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Types of Retirement Plans · Money In Motion with Klaas Financial

• 0:00
  Speaker 1: And our telephone lines are open for you right now.
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  Speaker 1: six oh eight three two one thirteen ten. That's six
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  Speaker 1: soh eight three two one thirteen ten. Gonna be talking
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  Speaker 1: with CJ. Closs and Eric Schwartz this week. Bus are
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  Speaker 1: different types of retirement plans as well as contribution limits.
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  Speaker 1: But if you've got a question about anything related to retirement,
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  Speaker 1: we'd love to have you join us this morning.
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  Speaker 2: Again.
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  Speaker 1: As mentioned joined this week by CJ. Claws and Eric Schwartz. CJ,
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  Speaker 1: how you doing this morning.
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  Speaker 3: I'm doing great.
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  Speaker 4: How are you, Sean, I'm doing really well.
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  Speaker 2: Great to talk with you.
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  Speaker 5: Eric.
• 1:07
  Speaker 2: Enjoying this, enjoying the sunny weather.
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  Speaker 5: I definitely am, Sean. It's a easier way to get
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  Speaker 5: through the week.
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  Speaker 2: It is, and it's it's a great time of year.
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  Speaker 1: I know a lot of folks when we start getting
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  Speaker 1: into spring and summer and you know, start getting a
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  Speaker 1: little bit more active.
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  Speaker 2: Go goodness. I am really ready for.
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  Speaker 1: Retirement, and we've got we've got really as we talk
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  Speaker 1: with Eric and CJ about retirement, we've got that great
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  Speaker 1: program ahead for you. Speaking of other great things on
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  Speaker 1: the program and all the great features. Not only we
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  Speaker 1: get a chance to talk with Eric and CJ, we
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  Speaker 1: also give you an opportunity to win a fantastic prize
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  Speaker 1: from our friends at cows Financial. They've provided a twenty
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  Speaker 1: five dollars gift card to Darden Restaurants Group. That's Olive Garden,
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  Speaker 1: Longhorn Seasons fifty two, all those places you love to go.
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  Speaker 1: That's that's what we're talking about with that gift card.
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  Speaker 1: So little tip, if you listen closely to the program.
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  Speaker 1: Oftentimes the question and answer to each week's Claws Quiz
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  Speaker 1: question week comes up during the show, so it definitely
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  Speaker 1: is beneficial to pay close attention for a number of
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  Speaker 1: reasons to each week's program. And before we get rolling
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  Speaker 1: on this week's topic and conversation, let's actually take a
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  Speaker 1: look back at last week's show and get the question
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  Speaker 1: and answer there as well.
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  Speaker 5: Yeah, so thank you to everybody for listening as always,
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  Speaker 5: and congratulations to our winner from last week. That was
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  Speaker 5: Ben from Wanta Key. Now, the question was, according to
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  Speaker 5: Social Security, if you were born in or after nineteen sixty,
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  Speaker 5: your full retirement age or your FRA is considered. What
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  Speaker 5: age is it? Age sixty five or sixty seven? And
• 2:41
  Speaker 5: Ben knew the correct answer was sixty seven.
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  Speaker 2: Nice work, Ben, YouTube can be like Ben.
• 2:46
  Speaker 1: Chance to win a little bit Later on in the program,
• 2:49
  Speaker 1: I got twenty five dollars gift card to dart In Restaurants.
• 2:52
  Speaker 1: As metcha were gonna be talking about different retirement plans
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  Speaker 1: and contribution limits, and I know we as we discussed
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  Speaker 1: these things, CEJ.
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  Speaker 2: There's a lot to know, isn't there.
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  Speaker 3: That's right, Yeah, And given that we're a retirement planning firm.
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  Speaker 3: It's obviously no surprise that we specialize in helping individuals, families,
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  Speaker 3: and employers optimize their retirement savings decisions. And this is
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  Speaker 3: done through various different types of retirement accounts or retirement structures.
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  Speaker 3: So let's start with a high level overview and then
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  Speaker 3: we can dig into some of the nitty gritty as
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  Speaker 3: we move along through the show. So to begin here,
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  Speaker 3: in the United States, there are typically two core types
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  Speaker 3: of retirement plans. The first type of retirement plan is
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  Speaker 3: called a defined benefit plan, which is also often referred
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  Speaker 3: to as a traditional pension plan, or or to merge
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  Speaker 3: in both together, a traditional defined benefit pension plan. And
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  Speaker 3: then the second type of retirement plan is often called
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  Speaker 3: a defined contribution plan, which is also often referred to
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  Speaker 3: by many different names such as four oh one K
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  Speaker 3: four H three B, four to fifty, simple, IRA, IRA, ROTH, IRA,
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  Speaker 3: and the list goes on. So I do want to
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  Speaker 3: repeat that two core types of retirement plans you typically
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  Speaker 3: see here in the United States defined a defined benefit
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  Speaker 3: plan also known as a traditional defined benefit pension plan,
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  Speaker 3: and a defined contribution plan also known as four to
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  Speaker 3: one K, four H three B fourty seven simple IRA.
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  Speaker 4: So on and so forth.
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  Speaker 3: But what I want you to focus on is we
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  Speaker 3: move forward throughout the show, is what is defined. In
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  Speaker 3: the first one, what is defined is the benefit aka
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  Speaker 3: what you will receive in the future. In the second one,
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  Speaker 3: what is defined is the contribution. Also said another way,
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  Speaker 3: you don't know what your benefit will be. You just
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  Speaker 3: know how much is going into the account. Okay, So
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  Speaker 3: everybody who's listening, keep that in your brain as we
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  Speaker 3: move forward here. Now, the primary difference between these two
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  Speaker 3: types of retirement plans is really who bears the risk.
