big events that go along with it.
Nate Kreinbrink:
All the excitement and everything. So again, want to wish local teams, great luck in their seasons, cross country, volleyball, football, everything that’s going on with school, it’s back in session. And then you love to see the good spirit. I want everybody to be safe and be smart with everything they do. But again, best of luck to all the area teams as they continue their fall seasons. Big game for the Hawkeyes this week. They are heading to Happy Valley for the White Out, so-
Mike Steigerwald:
Yeah.
Nate Kreinbrink:
… We’ll see if they can keep it going. I don’t know if they’ve really played their best, I don’t think, but they’ve been getting it done and doing it. This will be obviously a true test for them.
Mike Steigerwald:
Certainly. Certainly, should be exciting.
Nate Kreinbrink:
Should be exciting. Night game in Happy Valley. White Out. That’s college football.
Mike Steigerwald:
It is.
Nate Kreinbrink:
So getting into today’s program, I know third Wednesday of every month is usually talking taxes, tax planning with either Andy Ferguson or Mike with NelsonCorp Tax Solutions. And a little change of plans, they’re going to be filling in next week, as far as the tax program. Mike and I were throwing some ideas around as far as what to talk about and kind of continued to come back to the planning sentiment and understanding that again, what is the right thing to do for a coworker or a neighbor or a sibling or whatever, may not be the right thing to do for you in your individual situation. Because again, everybody’s situation is different. You hear that all the time, but in finances, that is no different. As far as understanding different incomes, different plans for the future, different debt that we are carrying along with us, what is our needs going to be like in retirement? And for everybody that’s different.
So again, understanding that some of the planning that may be appropriate for somebody else may not necessarily be appropriate for you as an individual. And again, I specifically had one the other day where we were sitting in with Andy Ferguson with a joint client there and doing some tax planning with them. And we were going to be looking at possibly doing some Roth conversions yet by the end of the year when the deadline is. Now looking at it, it seems we’ve talked very positively in favor of Roths, in a lot of situations for, again, the paying taxes one time, letting that money grow kind of tax-free for the moment. And again, when you take that money out, it is tax-free, as long as you meet certain considerations and things like that from an age standpoint. Five year rule, that type of stuff.
But again, with these guys’ situation where they fell with their income, put them kind of solely where all of their Social Security was not yet taxable. And when I say that, I think that’s a misconception that a lot of people have, is they think that their Social Security benefit is automatically taxable, which is not true. Social Security benefits in and of themselves are not taxable. They become taxable based off of your income, in hitting certain thresholds. So these individuals, they had a small pension coming in, a little bit of a monthly distribution from a IRA account, and otherwise it was Social Security.
Well, that didn’t bring all of their Social Security over to become taxable. So anytime that we were going to be looking at doing a Roth conversion, for every dollar that we were going to convert was going to bring another dollar over from their Social Security benefit that became taxable. So essentially that dollar conversion made $2 taxable. Up to 85% of your Social Security benefit is taxable, unless they were going to max that out and completely fill up that 12% bracket, it didn’t necessarily make a lot of sense for them to do conversions at this point in time, given what their income is projected to be. And that was a concept that again, no one had ever reviewed with them before. Nearer to our tax side over there, but again, looking at that type of stuff and understanding that yes, Roth conversions are a thing that we discuss with everybody that we have, but again, in these types of situations, it didn’t necessarily make sense.
Mike Steigerwald:
Right. Right. And that just goes to show you that again, we stress and stress and stress, that everyone’s situation is different. What you hear, that’s come up in a few meetings that I’ve sat in on recently with clients and you hear that, “Oh, my neighbor or my coworker told me this and this is what they’re doing and it’s worked for them.” Okay, well, we don’t know all of that background information. We don’t know the exact scenarios that have played out for that. And a lot of times it seems to me, at least in my experience, that it’s easy to share all of the good news and good things that happened. And sometimes those stories can be a little embellished. So always good to really get the facts and consult with professionals that can really help you with these complex decisions to determine what is right for you and for your family.
Nate Kreinbrink:
And a lot of times with our planning, we focus on the big picture, looking at all the assets that they have and looking at how they fall on a pie chart. You have so many assets in tax-deferred accounts. So your traditional 401(k)s, traditional 403(b)s, traditional IRA accounts, money that is tax-deferred and that you’re going to pay taxes when you take it out. Roth accounts and then basically your non-qualified, your non-retirement accounts that are taxable, with usually a 1099 or capital gains at the end of every year. And see how that chart breaks out. We’re seeing it with a lot more employers offering Roth 401(k)s as an option with it.
