Latest / Money In Motion with Klaas Financial / Maximizing Your 401k and 403b Contributions

Transcript

Maximizing Your 401k and 403b Contributions · Money In Motion with Klaas Financial

• 0:00
  Speaker 1: Enterphone lines. They are open for you right now. If
• 0:02
  Speaker 1: you have questions for our friends from Class Financial. Telephone
• 0:05
  Speaker 1: number to get on the air six oh eight three
• 0:07
  Speaker 1: two one thirteen ten at six oh eight three two
• 0:10
  Speaker 1: one thirteen ten. If you're near a computer, are going
• 0:12
  Speaker 1: to be one near one later today. I hope you
• 0:14
  Speaker 1: check out Class financials website. It's Cossfinancial dot com. That's
• 0:18
  Speaker 1: Coss Klaas Financial dot com. Fantastic website to learn more
• 0:22
  Speaker 1: about Coss Financial, how they can also help you or
• 0:25
  Speaker 1: if you're an employer their separate divisions. There Coss Financial.
• 0:28
  Speaker 1: You can also learn about the team and schedule a
• 0:30
  Speaker 1: complementary conversation little chat right online at clossfinancial dot com.
• 0:35
  Speaker 1: That's Coss k LaaS financial dot com. Speaking of complementary
• 0:39
  Speaker 1: conversations complementary chats. Of course, you can give them a
• 0:41
  Speaker 1: call six oh eight four four two five six three seven.
• 0:44
  Speaker 1: No charge for that initial gets to know your appointment
• 0:46
  Speaker 1: tech Loss Financial. It will be complementary to you.
• 0:48
  Speaker 2: Again.
• 0:48
  Speaker 1: The telephon number for the office here in Madison six
• 0:50
  Speaker 1: soh eight four four two five six three seven and
• 0:53
  Speaker 1: joining us this morning from Class Financial is mister CJ.
• 0:56
  Speaker 1: Closs CJ. How you doing this week?
• 0:58
  Speaker 2: I'm doing great, Sean, how are you?
• 0:59
  Speaker 1: I'm doing really well. Great to talk with you, and
• 1:02
  Speaker 1: we've got a really important, important conversation you think about.
• 1:06
  Speaker 1: I don't know, CJ, may even be the most important
• 1:08
  Speaker 1: conversation ever, which is maximizing your four oh one K.
• 1:12
  Speaker 1: And we're going to talk about talk about maximizing your
• 1:15
  Speaker 1: four oh one K and four h three B plans
• 1:18
  Speaker 1: and importance of not leaving money on the table, and
• 1:21
  Speaker 1: we'll get into all of that with CJ this morning.
• 1:23
  Speaker 1: Don't forget, though, if you have any questions, whether it's
• 1:25
  Speaker 1: about the specific topic at hand or anything retirement related,
• 1:29
  Speaker 1: we'd love to get you on the air with us
• 1:30
  Speaker 1: six h eight three two one thirteen ten. That's six
• 1:33
  Speaker 1: SOH eight three two one thirteen ten. Really cool feature
• 1:35
  Speaker 1: of the show, as well as an opportunity to win
• 1:38
  Speaker 1: a fantastic prize from our friends at Class Financial with
• 1:40
  Speaker 1: the Class Quiz question the week This week no exceptional
• 1:43
  Speaker 1: chance for you to win a twenty five dollars gift
• 1:45
  Speaker 1: card to the Olive Garden. And before we get talking
• 1:49
  Speaker 1: about this week's topic and conversation, let's actually look back
• 1:52
  Speaker 1: at last week's program and get the class quiz question
• 1:54
  Speaker 1: a week from that show and the answer there as well.
• 1:56
  Speaker 2: CJ. Yeah, thanks everyone for listening, and congrats to our
• 2:00
  Speaker 2: winner from last week. And yeah, listen closely this week
• 2:03
  Speaker 2: because we'll have another question at the end of today's show.
• 2:05
  Speaker 2: But last week our question was QCD is an acronym
• 2:10
  Speaker 2: for what three words regarding distributions from your traditional IRA
• 2:15
  Speaker 2: to four to oh one C three charities? And the
• 2:18
  Speaker 2: answer to that is QCD is an acronym for qualified
• 2:22
  Speaker 2: charitable distributions.
• 2:24
  Speaker 1: Beautiful, And again you can listen back to that program
• 2:26
  Speaker 1: at Clossfinancial dot com of course, got the podcast right
• 2:29
  Speaker 1: up there. Listen closely. As CJ mentioned there, we'll do
• 2:31
  Speaker 1: another one this week. Oftentimes, I think about every week
• 2:34
  Speaker 1: the question and answer come up during the program and
• 2:37
  Speaker 1: we'll tell you again a little bit more in detail
• 2:39
  Speaker 1: how you can win that twenty five dollars gift card
• 2:41
  Speaker 1: to the Olive Garden. And today we're going to be
• 2:42
  Speaker 1: talking about something that really impacts just about everyone working,
• 2:46
  Speaker 1: which is one of those areas that not only as
• 2:49
  Speaker 1: it doesn't impact most professionals, it also doesn't get as
• 2:52
  Speaker 1: much attention as it deserves. And that's your four oh
• 2:56
  Speaker 1: one K retirement plan that's offered through your employer. Talk
• 3:00
  Speaker 1: about this aspect, CJ.