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  Speaker 3: And again what I mentioned is what is defined versus undefined.
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  Speaker 3: So let's go through some questions and summarize them on
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  Speaker 3: a per retirement plan type, beginning with the traditional defined
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  Speaker 3: benefit pension plans.
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  Speaker 4: So here's a question.
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  Speaker 3: What's being promised in a traditional pension plan. Well, the
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  Speaker 3: employer promises a specific retirement benefit to the employee based
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  Speaker 3: on a formula that usually considers factors like salary history
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  Speaker 3: and years of service. For those of you who are
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  Speaker 3: listening who are a State of Wisconsin employees, your ears
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  Speaker 3: should be perking up. Going this sounds an awful right,
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  Speaker 3: A lot like my WRS employee trust funds pension. That's right,
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  Speaker 3: your employee trust funds pension is, for the most part,
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  Speaker 3: a defined benefit pension plan. So continuing through our questions,
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  Speaker 3: in a pension plan, who bears the risk? And the
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  Speaker 3: answer is the employer bears the investment risk. They are
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  Speaker 3: responsible for ensuring there's an enough money to pay the
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  Speaker 3: collective promises in current and future benefits to recipients regardless
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  Speaker 3: of how the underlying investments perform. Next question is what
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  Speaker 3: is defined? Well, we already talked about this. The benefit
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  Speaker 3: the employee will receive that is defined. Next question, how
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  Speaker 3: involved is the employee in kind of like operating this plan.
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  Speaker 3: The answer is not much. Employees typically have little to
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  Speaker 3: no say in how the assets are invested to meet
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  Speaker 3: their future defined needs. Next question is the plan portable
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  Speaker 3: and the answers. Benefits are often not easily portable if
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  Speaker 3: an employee leaves the company before retirement, unless the employer
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  Speaker 3: were to offer something called a lump sum pension payout
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  Speaker 3: option that typically represents the present value of their future benefit. Otherwise,
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  Speaker 3: if a lump sum option is not offered, former employees
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  Speaker 3: will often have to wait to collect a benefit from
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  Speaker 3: that former employer until a future date after they retire.
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  Speaker 3: And then the final question is how is the account funded.
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  Speaker 3: Employers are primarily responsible for funding the plan, although many
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  Speaker 3: plans have a required employee contribution as well. Again for
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  Speaker 3: our state of Wisconsin employees who are part of the
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  Speaker 3: worstf pension system, you know quite well if you look
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  Speaker 3: at your base dubs that the employer puts a contribution
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  Speaker 3: in for you, but you also are required to put
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  Speaker 3: in a contribution talking to So there you go, starting
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  Speaker 3: with that one. That is the kind of some questions
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  Speaker 3: and answers as it relates to the defined benefit pension point.
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  Speaker 2: Talk this morning with CJ.
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  Speaker 1: Closs and Eric Schwartz, our retirement planning professionals from Class
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  Speaker 1: Financial talk about the defined contribution. In just a moment,
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  Speaker 1: We've got a caller this morning. Terry joins us. Terry,
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  Speaker 1: welcome to the programming. You're on the air with CJ.
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  Speaker 1: Closs and Eric Schwartz of Class Financial.
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  Speaker 6: Good morning, Thank you. I am seventy five years old
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  Speaker 6: and I have a revocable trust in which there's a
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  Speaker 6: roth IRA that I just recently, with a review of it,
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  Speaker 6: my trust with my attorney, decided to change the beneficiary
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  Speaker 6: of the wroth from the that would go to the
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  Speaker 6: trust to an individual, and I was warned about what
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  Speaker 6: they call, I believe a look back period, and I'm
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  Speaker 6: just wondering if you could talk a little bit about
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  Speaker 6: that and tell me if should I it's something I
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  Speaker 6: should be alarmed about that if this goes to my
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  Speaker 6: requested beneficiary, that if I were to apply for Medicaid,
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  Speaker 6: that it would be analyzed and he could perhaps have
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  Speaker 6: to give back that money.
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  Speaker 3: M really good question. So I understand the premise of
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  Speaker 3: your question, Terry, but I'm just for all of our listeners.
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  Speaker 3: I'm going to kind of give the scope of your
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  Speaker 3: question to make sure that everybody's on the same page,
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  Speaker 3: and then I don't know that I'll be able to
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  Speaker 3: answer your question, but I'll do my best. So what
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  Speaker 3: Terry's getting at here is there's obviously he's asking some
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  Speaker 3: questions about naming beneficiaries outright. So you can name individuals,
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  Speaker 3: which has some benefits because then those individuals can use
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  Speaker 3: required minimum distributions a little bit differently than say a
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  Speaker 3: trust could, or you can list you can list those
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  Speaker 3: same individuals through a trust, but sometimes those trusts, depending
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  Speaker 3: upon if they have the right see through provisions or
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  Speaker 3: not have different treatments around rmds. However, trusts also have
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  Speaker 3: some asset protection or risk protection associated with them. The
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  Speaker 3: second part of Terry's question here is around the Medicaid
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  Speaker 3: spend down rules. We've done entire shows on this, but
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  Speaker 3: it has to do with if I want to protect
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  Speaker 3: my assets against Medicaid the required Medicaid spend down aka,
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  Speaker 3: I go into a nursing home and I've got to
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  Speaker 3: like spend all my own own money before Medicaid kicks in.