Mike Steigerwald:
True.
Nate Kreinbrink:
And again, essentially if we’re trying to get money into a Roth account by converting it later on, after they retire up until they need to start taking money out, if it’s 73, 75, wherever they fall in that spectrum, again, people look at it to say, “Well, I’ll just start getting money in my Roth account by the Roth 401(k) now when I’m out working.” Obviously that from the outside, seems like a good idea as far as what they’re doing. They’re giving up that tax deduction by putting it in the tax-deferred bucket like they normally have, but they’re getting money into a Roth. Again, makes sense in some instances, some instances maybe not. Because again, with Iowa, especially now changing the way that their retirement income is taxed, no longer taxed at the state level, there’s some other factors that come into play where it may make sense for you to continue putting it into the tax-deferred side of your retirement plan, getting that tax deduction and then looking at doing a conversion on the outside as far as money from your IRA to your Roth account on the outside of it.
And again, people think, “Well, isn’t that adding a step or two?” In some instances maybe, but what you are doing is you are saving the state tax on one of those transactions because you’re getting the deduction when you put it into your account. But when you do a conversion, as long as you meet the certain requirements that allow this, that conversion does not charge you state tax on the outside.
Mike Steigerwald:
Right.
Nate Kreinbrink:
So again, there’s a lot of things that are moving parts with a lot of these things, and again, conceptually when people see it big picture, they’re like, “Oh, we’re doing the right thing.” And again, it’s not necessarily hurting them, but we can add and we can make it more beneficial if we follow certain different steps, I think, than what people are used to.
Mike Steigerwald:
Yep. And that’s, again, can’t stress enough. That exact scenario played out in a meeting for me just last week, two weeks ago, where the client thought it made sense for him to continue going into a Roth bucket through his employer plan and we really started talking through and what it’s going to look like through retirement for him, that probably wasn’t the best scenario. So again, he might hear something from a friend or family member, coworker, what have you, that sounds like it’s the bee’s knees, but it’s not always going to be the case for your scenario. So can’t stress enough about really consulting with the professionals that can help with this type of planning.
Nate Kreinbrink:
And again, looking at that, I mean, we’ve talked as far as contributions, we’ve talked about all this stuff. Again, allocations is another way to look at that. I mean, you hear it all the time where, “Yeah, I was talking to the coworker at break and he said that he’s been invested in X, Y, Z-
Mike Steigerwald:
And let me guess-
Nate Kreinbrink:
… And let me guess.
Mike Steigerwald:
… And Now he’s a millionaire.
Nate Kreinbrink:
And now he’s a millionaire in doing it. And maybe that was the case. But again, if you’re taking that advice to do it now, you’re late to the dance.
Mike Steigerwald:
Missed it.
Nate Kreinbrink:
You’ve missed out on that opportunity. And the likelihood, again, everything usually goes in cycles. Again, whether it’s investing, whether it’s market cycles, whether it’s real, everything is kind of cyclical when it comes to a lot of this stuff. So again, if they’ve had that big run up, the likelihood that that’s going to continue going forward. By the time that you make the move and kind of get into there, again, you’re probably late to the dance. You probably missed out on the big gains that are going to happen. So that’s why, again, it’s important that you understand how your money’s invested. Don’t be invested just because Joe Blow or your uncle or your cousin or your coworker or your neighbor said that, “This is a great one. You should go into here.” Understand why and understand, does that still meet what you’re trying to accomplish? Everybody’s risk tolerance is different. Everybody can take a little bit of a volatility in different ways. We want to make sure that how your money’s invested, mirrors how you want it to be, not necessarily how a coworker or a neighbor or somebody else has it like that.
Mike Steigerwald:
Right. Because everyone’s goals are different.
Nate Kreinbrink:
So again, we get talking on topics, we are running out of time. Did want to mention real quick that every Friday, NelsonCorp Wealth Management and NelsonCorp Tax Solutions are wearing jeans for charity. Money raised in the month of September will be donated to the Living Peace 365 organization here in Clinton. Mike, as always, appreciate you joining me this morning.
Mike Steigerwald:
Absolutely.
Nate Kreinbrink:
Nate and Mike with NelsonCorp Wealth Management, bringing you this week’s Financial Focus. Thanks again for tuning in and have a great rest of your week.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in the show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered Representative, Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer, Member of FINRA/SIPC, investment advisor representative Cambridge Investment Research Advisors incorporated, a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.nelsoncorp.com.