• 3:02
  Speaker 2: Yeah, you're right, Sean. I mean, we do shows on
• 3:05
  Speaker 2: the air here through Money in Motion on a lot
• 3:08
  Speaker 2: of different topics. We'll do shows on Medicare and Social
• 3:11
  Speaker 2: Security and the Affordable Care Act and maybe pension, so
• 3:15
  Speaker 2: on and so forth. But there's few shows that will
• 3:19
  Speaker 2: apply to as broad a listenership as our show today,
• 3:23
  Speaker 2: because today is talking about four oh one k's, four
• 3:26
  Speaker 2: oh three b's, and most of you have either had
• 3:30
  Speaker 2: one of these types of retirement accounts, have one currently,
• 3:34
  Speaker 2: or will have one soon. So for many people, their
• 3:37
  Speaker 2: largest retirement account is their four one K or four
• 3:40
  Speaker 2: three B. Yet many don't know if they're doing it right.
• 3:43
  Speaker 2: Many people contribute without really knowing why, and then they
• 3:47
  Speaker 2: invest without a strategy, or worse, they leave money on
• 3:50
  Speaker 2: the table without realizing it. So today we're going to
• 3:53
  Speaker 2: break things down simply and practically, and by the end
• 3:56
  Speaker 2: of our today's show you'll understand how to put your
• 3:58
  Speaker 2: four oh one K to work for you.
• 4:00
  Speaker 1: It's going to be a great show, and as mentioned,
• 4:02
  Speaker 1: if you do miss any part of the program, or
• 4:04
  Speaker 1: want to listen back to it, share with your friends
• 4:06
  Speaker 1: and family, or of course listen back to previous shows.
• 4:08
  Speaker 1: You can always listen to that podcast and subscribe at
• 4:10
  Speaker 1: class financial dot com. That's coss k l a A
• 4:13
  Speaker 1: S financial dot com. So, as we talk about some
• 4:16
  Speaker 1: of those advantages today for savings in your retirement, when
• 4:20
  Speaker 1: it comes to your company's four oh one K plan,
• 4:23
  Speaker 1: how do we know c J if if we are,
• 4:25
  Speaker 1: you know that that I hear that line leaving free
• 4:27
  Speaker 1: money on the table. How do we know that that
• 4:30
  Speaker 1: that that we may be doing that?
• 4:33
  Speaker 2: Yeah, good question. So you know, starting at the top.
• 4:35
  Speaker 2: At at its core, a four oh one K is
• 4:38
  Speaker 2: a tax advantage investment account offered through your employer. Well,
• 4:42
  Speaker 2: you'll often hear i'm referred to as employer sponsored retirement plans.
• 4:46
  Speaker 2: Truth be told, we're using four oh one K everybody
• 4:48
  Speaker 2: in this show as a bit of a broad uh
• 4:51
  Speaker 2: naming methodology for four oh one K four oh through
• 4:54
  Speaker 2: B four oh one A simple I RA, SEP I RA.
• 4:56
  Speaker 2: You get the idea. It is any employer sponsored retirement plan.
• 5:00
  Speaker 2: But we're focusing on four o one K today. So
• 5:03
  Speaker 2: these four one ks allow you to invest a portion
• 5:05
  Speaker 2: of your paycheck for retirement automatically and consistently. First, there
• 5:10
  Speaker 2: are tax benefits depending on whether you use traditional or
• 5:14
  Speaker 2: ROTH contributions. You may save on taxes today, in the future,
• 5:20
  Speaker 2: or both. Second feature of a four to one K
• 5:23
  Speaker 2: plant is the automation. Contributions come straight from your paycheck.
• 5:27
  Speaker 2: That means you're investing before you even have the chance
• 5:30
  Speaker 2: to spend the money. And Third, you can obtain long
• 5:34
  Speaker 2: term growth through compounding over fifteen, twenty or twenty five years.
• 5:38
  Speaker 2: Consistent investing, combined with market growth, combined with the fact
• 5:42
  Speaker 2: that you're not losing to taxes along the way, can
• 5:45
  Speaker 2: turn relatively small contributions into substantial retirement nest Egg. A
• 5:50
  Speaker 2: big mistake people make is treating the four to one
• 5:53
  Speaker 2: K like a check or like a box you have
• 5:55
  Speaker 2: to check, instead of a strategy to optimize your future.
• 5:58
  Speaker 2: A lot of people just kind of go check I
• 6:00
  Speaker 2: did it. If your employer offers a match, the single
• 6:05
  Speaker 2: most important rule of four one K success is always
• 6:08
  Speaker 2: contribute enough to receive the full employer match. An employer
• 6:12
  Speaker 2: match is quite literally free money. Now I said, always
• 6:17
  Speaker 2: truth be told everybody. If when people use absolute terms,
• 6:21
  Speaker 2: be careful with them, So I'm gonna, you know, taper
• 6:24
  Speaker 2: that comment a little bit. The vast majority of the time,
• 6:27
  Speaker 2: maybe there's a circumstance under which I would give you
• 6:29
  Speaker 2: different advice, but the vast majority of the time, if
• 6:32
  Speaker 2: your employer says, hey, I'm gonna match fifty cents on
• 6:35
  Speaker 2: the dollar up to six percent, well, then I would
• 6:39
  Speaker 2: say almost all of the time, you should be putting
• 6:42
  Speaker 2: six percent in because they're gonna give you three when
• 6:46
  Speaker 2: you put in that six. So you get the idea.