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  Speaker 3: There's often a look back period associated with that. Now, Terry,
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  Speaker 3: to get to your question, I'm not quite sure the
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  Speaker 3: context of your question, because typically the look back period
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  Speaker 3: would be with money that you gift outright to two individuals,
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  Speaker 3: so there would be a typically a five year lookback
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  Speaker 3: on that, or money that you put into an irrevocable
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  Speaker 3: trust for purposes of.
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  Speaker 4: Avoiding the Medicaid spend down on that money.
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  Speaker 3: So those are typically the two ways that we see
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  Speaker 3: that look back period come into play. You reference to
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  Speaker 3: benefishery change, which to me, that money is not leaving
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  Speaker 3: your estate yet, So I don't believe there's a look
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  Speaker 3: back period when you're just changing beneficiaries. So I'm a
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  Speaker 3: little confused by the context of the question, but at
• 10:51
  Speaker 3: least I've given you a high level of where these
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  Speaker 3: topics come up. Now let me pause, Eric, are you
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  Speaker 3: aware of anything else else?
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  Speaker 5: No, I was just thinking it feels like we're maybe
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  Speaker 5: crossing topics here with gifting now versus at death right.
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  Speaker 3: Yeah, So, Terry, what I would encourage you if if
• 11:09
  Speaker 3: you know you still have questions, feel free to call
• 11:10
  Speaker 3: our office or call back your lawyer or your advisor
• 11:13
  Speaker 3: and talk to them about it. I think it's a
• 11:15
  Speaker 3: great question. I gess we might be crossing wires or
• 11:18
  Speaker 3: crossing topics.
• 11:19
  Speaker 1: Terry, really good call, and thank you for taking time
• 11:21
  Speaker 1: to forget You two can be like Terry, if you
• 11:22
  Speaker 1: ever have questions, love to have you join us on
• 11:24
  Speaker 1: the show.
• 11:25
  Speaker 2: We'll get you on the air with CJ. Closs and
• 11:26
  Speaker 2: Eric Schwartz.
• 11:27
  Speaker 1: Of course, they are our retirement planning professionals from Class
• 11:30
  Speaker 1: Financial talking this week about various types of retirement plans,
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  Speaker 1: also contribution limits, and just before Terry's call, we were
• 11:36
  Speaker 1: talking about defined benefit plans. Let's talk about defined contribution
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  Speaker 1: retirement plans and kind of walk through those those same
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  Speaker 1: points that we had with the with the benefit and
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  Speaker 1: go over to the contribution side.
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  Speaker 3: Yeah, so we're gonna we're gonna go through the defined
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  Speaker 3: contribution plans again. Those are the four one case four
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  Speaker 3: or three b's four fifty seven simple erase things like that,
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  Speaker 3: and we're going to go through those same questions. We're
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  Speaker 3: going to ask some core questions around what's being promised,
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  Speaker 3: who's bearing the risk, what is defined And you'll notice
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  Speaker 3: that the answers changed now. Right, in the traditional defined
• 12:13
  Speaker 3: benefit pension plan system, you kind of get this sense
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  Speaker 3: of like, well, my employer kind of takes care of
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  Speaker 3: it all, and I just get a benefit in the future,
• 12:21
  Speaker 3: kind of like Social Security, Right, I just somebody just
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  Speaker 3: magically takes care of it and I get income in
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  Speaker 3: the future. Well, now we're going to talk about defined
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  Speaker 3: contribution plans. So let's go through those same questions. First off,
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  Speaker 3: what is being promised, Well, there is no guaranteed retirement
• 12:39
  Speaker 3: benefit amount, so we are not defining or guaranteeing or
• 12:43
  Speaker 3: promising the benefit amount. Instead, the employee and or employer
• 12:48
  Speaker 3: contribute a specific amount of money or percentage of a
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  Speaker 3: salary to an individual account for the benefit of the
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  Speaker 3: employee who bears the risk, Well, the employee bears the
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  Speaker 3: investment risk. The amount that is available at retirement for
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  Speaker 3: income purposes will depend upon the contributions made over the
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  Speaker 3: years along with the performance of the investments chosen by
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  Speaker 3: that individual, So the individual is choosing those investments. Next
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  Speaker 3: questions what's being defined? Well, the contribution amount is defined,
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  Speaker 3: not the future benefit. Next question how involved is the
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  Speaker 3: employee in these plans? And the answer is employees most
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  Speaker 3: commonly have a high degree of control over how their
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  Speaker 3: investments are allocated within this this type of a plan,
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  Speaker 3: and this of course impacts their risk and return profile
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  Speaker 3: or risk and return potential for the future. Next question,
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  Speaker 3: is the plan portable? The answer is these types of
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  Speaker 3: defined contribution plans are typically portable. When an employee leaves,
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  Speaker 3: they can typically take their vested account balance with them
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  Speaker 3: through various distribution options, including a rollover to a new
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  Speaker 3: employer defined contribution plan. And then final question, how is
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  Speaker 3: the account funded? The answer is, these types of defined
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  Speaker 3: contribution plans are typically funded by employee contributions and then
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  Speaker 3: often by an employer matching contribution and or profit sharing contribution.
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  Speaker 3: Now with these general questions and answers for these types
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  Speaker 3: of defined benefit and define contribution retirement plans. In our minds,
• 14:20
  Speaker 3: it is important for our listeners to know that traditional
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  Speaker 3: defined benefit pension plans have become significantly less common over
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  Speaker 3: the years due to the complexity and cost of.
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  Speaker 4: Maintaining these plans.
