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Tax Alpha: The Hidden Return Most Investors Overlook · Money In Motion with Klaas Financial

0:00
Speaker 1: And our phone lines are open for you right now
0:02
Speaker 1: at 608-321-1310. That's 608-321-1310. If you have questions for our
0:08
Speaker 1: retirement planning professionals from Klaus Financial, love to get you
0:11
Speaker 1: on the air with us this morning. Again, telephone number 608-321-1310.
0:13
Speaker 1: We're going to be talking this week with Eric and
0:18
Speaker 1: CJ about tax alpha, the hidden return most investors overlook.
0:22
Speaker 1: And if you've got a question about the specific topic
0:24
Speaker 1: at hand or anything retirement related, We'd love to get
0:27
Speaker 1: you on the air.
0:29
Speaker 2: 608-321-1310.
0:29
Speaker 3: You can learn more about Kloss Financial. They've got a
0:31
Speaker 3: great website.
0:32
Speaker 1: It is klossfinancial.com. That's kloss, K-L-A-S, financial.com. Not only can
0:38
Speaker 1: you learn about Kloss Financial, they're separate divisions, how they
0:40
Speaker 1: can help you. Or if you're an employer, you can
0:43
Speaker 1: also schedule a complimentary conversation right from the website, klossfinancial.com.
0:48
Speaker 1: Or if you prefer, pick up the telephone, give.
0:49
Speaker 3: Them a call.
0:50
Speaker 1: All you got to do is that is 608 442-5637
0:53
Speaker 1: is the telephone number for Kloss Financial's office right here
0:56
Speaker 1: in Madison. No charge for that initial. Get to know
0:58
Speaker 1: your appointment at Kloss Financial. It will indeed be complimentary
1:02
Speaker 1: to you. Again, their number is 608-442-5637.
1:05
Speaker 3: And who do we have in studio this morning?
1:07
Speaker 1: Yes, as mentioned, C.J. Kloss and Eric Schwartz of Kloss Financial. C.J.,
1:11
Speaker 1: how are you doing this morning?
1:12
Speaker 4: I'm doing great, Sean.
1:13
Speaker 3: How are you? Doing well. Great to see you. Eric,
1:15
Speaker 3: how have you been?
1:16
Speaker 2: Not too bad.
1:17
Speaker 3: Happy to be back.
1:18
Speaker 1: It's great to have both of you guys here. And
1:21
Speaker 1: we've got so much fun stuff and important stuff to
1:23
Speaker 1: talk about. We're going to talk about proactive tax planning
1:26
Speaker 1: and kind of add the value there to it as well.
1:29
Speaker 1: And I can really add more value than things like
1:31
Speaker 1: trying to beat the market. And we'll get the details
1:33
Speaker 1: from CJ and Eric in just a moment. As mentioned,
1:35
Speaker 1: phone lines are open 321-1310. That's 321-1310. Before we start
1:40
Speaker 1: this week's conversation, one of the cool features of the
1:42
Speaker 1: show also is the Klaus Quiz Question Week. your chance
1:44
Speaker 1: to win a fantastic prize. This week, our friends from
1:47
Speaker 1: Klaus Financial have provided a $ 25 gift card to Texas Roadhouse.
1:51
Speaker 1: Tell you a little bit later on the program how
1:53
Speaker 1: you can win that prize. Little tip, if you listen closely,
1:56
Speaker 1: just about every show, the question and answer come up
1:58
Speaker 1: during the program.
1:59
Speaker 3: So it definitely benefits you to pay close attention. And
2:02
Speaker 3: before we.
2:02
Speaker 1: Start this week's conversation, Eric, let's actually look back at
2:05
Speaker 1: our previous show and get the question and answer there
2:08
Speaker 1: as well.
2:09
Speaker 2: Yeah, so last week we were talking about property and
2:12
Speaker 2: casualty insurance, your home insurance, your liability. And our question
2:16
Speaker 2: was true or false. An umbrella insurance policy replaces the
2:20
Speaker 2: liability coverage provided by your homeowners and your auto policies.
2:25
Speaker 2: The answer to that is false. An umbrella policy is
2:28
Speaker 2: going to provide an additional layer of protection over and
2:31
Speaker 2: above the liability that you have from your home or
2:34
Speaker 2: your auto policy.
2:35
Speaker 3: And that was a fantastic program.
2:36
Speaker 1: Folks can listen back and subscribe to the podcast as
2:38
Speaker 1: well right at KlausFinancial.com. That's Klaus, K-L-A-A-S-Financial.com. So today's program
2:44
Speaker 1: titled Tax Alpha, The Hidden Return Most Investors Overlook. And CJ,
2:50
Speaker 1: most folks have probably heard the term investment alpha, but
2:53
Speaker 1: what exactly is tax alpha?