• 6:50
  Speaker 2: From an investment standpoint, an employer match is an instant
• 6:54
  Speaker 2: return a fifty percent or one hundred percent or more
• 6:57
  Speaker 2: before you invest. Let me put it in a different terms.
• 7:00
  Speaker 2: If you came to my office and said, CJ, I'm
• 7:05
  Speaker 2: just trying to say, for the future, is there any
• 7:07
  Speaker 2: like cool thing that I can do or good return
• 7:10
  Speaker 2: that I can invest in to try to, you know,
• 7:12
  Speaker 2: maximize my future? And I said, you know.
• 7:14
  Speaker 3: What, I Hey, if you put in a dollar output
• 7:16
  Speaker 3: in a dollar, my bet would be go, really, by
• 7:21
  Speaker 3: the way, I won't do that, but you go, really,
• 7:25
  Speaker 3: that's one hundred percent return.
• 7:27
  Speaker 1: I know.
• 7:28
  Speaker 2: That's that's what you're giving up when you don't put
• 7:30
  Speaker 2: money into your return. But button not at work now.
• 7:33
  Speaker 2: Some people are sitting here going, yeah, but there's these
• 7:35
  Speaker 2: vesting schedules, YadA, YadA, YadA. Sure there are vesting schedules,
• 7:39
  Speaker 2: but if you get any portion of that matching dollar
• 7:42
  Speaker 2: that goes in, it's still free money. And my encouragement
• 7:46
  Speaker 2: would be, yes, vesting schedules matter, but try to stay
• 7:48
  Speaker 2: at your employer's long enough to vest. So anyway, there
• 7:51
  Speaker 2: you go. There's some key components of of how four
• 7:55
  Speaker 2: to one k's benefit you.
• 7:56
  Speaker 1: It's really it's it's a really amazing option if your
• 7:59
  Speaker 1: employer offers it, and definitely something you want to maximize.
• 8:02
  Speaker 1: As we talked this morning with CJ Closs, our retirement
• 8:05
  Speaker 1: planning professional from Class Financial. You can learn more about
• 8:07
  Speaker 1: CJ and the whole team online the website coss financial
• 8:11
  Speaker 1: dot com. That's Coss k l aa S Financial dot com.
• 8:15
  Speaker 1: Not only can you get to know the team there,
• 8:16
  Speaker 1: you can learn more about COSS Financial. You can listen
• 8:19
  Speaker 1: back to this in previous shows, podcasts all available to
• 8:22
  Speaker 1: you at cossfinancial dot com. Phone lines are open as well.
• 8:25
  Speaker 1: Speaking of available to you, if you've got a question
• 8:27
  Speaker 1: for CJ, we'd love to have you join us this morning.
• 8:29
  Speaker 1: All you gotta do is dial in number here at
• 8:30
  Speaker 1: station six oh eight three two one thirteen ten. That's
• 8:33
  Speaker 1: six soh eight three two one thirteen ten. Of course
• 8:36
  Speaker 1: teph number for Coss Financial six soh eight four four
• 8:38
  Speaker 1: two five six three seven. Looks into our conversation with CJ.
• 8:41
  Speaker 1: We'll talk about it. Probably wonder about this is like,
• 8:44
  Speaker 1: how do I know if I'm contributing enough? What should
• 8:46
  Speaker 1: I be contributing? What are some of the guidelines there.
• 8:48
  Speaker 1: We'll get the details next as Money in Motion with
• 8:51
  Speaker 1: Coss Financial continues here on thirteen ten. Wib I chatting
• 8:55
  Speaker 1: this morning with CJ Closs, our retirement planning professional from
• 8:58
  Speaker 1: COSS Financial. You can learn more about c J and
• 9:00
  Speaker 1: the team and all about class financial on their website.
• 9:02
  Speaker 1: It's a good one. Coss Financial dot com. That's Coss
• 9:05
  Speaker 1: k l A A S Financial dot com. Telphone up
• 9:08
  Speaker 1: for the office right here in Madison six o eight
• 9:11
  Speaker 1: four four two five six three seven. No charge for
• 9:14
  Speaker 1: that initial get to know your appointment tech Loss Financial.