• 14:34
  Speaker 3: So again, what used to be known as traditional. By
• 14:37
  Speaker 3: the way, whenever you hear traditional in our industry, just
• 14:39
  Speaker 3: think the oldest version. So the oldest version used to
• 14:43
  Speaker 3: be that employers would have these pension plans. It was
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  Speaker 3: very common, you know, fifty sixty, seventy years ago. Well,
• 14:50
  Speaker 3: because of the cost and complexity and the risk to
• 14:53
  Speaker 3: the employer, because again the risk is taking are the
• 14:56
  Speaker 3: employers taken on that risk, they have become significantly less common.
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  Speaker 3: And beyond that, we Americans tend to like the feeling
• 15:05
  Speaker 3: of control, and therefore we often desire the portability and
• 15:09
  Speaker 3: flexibility of a defined contribution plan like a four to
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  Speaker 3: one k or IRA, because we feel this, Hey, if
• 15:16
  Speaker 3: things go wrong, it's going to be on my merit
• 15:18
  Speaker 3: darn it right, it's not going to be on my
• 15:19
  Speaker 3: employer doing something wrong. So interestingly enough, Eric and.
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  Speaker 4: I really really appreciate.
• 15:26
  Speaker 3: Traditional defined benefit pension plans, especially like the State of Wisconsin,
• 15:32
  Speaker 3: one of the best run in the country. Like whoop
• 15:35
  Speaker 3: whoop to the State of Wisconsin pension system. They have
• 15:38
  Speaker 3: just killed it in the way that they have both
• 15:40
  Speaker 3: funded and managed and invested the funds for that State
• 15:43
  Speaker 3: of Wisconsin pension. Unfortunately, the same cannot be said of
• 15:46
  Speaker 3: our neighbors to the south in Illinois for their pension plan.
• 15:50
  Speaker 3: But it doesn't matter. Pension plans can be great, but
• 15:53
  Speaker 3: we Americans love our freedom and our choice, and so
• 15:58
  Speaker 3: these four one ks and iras have become a lot
• 16:01
  Speaker 3: more popular over the years. So basically, pension plans are
• 16:05
  Speaker 3: still prevalent in some government and our union jobs or
• 16:08
  Speaker 3: state at state jobs. However, the private sector is now
• 16:12
  Speaker 3: dominated by defined contribution plans like four oh one ks
• 16:15
  Speaker 3: and four oh three p's really good overview.
• 16:17
  Speaker 1: As we talked this morning with Cjloss and Eric Swartz,
• 16:19
  Speaker 1: they are our retirement planning professionals from COSS Financial. Hope
• 16:22
  Speaker 1: you've had a chance to check out the website. If not,
• 16:24
  Speaker 1: head on over their Coss Financial dot com. That's class
• 16:27
  Speaker 1: k l aas Financial dot Com TELF number six oh
• 16:30
  Speaker 1: eight four four two five six three seven. Don't forget
• 16:33
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• 16:35
  Speaker 1: tech Loss Financial eight will be complimentary to you again
• 16:38
  Speaker 1: their number six oh eight four four two five six
• 16:40
  Speaker 1: three seven. So we talked about the various types of
• 16:42
  Speaker 1: retirement plans. We'll get into contribution limits. We will do
• 16:45
  Speaker 1: that next as Money in Motion with Coss Financial continues
• 16:48
  Speaker 1: right here on thirteen ten. Wib E talking this morning
• 16:52
  Speaker 1: with CJ. Closs and Eric Schwartz. They are our retirement
• 16:55
  Speaker 1: planning professionals from Coss Financial. Their website Coss Financial dot
• 16:59
  Speaker 1: com'ss k l aasfinancei dot com telphone number six O
• 17:04
  Speaker 1: eight four four two five six three seven. Talking this
• 17:07
  Speaker 1: week about different types of retirement plans and also contribution
• 17:11
  Speaker 1: limits and let's uh, let's let's talk about those contribution
• 17:15
  Speaker 1: limits this morning, and when it comes to uh limits,
• 17:18
  Speaker 1: when it comes to those defined contribution plans, things like
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  Speaker 1: those four oh one k's and four h three b CJ.
• 17:26
  Speaker 5: Actually, Sean, I think I'm going to take that chuck.
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  Speaker 2: Okay, Oh perfect, Eric, I've at it.
• 17:31
  Speaker 5: CJ's been hogging the mic.
• 17:32
  Speaker 3: I gotta get on here.