2:56
Speaker 4: Yeah, we're excited to discuss this topic today because we
2:59
Speaker 4: talk about this quite often in our internal advisory meetings
3:03
Speaker 4: where often people will come in and say, I want
3:06
Speaker 4: to buy investments with Alpha. And I'll define what Alpha
3:09
Speaker 4: is here in a moment for everybody, but I want
3:12
Speaker 4: to beat the market is kind of the whole idea.
3:14
Speaker 4: We spend a lot of time trying to find the
3:16
Speaker 4: right products and solutions to beat the market, and yet
3:19
Speaker 4: it's elusive. It doesn't often happen. And yet when it
3:21
Speaker 4: comes to tax planning, it's quite simple and quantifiable. It's like, well,
3:25
Speaker 4: if we don't pay this and we allow this to
3:27
Speaker 4: compound and this is kind of what it could turn
3:30
Speaker 4: out to be in the future. And so we would suggest,
3:34
Speaker 4: and part of the point of today's show is the
3:37
Speaker 4: idea that tax alpha is actually a lot more consistent
3:41
Speaker 4: and calculable than investment alpha. So let me define this
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Speaker 4: a little bit. Tax alpha is the additional after-tax wealth
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Speaker 4: that may be created through proactive tax planning, regardless of
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Speaker 4: whether investment returns are higher or lower. Investment alpha, on
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Speaker 4: the other hand, is the idea that someone can consistently
3:59
Speaker 4: outperform the market through superior investment selection. And while many
4:04
Speaker 4: investors chase alpha, research has shown that consistently beating the
4:08
Speaker 4: market over long periods of time is extremely difficult. This
4:12
Speaker 4: gets into kind of the efficiency of the market. So
4:16
Speaker 4: tax alpha is different than investment alpha. You're not trying
4:19
Speaker 4: to predict stock prices. Instead, you're looking for opportunities to
4:23
Speaker 4: reduce taxes, increase after-tax income, and keep more of what
4:27
Speaker 4: you've already earned.
4:29
Speaker 1: Really interesting stuff this morning.
4:31
Speaker 3: It's going to be an exciting program, as always.
4:33
Speaker 1: Again, if you've got questions, we'd love to get you
4:34
Speaker 1: on the air.
4:36
Speaker 4: 608-321-1310.
4:36
Speaker 1: That's 608-321-1310. The website, klausfinancial.com. That's klaus, K-L-A-A-S, financial.com. Their
4:44
Speaker 1: telephone number for the office right here in Madison, 608-321-1310. 442-5637.
4:49
Speaker 1: So that's really interesting stuff that CJ just laid out.
4:52
Speaker 1: So Eric, why has tax planning become such an important
4:55
Speaker 1: area of focus for retirees?
4:57
Speaker 2: Yeah, it's a great question. I think it's because retirement
5:00
Speaker 2: really creates a tremendous amount of tax planning flexibility and opportunity.
5:06
Speaker 2: When you're no longer receiving a paycheck every couple of weeks,
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Speaker 2: you are not just getting your income from one source
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Speaker 2: and you have options, right? You can decide where you
5:15
Speaker 2: draw your income from if you plan appropriately. And, you know,
5:20
Speaker 2: as you spend your working years simply kind of accumulating assets,
5:24
Speaker 2: you come to retirement and suddenly you have choices, right?
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Speaker 2: Which account should I withdraw from to meet those cash
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Speaker 2: flow needs? Should I do a Roth conversion? When should
5:34
Speaker 2: I claim my Social Security benefits? How can I reduce
5:38
Speaker 2: my future required minimum distributions? I think we've done quite
5:42
Speaker 2: a few shows on RMDs, so listen to those. How
5:45
Speaker 2: do I leave assets to my children efficiently? So the
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Speaker 2: answers to those questions can really impact your taxes for decades.
5:53
Speaker 2: And ultimately, they can affect how much spendable income a
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Speaker 2: retiree actually gets to keep, like CJ was just saying.
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Speaker 1: I'm guessing at the bottom, that's probably the most important
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Speaker 1: bottom line right there is how much do I get
6:04
Speaker 1: to hold on to? Fascinating stuff this week for sure.
6:07
Speaker 1: If you've got any questions, we'd love to have you
6:09
Speaker 1: join us this morning. All I got to do is
6:10
Speaker 1: pick up phone dial into station 608-321-1310.
6:11
Speaker 3: That's 608-321-1310.
6:16
Speaker 1: A lot of these programs, obviously, we have so much fun,
6:18
Speaker 1: but there's a lot of information in these shows as well.
6:20
Speaker 1: You may want to listen back or maybe you missed
6:22
Speaker 1: part of the show or maybe you want to share
6:24
Speaker 1: it with somebody. Head on over to KlausFinancial.com. That's KlausFinancial.com.
6:28
Speaker 1: That's K-L-A-A-S-Financial.com. From the website, you can listen back to
6:32
Speaker 1: this and previous shows, podcasts. Also, subscribe right online at KlausFinancial.com.