• 9:16
  Speaker 1: It will be complementary to you again their number six
• 9:19
  Speaker 1: oh eight four four two five six three seven. And
• 9:22
  Speaker 1: if you've got a question for CJ. We'd love to
• 9:24
  Speaker 1: have you join us on the program this morning. Telephon
• 9:26
  Speaker 1: number to get on the air six oh eight three
• 9:28
  Speaker 1: two one thirteen ten. That's six so eight three two
• 9:30
  Speaker 1: one thirteen ten. Talking this week about ways to maximize
• 9:34
  Speaker 1: your four oh one K and four oh three B
• 9:38
  Speaker 1: and some of the techniques and some of the things
• 9:39
  Speaker 1: that that really go a very very long way. And
• 9:42
  Speaker 1: we talked CJ in that last segment about you know,
• 9:45
  Speaker 1: capturing your employer's full match and a what an important
• 9:48
  Speaker 1: thing that is for folks if it's offered. I think
• 9:51
  Speaker 1: the other big question that people ask and wonder about,
• 9:54
  Speaker 1: and you would you would know this firsthand, which is
• 9:56
  Speaker 1: how much should I be contributing overall when it comes
• 10:00
  Speaker 1: to planning for a successful retirement.
• 10:03
  Speaker 2: Yeah, that's right, Sean. That's an important question. You know
• 10:06
  Speaker 2: a lot of people get into these plans and then
• 10:08
  Speaker 2: they say, hey, I've heard I should be contributing up
• 10:11
  Speaker 2: to at least the match, maybe that's five or six percent.
• 10:14
  Speaker 2: But what if I want to have a successful retirement.
• 10:16
  Speaker 2: What if I'm not just trying to get the free money,
• 10:18
  Speaker 2: but I'm trying to actually build for the future. So
• 10:21
  Speaker 2: in a moment, I'm going to tell you that percentage,
• 10:23
  Speaker 2: but I want to take a step back just for
• 10:25
  Speaker 2: a second. In our last segment, we talked about tax benefits, automation,
• 10:29
  Speaker 2: long term growth, compounding, and kind of matching contributions from employers.
• 10:34
  Speaker 2: But I want to hit on that first point to
• 10:37
  Speaker 2: begin with tax benefits. Everybody listening. Every once in a while,
• 10:43
  Speaker 2: i'll hear somebody say, but CJ, I believe the stock
• 10:46
  Speaker 2: market's a scam, so I'm not going to put money
• 10:49
  Speaker 2: into my four to one K plan. Well, first off,
• 10:51
  Speaker 2: I'm sorry if you think that. I don't know what
• 10:53
  Speaker 2: has led you to that place, but I sincerely i'm
• 10:56
  Speaker 2: sorry that you believe that. However, four to one K
• 10:59
  Speaker 2: plans are not about the stock market. Let me repeat that.
• 11:02
  Speaker 2: Four when K plans are not about the stock market.
• 11:05
  Speaker 2: Four when K plans are primarily about tax deferral and
• 11:09
  Speaker 2: compounded growth. If you don't want to invest in the
• 11:11
  Speaker 2: stock market, god bless you, put it into the bond
• 11:13
  Speaker 2: market or money markets. I don't care. But a four
• 11:17
  Speaker 2: one K plan is primarily about the tax reduction, the
• 11:21
  Speaker 2: tax benefits, the compound growth. It is not about the
• 11:24
  Speaker 2: stock market. Okay, with that, being said as it relates
• 11:29
  Speaker 2: to saving, how much should I be saving in my
• 11:31
  Speaker 2: four one K plan? If I'm looking to do more
• 11:33
  Speaker 2: than just obtain the match And here's the big answer
• 11:36
  Speaker 2: about ten to fifteen percent of your income. Now that
• 11:39
  Speaker 2: does include your employer contribution. So again back to if
• 11:43
  Speaker 2: you put in ten and they put in three for you,
• 11:46
  Speaker 2: you know, in some matching formula or do a safe
• 11:48
  Speaker 2: harbor contribution, you're in that ten to fifteen percent range.
• 11:52
  Speaker 2: But here's what I'd say. That's not a hard rule.
• 11:56
  Speaker 2: And the reason it's not a hard rule and instead
• 11:58
  Speaker 2: it's more of a benchmark is because if you come
• 12:01
  Speaker 2: to me and say, hey, I have nothing saved for retirement,
• 12:03
  Speaker 2: I'm fifty five years old and I want to retire
• 12:05
  Speaker 2: at sixty. How much I save into my four oh
• 12:08
  Speaker 2: one K plan? You get the point? My answer to
• 12:10
  Speaker 2: you is going to be very different than ten to
• 12:12
  Speaker 2: fifteen percent. But if you're you know, twenty five to
• 12:15
  Speaker 2: thirty just starting to save into your retirement plan, you've
• 12:18
  Speaker 2: got a long arc of time to be working. You
• 12:21
  Speaker 2: get the idea, ten to fifteen percent would be typically
• 12:25
  Speaker 2: a pretty good number. Here would be one other thought.