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  Speaker 5: So you know, if we think about this and we
• 17:37
  Speaker 5: use the same framework regarding the two most common types
• 17:40
  Speaker 5: of retirement plans that CJ was just talking about, it
• 17:44
  Speaker 5: actually makes a lot of sense. So if we start
• 17:46
  Speaker 5: with a traditional defined benefit pension plans which CJ just referenced,
• 17:52
  Speaker 5: are becoming more and more rare in the in the
• 17:55
  Speaker 5: private sector, largely because the employer is in charge of
• 18:00
  Speaker 5: fully funding that and they're making some pretty high level
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  Speaker 5: promises for payments down the road. And if we think
• 18:08
  Speaker 5: back to how the employer is primarily responsible for the funding,
• 18:11
  Speaker 5: the investment decisions and all the risks associated with that,
• 18:16
  Speaker 5: it shouldn't be a big surprise that contribution limits for
• 18:19
  Speaker 5: these types of plans work very, very differently than for
• 18:22
  Speaker 5: defined contribution retirement plans, and differently in that we really
• 18:28
  Speaker 5: don't have contribution limits on the traditional defined benefit pension
• 18:32
  Speaker 5: plan side of things. Instead of that, they actually limit
• 18:36
  Speaker 5: the amount that the limit the amount of the benefit
• 18:39
  Speaker 5: that the employee can receive on the back end. Okay, so,
• 18:42
  Speaker 5: in a roundabout way, the benefit limitation does impact and
• 18:46
  Speaker 5: influenced the amount employers must contribute, but the irs doesn't
• 18:51
  Speaker 5: really say, well, you can only put x amount in
• 18:53
  Speaker 5: there per year. The core principle of a traditional defined
• 18:56
  Speaker 5: benefit pension plan is that there is a promise of
• 18:59
  Speaker 5: a specific retirement benefit. So that's usually expressed as a
• 19:03
  Speaker 5: monthly income amount, and it's typically calculated based on factors
• 19:07
  Speaker 5: like your salary history or yours of service, you know,
• 19:10
  Speaker 5: things like that. The the Internal Revenue Code does set
• 19:15
  Speaker 5: limits on the maximum annual benefit that can be paid
• 19:18
  Speaker 5: to a participant from a traditional defined benefit pension plan,
• 19:21
  Speaker 5: and in twenty twenty five, that limit is two hundred
• 19:24
  Speaker 5: and eighty thousand dollars. Okay, So, Sean, if you have
• 19:27
  Speaker 5: a really, really really generous pension plan in retirement, you're
• 19:32
  Speaker 5: gonna have to find a way to get by in
• 19:33
  Speaker 5: about twenty three thousand bucks a month. So I don't
• 19:35
  Speaker 5: know if that's if that's gonna work, but you know,
• 19:37
  Speaker 5: it is a pretty high limit.
• 19:39
  Speaker 2: I don't know if I can swing that one air.
• 19:45
  Speaker 5: There's a good I let's say there's also a limit
• 19:48
  Speaker 5: based on you know, employee comps. So the annual benefit
• 19:51
  Speaker 5: it generally can't exceed one hundred percent of the participant's
• 19:54
  Speaker 5: average compensation for their highest three consecutive calendar years. So
• 19:59
  Speaker 5: again we're not we're not limiting the amount going in
• 20:02
  Speaker 5: on the front end so much as we're looking at
• 20:04
  Speaker 5: at the back end and how much the employee can get. Now,
• 20:08
  Speaker 5: one other piece here the amount that the employer needs
• 20:11
  Speaker 5: to contribute to the plan each year. It's it's not
• 20:14
  Speaker 5: a fixed amount, so instead contributions are determined by someone
• 20:19
  Speaker 5: called an actuary who makes projections about future benefit payments
• 20:23
  Speaker 5: and investment returns, and they determine, based on those calculations
• 20:27
  Speaker 5: how much the employer actually needs to put in there
• 20:30
  Speaker 5: so that in the future, when when employees take benefits
• 20:34
  Speaker 5: from the plan, there are actually dollars there to make
• 20:38
  Speaker 5: those payments. So again, no limit on the front end,
• 20:41
  Speaker 5: mostly just limiting the amount that employees can receive in retirement.
• 20:45
  Speaker 1: Talking this morning was Eric Schwartz, CG Class or Retirement
• 20:48
  Speaker 1: Plan Professionals from class financial website COLSS financial dot com.
• 20:51
  Speaker 1: That's Class K l A A S Financial dot com
• 20:54
  Speaker 1: and they're TELF number six So eight four four two
• 20:56
  Speaker 1: five six three seven. Eric, I know there's a lot
• 20:59
  Speaker 1: more to this, isn't there.
• 21:03
  Speaker 5: Yes, there's a lot more to this, and ct I
• 21:07
  Speaker 5: think I might let you go into what that is.
• 21:10
  Speaker 3: Yeah, yeah, So, as Eric just was saying, I mean again,
• 21:13
  Speaker 3: on the defined benefit pension plan side of things. The
• 21:18
  Speaker 3: limitation is on the back end in terms of the
• 21:20
  Speaker 3: amount that you can receive based on kind of different formulas,
• 21:23
  Speaker 3: the contributions that you put into it. Again, you're typically
• 21:26
  Speaker 3: not going to have access to those contributions is a
• 21:28
  Speaker 3: single lump sum value. So the IRS is less concerned
• 21:31
  Speaker 3: about that and not to mention because the employer is
• 21:35
  Speaker 3: the one making the contributions, there's less tax hit to
• 21:39
  Speaker 3: the government on not restricting contributions. So I know for
• 21:45
  Speaker 3: a lot of you are going, huh, well, employers have
• 21:48
  Speaker 3: a lot of ways of deducting income. Whether they're a
• 21:51
  Speaker 3: pastor entity or a sea corp, it doesn't really matter.
• 21:54
  Speaker 3: They typically have a lot of ways to reduce their
• 21:56
  Speaker 3: taxable income. Individuals, on the other hand, are pretty limited, right,
• 22:00
  Speaker 3: you don't have a lot of ways to reduce your
• 22:02
  Speaker 3: taxable income. There's retirement account contributions, itemized deductions, but you know,
• 22:07
  Speaker 3: maybe some depreciation on rental properties, but you're gonna have
• 22:12
  Speaker 3: to generally pay.
• 22:12
  Speaker 4: Some income tax.