6:37
Speaker 1: You can also schedule a complimentary conversation from the website
6:39
Speaker 1: or give them a call, 608-442-5637. CJ, let's get some
6:45
Speaker 1: practical advice then when it comes to tax alpha.
6:48
Speaker 4: Yeah. So, you know, again, just for everybody who's popping
6:51
Speaker 4: in and out of the show, we are talking about
6:53
Speaker 4: the difference between investment alpha versus tax alpha. And in
6:57
Speaker 4: financial planning, actually, it's important for people to understand we
7:01
Speaker 4: have a portfolio management team that manages underlying investment portfolios
7:05
Speaker 4: for clients. And then we have a planning team as well.
7:08
Speaker 4: And both our investment and planning team would agree on
7:12
Speaker 4: the statement that tax alpha is a much better place
7:16
Speaker 4: to spend your time than investment alpha. It hasn't always
7:20
Speaker 4: been this way, by the way. Back in the day,
7:22
Speaker 4: the efficiency of the market was very different than it
7:25
Speaker 4: is today because there weren't as many participants and there
7:27
Speaker 4: wasn't as much volume. Not to mention you could only
7:30
Speaker 4: access markets through a broker back in the day. So
7:32
Speaker 4: you used to be able to kind of like gain
7:35
Speaker 4: information and kind of trade here and there and with
7:38
Speaker 4: some level of consistency, find some excess return above and
7:42
Speaker 4: beyond what you would expect from the market. But that
7:44
Speaker 4: is really, if you look at data on this, that
7:46
Speaker 4: is really diminishing now. And so the whole point of
7:50
Speaker 4: the show is to say, hey, if you're going to
7:51
Speaker 4: spend time from a financial planning perspective anywhere, spend a
7:55
Speaker 4: lot more time on tax alpha. So here'd be an example.
7:59
Speaker 4: One of the best examples of this, this whole tax
8:01
Speaker 4: alpha concept is Roth conversion planning. So imagine two retirees
8:05
Speaker 4: who have identical investment portfolio earning identical returns. So same
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Speaker 4: portfolios earning same returns. One retiree performs strategic Roth conversions
8:15
Speaker 4: during lower income years. The other doesn't. 20 years later,
8:20
Speaker 4: they may have very different after-tax outcomes even though their
8:24
Speaker 4: investments performed exactly the same because there's this notion in
8:29
Speaker 4: financial planning. It's not even a notion. It's just the
8:31
Speaker 4: fact that– you have buckets each year that you can
8:35
Speaker 4: fill up or not fill up. So if you understand
8:38
Speaker 4: marginal income tax brackets, you can fill up buckets to
8:40
Speaker 4: the top of that bracket. And then once you go
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Speaker 4: over that, you go into a higher bracket. Roth conversions
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Speaker 4: is about both using those buckets and about leveling out
8:49
Speaker 4: the tax impact over a lifetime. And so it's not
8:52
Speaker 4: that complicated once you understand it. Although I will admit,
8:55
Speaker 4: we have consumers come in who think they understand it.
8:57
Speaker 4: And then I asked them about it and it's like,
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Speaker 4: Very few consumers actually understand the point of a Roth
9:03
Speaker 4: conversion and how to do the calculation to get there.
9:06
Speaker 4: But once you understand it and you put it into place,
9:09
Speaker 4: it's not that complicated. You just kind of carry it out.
9:12
Speaker 4: But we can attest over a retirement, the difference is massive.
9:19
Speaker 4: And again, we're using the same portfolio. We're not talking
9:22
Speaker 4: about investment returns. We're holding all of that constant. And yet,
9:25
Speaker 4: if you can just do this core behavioral mechanical Roth conversion,
9:31
Speaker 4: you can end up with a lot more wealth passed
9:34
Speaker 4: on to your children or wealth available for yourself. So
9:38
Speaker 4: it doesn't come from finding a better stock. Tax alpha
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Speaker 4: comes from making better tax decisions. So while investment alpha
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Speaker 4: is often pursued but rarely achieved consistently, tax alpha tends
9:50
Speaker 4: to reveal itself over time. And the impact may be
9:54
Speaker 4: difficult to see in a single year, but then over
9:56
Speaker 4: a 20 or 30 year timeframe, the dollars saved through
10:00
Speaker 4: thoughtful tax planning often become substantial and measurable. So just
10:06
Speaker 4: for everybody out there, because we've done this for 50
10:08
Speaker 4: years as a business, this is not a concept to us.
10:10
Speaker 3: This is a reality that we live every day.
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Speaker 4: So we might do a conversion and go, eh, six
10:15
Speaker 4: of one, a half dozen of the other, but you
10:17
Speaker 4: do a conversion and 1, 2, 3, 4, 5, 6, 7, 8, 9,
10:20
Speaker 4: 10 times, and then you work with that person until death,
10:23
Speaker 4: you get to see the difference, and it is significant.