• 12:28
  Speaker 2: A lot of times you know. Well, we'll hear people say,
• 12:31
  Speaker 2: but CJ, I just can't put that much in right now,
• 12:34
  Speaker 2: which I get. Listen, I have three children, my spouse
• 12:39
  Speaker 2: stays at home with our kids. It's it's very challenging
• 12:42
  Speaker 2: to get up to that number when you have mortgages
• 12:45
  Speaker 2: and education costs and all of that. So instead, what
• 12:47
  Speaker 2: we might suggest is start at that five six percent
• 12:50
  Speaker 2: where you're getting all the match from your employer, and
• 12:52
  Speaker 2: then every single year, a lot of these four ORO
• 12:55
  Speaker 2: one K plans will add in something called an auto
• 12:57
  Speaker 2: escalation for every year moving forward, at the beginning of
• 13:00
  Speaker 2: the year, you add in an extra one percent. And
• 13:03
  Speaker 2: I cannot emphasize enough how powerful this is. Here's why
• 13:08
  Speaker 2: if I go up by one percent, even without my
• 13:11
  Speaker 2: income going up, I'm hardly gonna notice it.
• 13:14
  Speaker 1: Right.
• 13:14
  Speaker 2: It'd be like, do you know when your taxes go
• 13:16
  Speaker 2: up by one percent? And the answer is no, I
• 13:18
  Speaker 2: have no idea. I'd have to really like look at
• 13:20
  Speaker 2: my pay step to know that. So you wouldn't even
• 13:23
  Speaker 2: know it. But here's where it's really powerful. Most of
• 13:27
  Speaker 2: the time you get some sort of cost of living
• 13:29
  Speaker 2: adjustment or merit maybe a merit raise, and so not
• 13:32
  Speaker 2: only do you not recognize it, you're still making more
• 13:35
  Speaker 2: money than you were even with the additional contribution. So
• 13:38
  Speaker 2: we are just huge fans of these auto escalations, and
• 13:42
  Speaker 2: you can even say, within the technology, escalate me by
• 13:45
  Speaker 2: one percent a year at the beginning of every single
• 13:47
  Speaker 2: year until I hit x percent, maybe ten or fifteen percent,
• 13:51
  Speaker 2: and then stop doing the auto escalation. So there you
• 13:54
  Speaker 2: goes some really important ideas around how much to save
• 13:58
  Speaker 2: and how to get to that to that total contribution amount.
• 14:01
  Speaker 1: Talking this morning with CJ. Closs our retirement planning professionals
• 14:04
  Speaker 1: from a professional from Class Financial online. The website class
• 14:08
  Speaker 1: financial dot com. That's coss k l a a s
• 14:11
  Speaker 1: Financial dot com. Great website and resource to learn about
• 14:14
  Speaker 1: Class Financial their separate divisions. If you are an employer
• 14:17
  Speaker 1: looking for options and other things, great information available to
• 14:20
  Speaker 1: you at classfinancial dot com. That's coss k l a
• 14:23
  Speaker 1: A s Financial dot com As an individual as well,
• 14:25
  Speaker 1: a great day to do that. Don't forget no charge
• 14:28
  Speaker 1: for that initial gets to know you appointment dech loss Financial.
• 14:30
  Speaker 1: It will be complementary to you. Their telephone number six
• 14:33
  Speaker 1: oh eight four four two five six three seven. That's
• 14:36
  Speaker 1: six oh eight four four two, five, six, three seven,
• 14:38
  Speaker 1: No charge for that initial gets to know you appointment
• 14:40
  Speaker 1: dech loss financial. It will be complementary to you.
• 14:43
  Speaker 2: C J.
• 14:44
  Speaker 1: Let's talk about traditional and raw four one K contributions
• 14:47
  Speaker 1: and kind of a good a little understanding on those
• 14:49
  Speaker 1: and how they apply to this week's conversation.
• 14:52
  Speaker 2: Yeah, great point, Seawan. So another consideration that many employer
• 14:56
  Speaker 2: plans now allow are both traditional and when we say tradition,
• 15:00
  Speaker 2: don't think pre tax and WROTH four oh one K contributions. Now,
• 15:04
  Speaker 2: I want to be clear as we start talking about this,
• 15:07
  Speaker 2: these are not different retirement accounts. This is not like, oh,
• 15:12
  Speaker 2: I've got the WROTH account at Fidelity and the traditional
• 15:16
  Speaker 2: pre tax account at you know, American Funds or whatever
• 15:19
  Speaker 2: it might be. This is one retirement plan through your employer.
• 15:23
  Speaker 2: Employer typically with different contribution options. One is pre tax,
• 15:29
  Speaker 2: one is ROTH. So with a traditional contribution to your
• 15:31
  Speaker 2: four one K, you receive a tax deduction today. Your
• 15:36
  Speaker 2: contributions reduce your taxable income now and then the growth
• 15:39
  Speaker 2: is tax deferred, and when you get into retirement, withdrawals
• 15:42
  Speaker 2: are taxed as ordinary income. So again think of that
• 15:46
  Speaker 2: logic progression, no tax today, no tax along the way,
• 15:52
  Speaker 2: but then when I get to retirement and pull it out,
• 15:54
  Speaker 2: it's like ordinary income. Okay, the flip or the inverse
• 15:59
  Speaker 2: of that is the WROTH. So the WROTH contributions to
• 16:02
  Speaker 2: your four O win K plan, you do pay taxes
• 16:05
  Speaker 2: on that income, so you get no deduction today, you
• 16:08
  Speaker 2: save no taxes today. So think of that as that
• 16:10
  Speaker 2: as a post tax contribution. Now, similar to the traditional
• 16:16
  Speaker 2: all of the growth is tax deferred or tax free,
• 16:19
  Speaker 2: so you don't pay tax on the growth along the way.