• 22:13
  Speaker 3: And so that's why when we start shifting to talk
• 22:17
  Speaker 3: about defined contribution plans, that's where the clear limitations start
• 22:22
  Speaker 3: to kick in. So if we think back to how
• 22:26
  Speaker 3: the employee is primarily responsible for funding defined contribution plans
• 22:31
  Speaker 3: along with investment decisions and risk associated with it. It
• 22:35
  Speaker 3: should come as no surprise that contribution limits for these
• 22:38
  Speaker 3: plans are more defined. In a defined contribution plan like
• 22:42
  Speaker 3: four one K, four through B, traditional IRA, so on
• 22:45
  Speaker 3: and so forth, there are specific maximum contribution amounts and
• 22:48
  Speaker 3: limitations announced annually by the IRS. So here are some
• 22:52
  Speaker 3: of those twenty twenty five contribution limits for defined contribution
• 22:56
  Speaker 3: plans based upon the account type. And remember that many
• 23:00
  Speaker 3: of these figures are adjusted annually, so when I tell
• 23:03
  Speaker 3: it to you this year, by twenty twenty six, it'll
• 23:06
  Speaker 3: be a different number. So let's begin with four H
• 23:09
  Speaker 3: one K, four H three B and most four to.
• 23:11
  Speaker 4: Fifty seven plans.
• 23:13
  Speaker 3: The employee Elective Deferral limit aka the amount the employee
• 23:18
  Speaker 3: can contribute for anyone under the age of fifty is
• 23:22
  Speaker 3: twenty three thousand, five hundred dollars in the year twenty
• 23:25
  Speaker 3: twenty five. If you are over the age of fifty,
• 23:28
  Speaker 3: you are generally eligible for a catchup contribution of an
• 23:31
  Speaker 3: additional seven thousand, five hundred on top of the standard
• 23:35
  Speaker 3: twenty three thousand, five hundred. However, if you are specifically
• 23:40
  Speaker 3: age sixty, sixty one, sixty two, or sixty three, you're
• 23:43
  Speaker 3: eligible for an additional eleven thousand, five hundred dollars in
• 23:47
  Speaker 3: a catchup contribution instead of only that seventy five hundred
• 23:52
  Speaker 3: dollars catchup contribution. So again, twenty three thousand, five hundred
• 23:57
  Speaker 3: is the base. There's a catch up contribute for those
• 24:00
  Speaker 3: who are over fifty, and that catchup is seventy five
• 24:03
  Speaker 3: hundred dollars unless you're sixty, sixty one, sixty two, or
• 24:06
  Speaker 3: sixty three, and then the seventy five hundred dollars number
• 24:09
  Speaker 3: goes away and the number is actually eleven five. Are
• 24:12
  Speaker 3: you confused yet?
• 24:13
  Speaker 2: A little bit? Go ahead as they talk with CJ.
• 24:18
  Speaker 1: Class and Eric Schwartze Klass financ telephon umber six oh
• 24:21
  Speaker 1: eight four four two five six three sevens the telephone ever,
• 24:24
  Speaker 1: no charge.
• 24:25
  Speaker 2: That initial gets to no you appointment at Class Financial.
• 24:27
  Speaker 1: It will be confidential to you again that number six
• 24:29
  Speaker 1: oh eight four four to two five six three seven.
• 24:32
  Speaker 1: Picking up with with a little of that confusion, let's
• 24:34
  Speaker 1: let's let's move on to the next point there.
• 24:36
  Speaker 4: CJ.
• 24:38
  Speaker 3: Yeah, I mean, listen, everybody, people often say do you
• 24:41
  Speaker 3: really need a financial planner? And I go, no, It's
• 24:45
  Speaker 3: just I spend all day every day doing this and
• 24:48
  Speaker 3: I still have to look.
• 24:50
  Speaker 4: Up the code to remember.
• 24:52
  Speaker 3: So I mean, I mean, maybe I'm just not that smart,
• 24:55
  Speaker 3: and a lot of people can keep a lot more
• 24:57
  Speaker 3: stuff in their brain. But this stuff has complicated and
• 25:00
  Speaker 3: shifting every single year, and so there's a reason why
• 25:02
  Speaker 3: we exist to help people navigate all of this. But
• 25:05
  Speaker 3: with that being said, so saying all of this information
• 25:09
  Speaker 3: in a slightly different way, here are the maximum deferrals
• 25:13
  Speaker 3: you can make into your four one K, four h
• 25:15
  Speaker 3: through B and forty seven when including basic elective deferrals
• 25:20
  Speaker 3: and catch up contributions just as like a total annual amount.
• 25:25
  Speaker 3: So for those forty nine years forty nine years old
• 25:28
  Speaker 3: and younger, the max you can put in is twenty
• 25:30
  Speaker 3: three thousand, five hundred. For those age fifty or older
• 25:36
  Speaker 3: but not sixty, sixty one, sixty two, or sixty three,
• 25:40
  Speaker 3: the max you can put in is thirty one thousand.
• 25:43
  Speaker 3: For those who are specifically age sixty sixty one, sixty two,
• 25:47
  Speaker 3: or sixty three, the max you can put into these
• 25:49
  Speaker 3: types of plans is thirty five thousand, Now, all these
• 25:53
  Speaker 3: figures do not include the separate but combined total contribution
• 25:58
  Speaker 3: limits for any one employee after accounting for the employee
• 26:02
  Speaker 3: limitation in combination with the employer contribution which can be
• 26:07
  Speaker 3: added by the employer through a matching contribution or profit
• 26:09
  Speaker 3: sharing contribution.
• 26:11
  Speaker 4: So on and so forth.
• 26:12
  Speaker 3: Unfortunately, we just don't have enough time during the show
• 26:15
  Speaker 3: today to dig into what that limitation is. But what
• 26:17
  Speaker 3: you should know is what we just went through there.