10:26
Speaker 1: It seems like a really big deal as we talk
10:28
Speaker 1: about tax alpha and the hidden return most investors are overlooking.
10:32
Speaker 1: And we're going to continue our conversation with CJ and Eric.
10:35
Speaker 1: You may have kind of caught the gist that maybe
10:39
Speaker 1: investment performance is just as important as taxes, and we're
10:42
Speaker 1: going to get the details from CJ and Eric.
10:44
Speaker 3: We will do that in just a moment. In the meantime.
10:45
Speaker 1: I hope you take the opportunity to check out the website, KlausFinancial.com.
10:49
Speaker 1: That's Klaus, K-L-A-A-S, Financial.com. It's a great resource to kind
10:53
Speaker 1: of learn all about Klaus Financial, learn about the team there.
10:56
Speaker 3: You can also learn about their separate divisions.
10:58
Speaker 1: Another cool opportunity there is to sign up for a
11:00
Speaker 1: free conversation at Klaus Financial, a complimentary chat. right online
11:04
Speaker 1: at klossfinancial.com. That's kloss, K-L-A-S, financial.com. Or you can give
11:08
Speaker 1: a call right here in Madison. Their telephone number, 608-442-5637.
11:13
Speaker 1: No charge for that initial get-to-know-you appointment at Kloss Financial.
11:16
Speaker 1: It will be complimentary to you.
11:18
Speaker 3: Again, their number, 608-442-5637.
11:19
Speaker 1: We'll continue our conversation with CJ and Eric and take
11:23
Speaker 1: your call next as Money in Motion with Kloss Financial
11:26
Speaker 1: continues right here on 1310 WIBA. Talking with our retirement
11:34
Speaker 1: planning professionals from Kloss Financial, CJ Kloss and Eric Schwartz.
11:37
Speaker 1: You can learn all about Kloss Financial on the website klossfinancial.com.
11:41
Speaker 1: That's kloss, K-L-A-S, financial.com. You can also schedule a complimentary
11:46
Speaker 1: chat right from the website. Again, that's klossfinancial.com. Or you
11:49
Speaker 1: can give them a call right at the office here
11:50
Speaker 1: in Madison, 608-442-5637. Again, no charge for that initial. Get
11:55
Speaker 1: to know your appointment at klossfinancial.com. It will be complimentary
11:58
Speaker 1: to you. Again, their number 608-442-5637. Talking tax alpha this week,
12:04
Speaker 1: the hidden return most investors overlook.
12:06
Speaker 3: And Eric, just before the break, CJ had been talking
12:09
Speaker 3: just about what tax alpha is.
12:11
Speaker 1: And I think, correct me if I'm wrong, I think
12:13
Speaker 1: a lot of folks, and I think this is probably right,
12:15
Speaker 1: focus really heavily on investment performance. And it feels so
12:18
Speaker 1: like you're suggesting taxes are just as important.
12:22
Speaker 3: They matter just as much. Absolutely.
12:24
Speaker 2: And I think it makes sense that people focus on
12:27
Speaker 2: investment alpha because it's easier to see, it's easier to understand, right?
12:31
Speaker 2: But if we're considering someone that's earning an extra 1%
12:35
Speaker 2: investment return every year, I mean, CJ, I think most
12:38
Speaker 2: clients would be pretty happy to just add that onto
12:41
Speaker 2: the performance every year. But if you have thoughtful tax
12:44
Speaker 2: planning that can reduce your future tax liabilities, can lower
12:48
Speaker 2: your Medicare surcharges, it can reduce taxation of your Social
12:52
Speaker 2: Security benefits, and improve your estate outcomes, the impact can
12:56
Speaker 2: be every bit as meaningful and, honestly, in many cases,
13:01
Speaker 2: more predictable, even if it's not as easy to see
13:04
Speaker 2: on the surface. So the goal shouldn't just be maximizing returns.
13:07
Speaker 2: The goal should also include maximizing that after-tax wealth or
13:11
Speaker 2: how much you keep.
13:12
Speaker 3: That really makes sense, Eric.
13:13
Speaker 1: And what are some of the things, kind of look
13:15
Speaker 1: at some of those areas that you see where you
13:18
Speaker 1: find most commonly see those opportunities for tax elphing?
13:23
Speaker 2: Yeah, I'm going to go over a quick list here.
13:24
Speaker 2: And what you may notice or regular listeners may notice
13:27
Speaker 2: is we have done shows on most of these topics here.
13:30
Speaker 2: So you can go back and learn more about each
13:32
Speaker 2: of them. But several areas stand out. And none of
13:36
Speaker 2: these strategies are particularly exciting on the surface, but that's
13:40
Speaker 2: actually the point. When we pull all of these together,
13:42
Speaker 2: they can be really, really impactful. So Roth conversion analysis,
13:46
Speaker 2: CJ was just talking about this, fast-tracking some of those
13:51
Speaker 2: taxable retirement withdrawals to take advantage of tax brackets. Tax
13:57
Speaker 2: efficient withdrawal strategies. So thinking more about where your income
14:00
Speaker 2: is coming from rather than just picking an account and
14:03
Speaker 2: drawing it out every month or every year. Capital gain management.