• 16:22
  Speaker 2: But here's the difference. Everything when I get to retirement,
• 16:26
  Speaker 2: as long as I'm over fifty nine and a half
• 16:28
  Speaker 2: and follow the rule some other rules, everything is tax
• 16:31
  Speaker 2: free in the future. So now here's what I'd say.
• 16:35
  Speaker 2: You know, a lot of people go, oh, well, obviously
• 16:38
  Speaker 2: the tax free is a lot better. Not necessarily. It
• 16:41
  Speaker 2: actually depends if you expect to be in a higher
• 16:44
  Speaker 2: tax bracket in the future, which just so everybody knows,
• 16:48
  Speaker 2: that's not very common. But if you expect to be
• 16:52
  Speaker 2: in a higher tax bracket in the future, then WROTH
• 16:55
  Speaker 2: contributions are very valuable, right, because you're going to pay
• 16:58
  Speaker 2: the tax today at the lower rate and get no
• 17:00
  Speaker 2: tax in the future. However, if you expect to pay
• 17:04
  Speaker 2: lower income taxes in retirement, which is most common, then
• 17:09
  Speaker 2: pre tax traditional contributions would make sense because you're going
• 17:13
  Speaker 2: to save the tax today at the higher rate and
• 17:16
  Speaker 2: pay taxes in the future at a lower rate. And finally,
• 17:20
  Speaker 2: so let's think of it this way, everybody. If you're
• 17:22
  Speaker 2: getting your first job at McDonald's or doing some construction work,
• 17:26
  Speaker 2: whatever it might be. If you got your first job
• 17:29
  Speaker 2: and your overall income and taxable income is low, do
• 17:33
  Speaker 2: ROTH contributions all day long. If you're in the kind
• 17:37
  Speaker 2: of upper income end of your career where you're making
• 17:41
  Speaker 2: six figures, maybe multiple six figures, most of the time,
• 17:44
  Speaker 2: pre tax traditional contributions are going to be your friend.
• 17:48
  Speaker 2: And finally, if you're neither of those, you're somewhere in
• 17:50
  Speaker 2: the middle at maybe a twelve or twenty two or
• 17:53
  Speaker 2: twenty four percent tax rate, then you could consider doing
• 17:56
  Speaker 2: a little of both. We call that diversifying your tax risk.
• 18:00
  Speaker 2: But either way, this is an annual decision to make
• 18:03
  Speaker 2: as your income as a household adjusts between pre tax
• 18:07
  Speaker 2: or ROTH.
• 18:08
  Speaker 1: Talking this morning with CJ. Colss of colass Financial online
• 18:11
  Speaker 1: Class Financial dot Com, that's colss k l a as
• 18:14
  Speaker 1: Financial dot com. The website. You can schedule conversation right
• 18:17
  Speaker 1: from class financial dot com, or of course you can
• 18:20
  Speaker 1: call the office right here in Madison at six oh
• 18:22
  Speaker 1: eight four four two five six three seven. Then initial
• 18:25
  Speaker 1: get to know you appointment at conversation at Class Financial.
• 18:28
  Speaker 1: It will be complementary to you again their number six
• 18:31
  Speaker 1: oh eight four four two five six three seven. So CJ.
• 18:34
  Speaker 1: We've broke down how much kind of you know, working
• 18:37
  Speaker 1: through those decisions about how much to save and kind
• 18:40
  Speaker 1: of how to how to make contributions. I think kind
• 18:42
  Speaker 1: of that next thing that that pops into folks heads,
• 18:44
  Speaker 1: which is, you know, once we've got that money, how
• 18:47
  Speaker 1: should it be invested?
• 18:49
  Speaker 2: Yeah, that's right, Sean. So I referenced this before. The
• 18:51
  Speaker 2: primary benefit of a four oh one K plan is
• 18:54
  Speaker 2: tax deferral or taxes of some sort. It is not
• 18:57
  Speaker 2: the stock market. However, take a step back on that.
• 19:01
  Speaker 2: Most people will often say, well, gosh, if I'm deferring
• 19:04
  Speaker 2: income into a traditional or wroth for OW and K plan,
• 19:08
  Speaker 2: inevitably one of the next questions is where's that money going? Right?
• 19:12
  Speaker 2: Am I just literally putting it under a mattress? When
• 19:15
  Speaker 2: I put it, When I put it into the account,
• 19:17
  Speaker 2: how is it invested? As I said that our listeners
• 19:20
  Speaker 2: four to win kplines are not about the stock market.
• 19:23
  Speaker 2: It's about taxes first. So if you don't believe in
• 19:25
  Speaker 2: the market or don't trust it, that's fine. That's fine.
• 19:27
  Speaker 2: You should still do a four oh one K for
• 19:29
  Speaker 2: the matching and all the other reasons we talked about.