• 26:19
  Speaker 3: Those numbers are just for the like employee elective deferrals,
• 26:23
  Speaker 3: what you put in out of your paycheck. There is
• 26:26
  Speaker 3: actually another limitation for but what if my employer wants
• 26:29
  Speaker 3: to put in profit sharing or matching dollars? Can they
• 26:32
  Speaker 3: put in you know, two hundred thousand like Eric was
• 26:34
  Speaker 3: talking about before. And the answer is no, there's a
• 26:37
  Speaker 3: total contribution limit there, But we just don't have time
• 26:40
  Speaker 3: to dig it.
• 26:41
  Speaker 2: Talk this morning with CJ.
• 26:42
  Speaker 1: Closs and Eric Schwartz, our retirement planning professionals from Class Financial.
• 26:46
  Speaker 1: Of course, the website colss financial dot com. That's Coss
• 26:48
  Speaker 1: Klaasfinanci dot com. They're teph number six oh eight four
• 26:52
  Speaker 1: four two five six three seven. No charge for that
• 26:55
  Speaker 1: initial get to know you appointment tech Loss Financial. It
• 26:57
  Speaker 1: will be complimentary to you again. Their numbers six eight
• 27:00
  Speaker 1: four four two five, six three seven. We'll take it
• 27:03
  Speaker 1: down the home stretch and get the Class quiz last week.
• 27:05
  Speaker 1: We'll do that next. As Money in Motion with Coss
• 27:07
  Speaker 1: Financial continues right here on thirteen ten, Wuiba talking this
• 27:11
  Speaker 1: morning with CJ. Class and Eric Schwartz, our retirement planning
• 27:14
  Speaker 1: professionals from Class Financial. They're telephone number six oh eight
• 27:17
  Speaker 1: four four two five, six three seven. No charge for
• 27:20
  Speaker 1: that initial get to know your appointment dech Loss Financial.
• 27:22
  Speaker 1: It will be complimentary to you again. They're number six
• 27:25
  Speaker 1: oh eight four four two five six three seven. And
• 27:27
  Speaker 1: as we're talking this week, CJ, you know, one of
• 27:29
  Speaker 1: the things I sometimes, because you guys do such a
• 27:32
  Speaker 1: great job laying this stuff out on a very high level,
• 27:35
  Speaker 1: I do think sometimes people think some of this stuff
• 27:37
  Speaker 1: is maybe a little a little simpler than it may
• 27:41
  Speaker 1: actually be. That we're talking very very nuanced, very you know,
• 27:45
  Speaker 1: pretty significant impacts making sure that things are done right.
• 27:48
  Speaker 1: And as we kind of take it down the home
• 27:50
  Speaker 1: stretch here, let's kind of wrap this up and talk
• 27:53
  Speaker 1: a little bit about some of the other other bullet
• 27:55
  Speaker 1: points that people really need to keep in mind here.
• 27:57
  Speaker 2: CJ.
• 27:58
  Speaker 4: Yeah, I know you're right, Sean.
• 27:59
  Speaker 3: I mean, and it truth be told when you do
• 28:02
  Speaker 3: what we do and you communicate with people in many
• 28:05
  Speaker 3: different forms. Obviously we have this radio show, we meet
• 28:08
  Speaker 3: with people individually, and then we will do presentations to
• 28:11
  Speaker 3: large groups. I do get the sense of being it
• 28:15
  Speaker 3: being woefully inadequate for us to try to go through
• 28:18
  Speaker 3: these numbers on the error now. Now, maybe some of
• 28:21
  Speaker 3: you are at your desk right now writing down these numbers,
• 28:23
  Speaker 3: and if you are.
• 28:24
  Speaker 4: God bless you, I'm so thankful that you have the
• 28:26
  Speaker 4: ability to do that. Others of you are on the
• 28:28
  Speaker 4: road right now going. Do you think expect me to
• 28:31
  Speaker 4: remember this stuff?
• 28:31
  Speaker 3: And it's kind of the answer is no, no, I
• 28:34
  Speaker 3: expect you to kind of maybe retain a little bit
• 28:36
  Speaker 3: and up your IQ a little bit, but hopefully it
• 28:38
  Speaker 3: helps you.
• 28:39
  Speaker 4: Seek good advice at some point.
• 28:41
  Speaker 3: But let's just quickly go through a couple other types
• 28:44
  Speaker 3: of defined contribution retirement plans and the limitations associated with
• 28:49
  Speaker 3: those from a contribution standpoint. So again, let's talk about
• 28:52
  Speaker 3: simple irays in twenty twenty five, if you are under
• 28:55
  Speaker 3: fifty the maximum you can contribute as an employee to
• 28:59
  Speaker 3: your simple IRA plan is sixteen thousand, five hundred. If
• 29:02
  Speaker 3: you're fifty or older, as an employee, you can contribute
• 29:05
  Speaker 3: sixteen thousand, five hundred plus a ketchup contribution of another
• 29:09
  Speaker 3: thirty five hundred, bringing your total maximum contribution up to
• 29:12
  Speaker 3: twenty thousand. And then, similar to the four oh one
• 29:15
  Speaker 3: K and four h three B world, if you are
• 29:17
  Speaker 3: specifically aged sixty, sixty one, sixty two, or sixty three,
• 29:20
  Speaker 3: you can do that same sixteen thousand, five hundred, but
• 29:23
  Speaker 3: your catchup is larger, and that ketchup is five thousand,
• 29:26
  Speaker 3: two hundred and fifty, bringing your total maximum contribution up
• 29:30
  Speaker 3: to twenty one thousand, seven hundred and fifty.
• 29:33
  Speaker 4: Once again, this.