14:08
Speaker 2: So thinking about managing that after tax investment account efficiently
14:13
Speaker 2: and thinking about the impact of trading on your tax return.
14:18
Speaker 2: Tax loss harvesting. So this is going to go along
14:20
Speaker 2: with that capital gain management. It's part of a a
14:23
Speaker 2: strategy to manage your brokerage account or your non-retirement account
14:29
Speaker 2: in a tax-efficient manner. Asset location decisions, thinking about the
14:34
Speaker 2: types of investments that we put in different accounts depending
14:38
Speaker 2: on how they are taxed. Qualified charitable distributions, this is
14:42
Speaker 2: one we have talked about a lot on the show
14:45
Speaker 2: over time. The idea of giving directly from your individual
14:50
Speaker 2: retirement account to take advantage of the tax benefits of that.
14:53
Speaker 2: Social security timing. We talked earlier in the show about
14:56
Speaker 2: the advantages of moving into retirement and having control over
15:00
Speaker 2: where your income is coming from. Well, you can decide
15:04
Speaker 2: when you start that social security income. And social security
15:07
Speaker 2: income behaves more like your paycheck, right? We can't control
15:10
Speaker 2: when it comes or how much once you start it.
15:13
Speaker 2: So we want to think in depth about that. Estate
15:17
Speaker 2: and legacy planning. Okay, this is a huge topic. And
15:20
Speaker 2: in fact, we've done many shows about the different parts
15:24
Speaker 2: of estate and legacy planning, but this can really, really
15:26
Speaker 2: add value to an individual's wealth. And individually, each of these,
15:33
Speaker 2: like I said earlier, they appear pretty modest, but over
15:36
Speaker 2: a retirement that could last 25 or 30 years, hopefully,
15:41
Speaker 2: those small decisions can compound into meaningful value over time.
15:46
Speaker 3: Really important stuff.
15:47
Speaker 1: And as you mentioned too there, Eric, a lot of
15:49
Speaker 1: these things we've covered in great depth on podcasts in
15:51
Speaker 1: the past, and it really highlights the importance of understanding
15:54
Speaker 1: these things and kind of bringing them all together as well.
15:56
Speaker 1: Speaking of those podcasts, don't forget you can subscribe right online, KlausFinancial.com.
16:00
Speaker 1: That's Klaus, K-L-A-A-S-Financial.com. While you're there, you can learn all
16:04
Speaker 1: about Klaus Financial. You can learn about the team. You
16:06
Speaker 1: can also learn about their separate divisions. Also an opportunity
16:09
Speaker 1: to schedule that complimentary conversation right from the website, KlausFinancial.com.
16:13
Speaker 1: That's Klaus, K-L-A-A-S-Financial.com. Their telephone number is 608-442-5637. Talking with
16:20
Speaker 1: CJ and Eric this morning about tax alpha and the
16:23
Speaker 1: hidden return most folks overlook. And CJ, does this mean
16:26
Speaker 1: that everybody should then be aggressively pursuing tax minimization?
16:32
Speaker 3: Yeah, good question.
16:33
Speaker 4: So not necessarily. So the... This is where many people
16:39
Speaker 4: get confused. The objective isn't to pay the lease tax
16:43
Speaker 4: this year. The objective is to pay the lease tax
16:47
Speaker 4: over your lifetime. So we often will run into this
16:52
Speaker 4: with accounting firms where somebody will go meet with their
16:55
Speaker 4: accountant and the accountant says, what do you want me
16:57
Speaker 4: to do? We'll file my taxes and see if there's
16:59
Speaker 4: any deductions and minimize as much as you can. And
17:03
Speaker 4: then the accountant looks and says, well, there's a Roth
17:05
Speaker 4: conversion that costs you more in taxes. And the client
17:07
Speaker 4: comes back to us and says, my accountant said we'd
17:09
Speaker 4: pay more in taxes this year than we needed to.
17:11
Speaker 4: And we go, yeah, yeah, yeah. That's the whole point
17:13
Speaker 4: of the Roth conversion is we're going to pay a
17:14
Speaker 4: little bit more this year, but then over the long run,
17:16
Speaker 4: we'll pay less. And you get the idea, right? The
17:19
Speaker 4: accountant's thinking this year, we're thinking lifetime. Now there certainly
17:24
Speaker 4: is a balance to be had here. There's nothing to
17:26
Speaker 4: say like, oh, let's blow out of all of your
17:28
Speaker 4: taxes this year because 40 years from now, you'll end
17:30
Speaker 4: up better off. I mean, you have to You have
17:32
Speaker 4: to balance the present with the future as it relates
17:34
Speaker 4: to these topics. But this is, from our perspective at least,
17:37
Speaker 4: the beauty of working with a financial planner because they're
17:41
Speaker 4: going to try to help you balance those two things.