• 19:31
  Speaker 2: But for those of you who do not have fear
• 19:34
  Speaker 2: of the stock market or of long term growth, then
• 19:37
  Speaker 2: we get into investments. So most of these plans offer
• 19:40
  Speaker 2: a wide range of investment options to pick from when
• 19:43
  Speaker 2: you're making your investment decisions, which can admittedly feel overwhelming
• 19:48
  Speaker 2: at first. A strong investment strategy usually includes diversification across
• 19:53
  Speaker 2: stocks and bonds, US and international markets, and a level
• 19:57
  Speaker 2: of risk that matches your time horizon. If you're a
• 20:00
  Speaker 2: retirement is decades away, being overly conservative can actually be risky,
• 20:05
  Speaker 2: believe it or not, because inflation might erode your purchasing power.
• 20:09
  Speaker 2: Or if you're close to retirement, being too risky or
• 20:12
  Speaker 2: too equity exposed can be a detriment because then market
• 20:16
  Speaker 2: downturns could lead you to not be able to retire.
• 20:20
  Speaker 2: So many plans offer these things called target date funds.
• 20:24
  Speaker 2: It's like, here'd be an example, Vanguard Target twenty forty
• 20:28
  Speaker 2: or Fidelity Target twenty sixty five or something like that.
• 20:34
  Speaker 2: These target date funds automatically adjust risk over time based
• 20:39
  Speaker 2: on your expected retirement year. So that target year they're
• 20:42
  Speaker 2: referencing is the year that is most closely linked to
• 20:47
  Speaker 2: when you expect to retire. So if I expect to
• 20:50
  Speaker 2: retire in the year twenty fifty five, let's say I
• 20:53
  Speaker 2: could put all of my four to one K money
• 20:56
  Speaker 2: into that twenty fifty five fund, Vanguard or Fidelity will
• 20:59
  Speaker 2: man in a globally diversified portfolio, and then as I
• 21:03
  Speaker 2: get closer to that calendar year, they back down my risk.
• 21:08
  Speaker 2: A lot of employers use these target date funds. I
• 21:11
  Speaker 2: should say most probably employers use these target date funds.
• 21:13
  Speaker 2: Is something known as a QTIA, the qualified default investment alternative.
• 21:18
  Speaker 2: The QDIA is for those who say, hey, I want
• 21:20
  Speaker 2: to save into the vorowin K plan, but I never
• 21:23
  Speaker 2: choose my own investments, and so that the company has
• 21:26
  Speaker 2: to decide some sort of investment for you and they
• 21:28
  Speaker 2: default you into these target date funds. Listen everybody. There's
• 21:32
  Speaker 2: been a lot of history of these funds. I won't
• 21:35
  Speaker 2: get into the weeds around some of the issues they
• 21:38
  Speaker 2: used to have. What I will tell you is most
• 21:40
  Speaker 2: of them in their current versions are pretty darn spectacular
• 21:44
  Speaker 2: in my humble opinion. You put your money, all of
• 21:47
  Speaker 2: it into one fund, it's globally diversified. The closer you
• 21:50
  Speaker 2: get to retirement, it backs off the risk. What is
• 21:52
  Speaker 2: there not to like? And in most circumstances they're not
• 21:55
  Speaker 2: even very expensive. They used to be, by the way,
• 21:57
  Speaker 2: they used to be very expensive, most of them are
• 22:01
  Speaker 2: not so by all means. Take a look at some
• 22:05
  Speaker 2: of these different investment options. Either go the a la
• 22:08
  Speaker 2: carte menu and pick your own asset allocation, pick one
• 22:11
  Speaker 2: of the target date funds, and then here's the key,
• 22:13
  Speaker 2: everybody save, defer and allow that the magic of the
• 22:19
  Speaker 2: markets to do what they will do over long arcs
• 22:22
  Speaker 2: of time. If you have anybody in your your life
• 22:25
  Speaker 2: who has done this, talk to them, because vast majority
• 22:30
  Speaker 2: of people who have saved into four one K plans
• 22:32
  Speaker 2: and have not messed with them constantly will say it's
• 22:36
  Speaker 2: kind of like magic. I put money in, my employer
• 22:39
  Speaker 2: puts money in it compounds and then I don't know,
• 22:41
  Speaker 2: I don't even feel like I save that much money,
• 22:43
  Speaker 2: but I have like hundreds and hundreds of thousands of
• 22:46
  Speaker 2: dollars at retirement. So just cannot suggest enough take a
• 22:51
  Speaker 2: look at your investment options and consider.
• 22:53
  Speaker 1: Saving dog This morning with CJ. Closs, our retirement planning
• 22:55
  Speaker 1: professional from Class Financial Online, Cossfinancial dot Com that's Coss
• 22:59
  Speaker 1: Klaas Financial dot Com and CG. I know we're still
• 23:02
  Speaker 1: new into the new year. Are there things though, as
• 23:04
  Speaker 1: far as you know, as we're kind of reviewing things
• 23:07
  Speaker 1: and contribution on things, it should as you were just
• 23:10
  Speaker 1: talking earlier about target date funds, what about kind of
• 23:13
  Speaker 1: evolving investments as life changes.