• 29:34
  Speaker 3: Is only the limit for the employee contribution and does
• 29:37
  Speaker 3: not include any total contribution limits when you add employee
• 29:41
  Speaker 3: and employer.
• 29:42
  Speaker 4: We just don't have time for that today.
• 29:44
  Speaker 3: And then finally moving on to the contribution limits for
• 29:47
  Speaker 3: traditional irays and wroth irays. Now remember these are typically
• 29:51
  Speaker 3: not sponsored by employers. These are typically like, I just
• 29:56
  Speaker 3: work somewhere that doesn't have a retirement plan, and I
• 30:00
  Speaker 3: I want to contribute to a retirement plan. But there's
• 30:02
  Speaker 3: no sponsoring by my employer.
• 30:04
  Speaker 4: What do I do well?
• 30:05
  Speaker 3: That's often where traditional iras and wroth iras come in.
• 30:08
  Speaker 3: So talking about contribution limits. If you're under fifty, the
• 30:12
  Speaker 3: maximum you can contribute to a traditional or wroth iras
• 30:15
  Speaker 3: seven thousand dollars in twenty twenty five. If you're fifty
• 30:18
  Speaker 3: or older, you can contribute seven thousand, plus a catch
• 30:21
  Speaker 3: up contribution of another one thousand, bringing your total maximum contribution.
• 30:26
  Speaker 4: Up to eight thousand.
• 30:28
  Speaker 3: However, here's the key. Your ability to deduct contributions made
• 30:33
  Speaker 3: into your traditional IRA may be limited by your modified
• 30:36
  Speaker 3: adjustic gross income in any calendar year. Furthermore, you may
• 30:40
  Speaker 3: not even be eligible to perform a roth IRA contribution
• 30:44
  Speaker 3: if you're modified adjust gross income is too high under
• 30:47
  Speaker 3: certain circumstances. So here's what I want everybody to understand.
• 30:53
  Speaker 3: Each of these types of defined contribution retirement plans has
• 30:57
  Speaker 3: their own limits and their own rules. You'll notice, in
• 31:01
  Speaker 3: like the simple IRA world and in the four to
• 31:03
  Speaker 3: one K four H three B world, we didn't really
• 31:05
  Speaker 3: talk about income limitations. You could be earning ten million
• 31:09
  Speaker 3: dollars a year and still max out a four oh
• 31:10
  Speaker 3: one k plan, there's no income limitations.
• 31:13
  Speaker 4: But then when we.
• 31:13
  Speaker 3: Talked about traditional iras and roth iras, I said, there
• 31:16
  Speaker 3: might be limitations if you earn too much or if
• 31:19
  Speaker 3: you're magized too high. And it's not even that you
• 31:21
  Speaker 3: can't contribute, you might just not be able to deduct.
• 31:24
  Speaker 3: It's it's again back to God bless you if you
• 31:28
  Speaker 3: can keep this all in your head. We barely can,
• 31:31
  Speaker 3: and we do this for a career. So I would
• 31:33
  Speaker 3: just encourage you if you're going to try to navigate
• 31:35
  Speaker 3: through define contribution to find benefit over multiple employers over
• 31:40
  Speaker 3: decades of a career, you can quickly get the sense
• 31:44
  Speaker 3: of why we have a job to help people navigate
• 31:47
  Speaker 3: all of this to make wise decisions that hopefully then
• 31:49
  Speaker 3: as you get to retirement, help you maximize the lifestyle
• 31:53
  Speaker 3: you're looking for.
• 31:53
  Speaker 1: It's a really good day to start that conversation. You
• 31:55
  Speaker 1: can learn more at cossfinancial dot com. That's Coss Klaasfinancial
• 31:59
  Speaker 1: dot com or TELF number six O eight four four
• 32:01
  Speaker 1: two five six three seven. Don't forget no charge for
• 32:04
  Speaker 1: that initial get to know you appoyment tech loss Financial.
• 32:06
  Speaker 1: It will be complimentary to you again their number six
• 32:08
  Speaker 1: oh eight four four two five, six three seven. Want
• 32:11
  Speaker 1: to hold on to that telephone number because it's time
• 32:12
  Speaker 1: now for the coss quiz question of the week. It
• 32:14
  Speaker 1: works like this, in just a moment to ask you
• 32:15
  Speaker 1: the loss quiz question the week. You'll then have thirty
• 32:17
  Speaker 1: minutes from the today's program to call the class Financial
• 32:19
  Speaker 1: Office right here in Madison at six oh eight four
• 32:21
  Speaker 1: four two five, six three seven. If you are the
• 32:24
  Speaker 1: first cost correct answer, win this week's prize, which is
• 32:26
  Speaker 1: say twenty five dollars gift card to Darden Restaurants. This
• 32:29
  Speaker 1: week's loss quiz question the week? Is this true or false?
• 32:32
  Speaker 1: Traditional defined benefit pension plans have become significantly less common
• 32:38
  Speaker 1: due to complexity and cost. Telephone number six oh eight
• 32:41
  Speaker 1: four four two five six three seven, first cost correct
• 32:44
  Speaker 1: answer when that twenty five dollars gift card to Garden restaurants.
• 32:46
  Speaker 1: And now forguy as well, let's cost Financial Office right
• 32:48
  Speaker 1: here in Madison. C J. Eric, It's always great chatting
• 32:51
  Speaker 1: with you guys. You guys have a fantastic day. Thanks
• 32:54
  Speaker 1: Sean doctor, take care, Eric, Doctor Marty Greer join us
• 32:57
  Speaker 1: next year at thirteen ten wiby eight