17:44
Speaker 4: When you're working with a money manager alone, they're going
17:47
Speaker 4: to say, how much money do you have? How much
17:48
Speaker 4: risk tolerance do you have? And how much return can
17:50
Speaker 4: we try to jack out of these investments, right? When
17:52
Speaker 4: you work with a tax planner alone, they're going to say,
17:56
Speaker 4: what did you do in terms of tax treatments? And
17:58
Speaker 4: what can I do to finagle this to try to
17:59
Speaker 4: reduce your tax bill today? But a financial planner, in
18:03
Speaker 4: our experience, especially a fee-based fiduciary, is going to look
18:07
Speaker 4: more and sound a lot more like you. They're going
18:10
Speaker 4: to say, well, sure, I don't want to pay more
18:12
Speaker 4: taxes today. But if I do pay a little bit
18:16
Speaker 4: more now and then my kids get more at the end,
18:19
Speaker 4: I might be willing to consider that as long as
18:22
Speaker 4: it's not completely weighted one direction or the other. So
18:26
Speaker 4: sometimes paying more taxes today can create greater benefits tomorrow.
18:31
Speaker 4: So the example that we already talked about was the
18:33
Speaker 4: Roth conversion, and it intentionally generates a little bit more
18:37
Speaker 4: tax today to level out that tax burden over a
18:40
Speaker 4: long arc of time. And you guys heard the list
18:43
Speaker 4: that Eric just went through. It can be hard for
18:45
Speaker 4: the average consumer to delineate what does it sound like
18:50
Speaker 4: to work with an advisor who's focused on investments, investment alpha,
18:55
Speaker 4: versus an advisor who's focused on like comprehensive planning alpha.
19:00
Speaker 4: And I'll try to make this a little bit more
19:03
Speaker 4: every day for our listeners so that when they're working
19:05
Speaker 4: with their advisor, they can catch on to this. If
19:09
Speaker 4: your advisor is kind of slow and methodically trying to
19:12
Speaker 4: understand your goals and your arc of time and what
19:14
Speaker 4: you care about, and they talk about things like Roth
19:16
Speaker 4: conversions and tax efficiency and your after-tax return and asset location,
19:22
Speaker 4: things like that. That is a comprehensive financial planning advisor.
19:26
Speaker 4: If you're meeting with your advisor and immediately after asking
19:29
Speaker 4: about your friends, friends and family members, they go to,
19:32
Speaker 4: here's how your accounts did today, right? And by the way,
19:35
Speaker 4: I think I heard that tech's really going to do.
19:38
Speaker 3: Well this year.
19:38
Speaker 4: We should buy into tech. That is an investment alpha
19:42
Speaker 4: focused advisor. Now, am I saying one's absolutely the best
19:48
Speaker 4: and the other one's the worst?
19:49
Speaker 2: No.
19:50
Speaker 4: I'm just saying that good luck. Good luck beating the
19:53
Speaker 4: market in a pretty efficient marketplace. If your advisor thinks
19:56
Speaker 4: that tech's going to do better this next year or
19:58
Speaker 4: worse this next year, I guarantee you many millions of
20:02
Speaker 4: other people think the same thing and that might be
20:03
Speaker 4: priced into the market. Whereas planning can be unique to you,
20:09
Speaker 4: that can provide more consistency of outcome.
20:12
Speaker 1: Really great perspective and insight into this week's conversation. We're
20:15
Speaker 1: talking that tax alpha, the hidden return most investors overlook.
20:19
Speaker 1: Talking with CJ Kloss and Eric Schwartz. They are retirement
20:21
Speaker 1: planning professionals from Kloss Financial. Don't forget, still got time
20:24
Speaker 1: if you've got a question.
20:25
Speaker 2: 608-321-1310.
20:27
Speaker 3: That's 608-321-1310.
20:27
Speaker 1: We'll continue our conversation with CJ and Eric. In the meantime,
20:32
Speaker 1: I hope you get a chance to head on over
20:33
Speaker 1: to the website, klossfinancial.com. That's kloss, K-L-A-S, financial.com. You can
20:38
Speaker 1: schedule a complimentary chat right from the website or give
20:40
Speaker 1: them a call at the office here in Madison, 608-442-5637.
20:43
Speaker 1: We'll continue our conversation with CJ and Eric next as
20:47
Speaker 1: Money in Motion with Kloss Financial continues.
20:49
Speaker 3: Right here on 1310 WIBA.
20:55
Speaker 1: Talking with our retirement planning professionals from Kloss Financial, CJ
20:58
Speaker 1: Kloss and Eric Schwartz. Don't forget, you can learn all
21:01
Speaker 1: about Kloss Financial on their website, klossfinancial.com. That's Kloss, K-L-A-S, financial.com.
21:07
Speaker 1: Not only can you learn about Kloss Financial and their
21:09
Speaker 1: separate divisions, you can also get to know the team.
21:12
Speaker 1: Another great feature there is the opportunity to schedule a
21:14
Speaker 1: complimentary conversation right online. Again, the website, klossfinancial.com. That's Kloss, K-L-A-S, financial.com.
21:22
Speaker 1: And the telephone number, 608-442-5637. No charge for that initial.
21:26
Speaker 1: Get to know your appointment at Kloss Financial. It will
21:28
Speaker 1: be complimentary to you. Again, that number, 608-442-5637. I talked
21:33
Speaker 1: about the website, klossfinancial.com. Mention the podcast. And CJ, you
21:36
Speaker 1: guys do videos as well you put up on the
21:38
Speaker 1: website also, don't you?
21:40
Speaker 4: We do, yeah. We did these things called Kloss Coffee Chats,
21:43
Speaker 4: where we would take one of these topics and do
21:44
Speaker 4: a video on them and have kind of a dynamic
21:46
Speaker 4: feature to it. So yeah, I think we have something
21:48
Speaker 4: like 20 different videos up on our website on these
21:50
Speaker 4: different topics with some infographics that overlay it. It's pretty cool.
21:54
Speaker 3: It was well done. You guys did good work on those. Very,
21:56
Speaker 3: very nice stuff.
21:57
Speaker 1: And we're talking this week with CJ and Eric about
21:59
Speaker 1: Tax Alpha, the hidden return most investors overlook. Don't forget,
22:03
Speaker 1: speaking of overlook or maybe missing something, if you ever
22:05
Speaker 1: miss part of the show, you can always listen back
22:07
Speaker 1: at klossfinancial.com. And CJ, when we talk then about this stuff,
22:12
Speaker 1: that value word comes into play. And how do you
22:14
Speaker 1: then determine whether a tax strategy is actually creating value?
22:18
Speaker 4: Yeah, no, it's a good question. So we begin with
22:21
Speaker 4: a comprehensive financial plan. Anybody who comes in or who
22:24
Speaker 4: has met with us knows that we're asking all about
22:27
Speaker 4: these kind of quantitative and qualitative aspects of somebody's financial goals.
22:31
Speaker 4: And then from there, we start developing a plan that
22:34
Speaker 4: just basically says, can you do what you think you
22:37
Speaker 4: want to do, whether that be retire and live off
22:40
Speaker 4: of your portfolio or buy a vacation home or whatever
22:43
Speaker 4: some of those goals are. We build a plan around
22:45
Speaker 4: it to basically stress test that plan. But then we
22:50
Speaker 4: ask things like, what tax bracket are you in today?
22:52
Speaker 4: What bracket might you be at in the future? And
22:54
Speaker 4: we can kind of model this all out. What are
22:56
Speaker 4: your retirement spending goals? What does your estate plan look like?
22:59
Speaker 4: What assets do you intend to leave to your heirs
23:01
Speaker 4: or charities, if any? And then tax strategies, in our opinion,
23:06
Speaker 4: should not exist in isolation. They should support your broader
23:10
Speaker 4: financial objectives. So said another way, a lot of people go,
23:14
Speaker 4: I've heard all about these Roth conversions. You guys talked
23:16
Speaker 4: about them today. I'm going to call up Kloss and like,
23:18
Speaker 4: we're going to do a Roth conversion. Well, just that
23:21
Speaker 4: topic alone, we'll want to know what does your overall
23:24
Speaker 4: financial picture look like? do you care about leaving money
23:27
Speaker 4: to your children and grandchildren? Are you trying to maximize
23:30
Speaker 4: long-term estate value or present quality of life? Because legitimately
23:35
Speaker 4: the answer to all of those questions and more drive
23:41
Speaker 4: that final decision of whether or not we execute on
23:44
Speaker 4: a Roth conversion. So It's not just whether or not
23:48
Speaker 4: it's cool and makes sense. It's if it works inside
23:52
Speaker 4: of a broader financial plan based upon your goals.
23:55
Speaker 1: Really nice stuff this morning as we talk with CJ
23:57
Speaker 1: Kloss and Eric Schwartz of Kloss Financial online, klossfinancial.com. That's Kloss, K-L-A-S, financial.com.
24:03
Speaker 1: And Eric, before we wrap up this week's show, any
24:06
Speaker 1: kind of takeaway that folks should be thinking about? We'll
24:10
Speaker 1: start with you actually on that question. What's kind of
24:12
Speaker 1: that big takeaway this week?
24:14
Speaker 2: Yeah, I think it's pretty simple. Most people spend an
24:17
Speaker 2: enormous amount of time focusing on investment returns while spending
24:21
Speaker 2: very little time focusing on their tax picture. And CJ,
24:25
Speaker 2: I'm sure if Josh listens back to the show, he's
24:27
Speaker 2: going to have some thoughts about how we are overlooking
24:29
Speaker 2: investment management. But that is also very, very important. It's
24:34
Speaker 2: just one piece of the puzzle here. And taxes are
24:36
Speaker 2: or one of the largest expenses you have in retirement.
24:39
Speaker 2: So we want to spend some time talking about that
24:41
Speaker 2: for sure.
24:42
Speaker 3: And CJ, what about you? What's kind of your big
24:44
Speaker 3: takeaway of this week's show?
24:45
Speaker 4: Yeah, I would say instead of asking, how do I
24:48
Speaker 4: beat the market? Consider asking, how do I keep more
24:52
Speaker 4: of what I've earned? So in our opinion, we believe
24:56
Speaker 4: TaxAlpha is one of the most valuable services we provide
24:59
Speaker 4: because it focuses on something investors can often control. Markets
25:04
Speaker 4: are going to always fluctuate. But tax planning opportunities can
25:08
Speaker 4: often be identified, evaluated, and then acted upon pretty consistently.
25:13
Speaker 4: Because at the end of the day, Eric referenced this before,
25:16
Speaker 4: it's not what you earn that matters most. It's what
25:19
Speaker 4: you keep of what you earn that matters most.
25:22
Speaker 1: Talking this week with C.J. Klaus and Eric Schwartz, a
25:24
Speaker 1: fantastic program. Don't forget, if you missed any part of
25:27
Speaker 1: today's show, I don't think it's a topic we've touched
25:29
Speaker 1: on at all in the history of the program, have we, C.J.
25:32
Speaker 4: We've touched around it, but you're right, not through this format.
25:35
Speaker 3: You're right. Oh, fantastic. And that's been, how many years
25:37
Speaker 3: have we been doing this show?
25:37
Speaker 4: 15-ish, 15-ish.
25:39
Speaker 1: That's why I didn't ask you, Eric, because you were
25:42
Speaker 1: still in high school.
25:45
Speaker 3: Not quite. Middle school, yes. It's a great program.
25:50
Speaker 1: Don't forget, as always, if you do want to listen back,
25:53
Speaker 1: and I urge you to and share this podcast. Just
25:55
Speaker 1: head on over to KlossFinancial.com. That's Kloss, K-L-A-S-Financial.com. Great website
26:00
Speaker 1: and resource. Not only listen back to the podcast, you
26:02
Speaker 1: can also schedule a complimentary conversation right from the website, KlossFinancial.com,
26:07
Speaker 1: or give a call, 608-442-5637. No charge for that initial
26:11
Speaker 1: get-to-know-you appointment at Kloss Financial. It will be complimentary to you. Again,
26:15
Speaker 1: their number is 608-442-5637. You want to hold on to
26:18
Speaker 1: that telephone number now because it's time for the Kloss
26:21
Speaker 1: Quiz Question of the Week.
26:22
Speaker 3: It works like this.
26:23
Speaker 1: In just a moment, I'll ask you the Kloss Quiz
26:24
Speaker 1: Question of the Week. You'll then have 30 minutes from
26:26
Speaker 1: the end of today's program to call the Kloss Financial
26:28
Speaker 1: Office right here in Madison at 608-442-5637. If you are
26:33
Speaker 1: the first called, correct answer, you win this week's prize,
26:35
Speaker 1: which is a $ 25 gift card to Texas Roadhouse.
26:38
Speaker 3: This week's Kloss Quiz Question of the Week is this.
26:41
Speaker 3: True or false?
26:42
Speaker 1: Tax planning is about always paying the least amount of
26:46
Speaker 1: taxes today. Is that true or is that false? Telephone
26:49
Speaker 1: number 608-442-5637. First caller correct answer to win that $ 25
26:54
Speaker 1: gift card at Texas Roadhouse. Don't forget again, that is
26:57
Speaker 1: Kloss Financial's office right here in Madison. That number 608-442-5637. CJ, Eric,
27:04
Speaker 1: it's great seeing both of you guys.
27:05
Speaker 3: Enjoy this great day. Thanks, Sean. See you guys. News
27:08
Speaker 3: comes your way next here on 1310 WIBA.
27:11
Speaker 1: This is Money in Motion with Kloss Financial Asset Advisors, LLC,
27:15
Speaker 1: a registered investment advisor registered with the SEC. The contents
27:20
Speaker 1: of this show are for informational purposes only and should
27:23
Speaker 1: not be considered individual investment advice.
27:25
Speaker 3: Kloss Financial does not offer tax or legal advice.
27:29
Speaker 1: Any opinion offered during the course of this show is
27:32
Speaker 1: the opinion of that particular investment advisor representative and not
27:36
Speaker 1: necessarily the opinion of Kloss Financial.