• 23:17
  Speaker 2: Yeah, good question, Sean. So a few things is I
• 23:20
  Speaker 2: mentioned this earlier, but I'll summarize it. Review your contribution rate,
• 23:25
  Speaker 2: Review your investment allocation on an ongoing basis. Rebalance your
• 23:29
  Speaker 2: portfolio if it's necessary. So think of it as I
• 23:32
  Speaker 2: had eighty percent stock, twenty percent bonds, and a couple
• 23:35
  Speaker 2: of years later, I'm ninety percent stock. So review your
• 23:38
  Speaker 2: balance and or review your allocation and rebalance if necessary.
• 23:42
  Speaker 2: Review your beneficiary designations. Cannot suggest this enough. We see
• 23:46
  Speaker 2: it all the time. Somebody goes through a divorce, has
• 23:49
  Speaker 2: a child, whatever it might be, and they don't update
• 23:51
  Speaker 2: those beneficiaries. Everybody in my line of work, I deal
• 23:55
  Speaker 2: with death quite often and there is nothing more disheartening
• 23:59
  Speaker 2: than death compound founded by financial strain. So one thing
• 24:02
  Speaker 2: you can do to bless your family is to say, hey,
• 24:05
  Speaker 2: have there been big events in my life? Should I
• 24:07
  Speaker 2: go and update my beneficiaries or update my will and trust?
• 24:11
  Speaker 2: That would be important, and then a few other things.
• 24:15
  Speaker 2: You know, try to maximize your four oh one K
• 24:19
  Speaker 2: contribution as you get later in life and have more
• 24:22
  Speaker 2: free cash flow. So the maximum amount you can contribute
• 24:26
  Speaker 2: to your four oh one K account has actually increased
• 24:28
  Speaker 2: in twenty twenty six, and now that amount, if you're
• 24:32
  Speaker 2: under the age of fifty is twenty four thousand, five
• 24:36
  Speaker 2: hundred dollars. Again, that's if you're under the age of fifty.
• 24:39
  Speaker 2: If you're over the age of fifty, you're actually allowed
• 24:42
  Speaker 2: to catch up contribution of an additional eight thousand dollars,
• 24:46
  Speaker 2: So that puts your total up at what would that
• 24:48
  Speaker 2: be thirty two five hundred plus. Here's another kicker. If
• 24:52
  Speaker 2: you are specifically ages sixty sixty one, sixty two, or
• 24:57
  Speaker 2: sixty three by the end of twenty two twenty six.
• 25:00
  Speaker 2: So that's the key. If you're any one of those ages,
• 25:03
  Speaker 2: by the end of twenty twenty six, you actually get
• 25:06
  Speaker 2: a higher ketchup amount, so that that eight thousand catchup
• 25:09
  Speaker 2: I mentioned before goes away, and suddenly you get a
• 25:12
  Speaker 2: higher ketchup of eleven thousand, two hundred and fifty on
• 25:16
  Speaker 2: top of the twenty four thousand, five hundred. So you
• 25:20
  Speaker 2: get the idea you have some pretty significant room there
• 25:23
  Speaker 2: to make some pre tax or wroth contributions. Now will
• 25:27
  Speaker 2: I will kind of one caveat to all of this
• 25:29
  Speaker 2: in twenty twenty six, if you're deemed to be a
• 25:32
  Speaker 2: high earner and you are making ketchup contributions, that's that
• 25:36
  Speaker 2: eight thousand or eleven two hundred and fifty those ketchup
• 25:39
  Speaker 2: contributions now must be wroth contributions. You actually don't get
• 25:43
  Speaker 2: the option of doing them pre tax. So anyway, talk
• 25:47
  Speaker 2: to your financial advisor, talk to your accountant, work through
• 25:49
  Speaker 2: these components. But bottom line here is these higher contribution
• 25:53
  Speaker 2: limits typically give you the ability to save more for
• 25:56
  Speaker 2: the future.
• 25:56
  Speaker 1: Great stuff this morning, as we talk with Cjklass from
• 25:59
  Speaker 1: Class Finance, So, of course our retirement planning professional from
• 26:01
  Speaker 1: Class Financial, the website Coss Financial dot com. That's Coss
• 26:05
  Speaker 1: k l aa s Financial dot com. They're telephon number
• 26:07
  Speaker 1: four four, two, five, six, three seven. Want to hold
• 26:10
  Speaker 1: on to that telephon number. Coming up to the next segment,
• 26:12
  Speaker 1: we'll do the class quiz question the week. We'll also
• 26:14
  Speaker 1: wrap up this week's conversation with CJ. We will do
• 26:16
  Speaker 1: that next as Money in Motion with Coss Financial continues
• 26:19
  Speaker 1: right here on thirteen ten. WIBI talking this morning with
• 26:22
  Speaker 1: CJ Closs, our retirement planning professional from Class Financial, the
• 26:25
  Speaker 1: website Coss Financial dot com. That's Coss k l aa
• 26:29
  Speaker 1: s Financial dot com and CJ. Before we get to
• 26:31
  Speaker 1: the class quiz question week, some final thoughts on this
• 26:34
  Speaker 1: week's conversation. A really important conversation, wasn't it.
• 26:38
  Speaker 2: Yeah, it was so. As I mentioned at the beginning
• 26:40
  Speaker 2: of the show, today's show applied to most of our
• 26:43
  Speaker 2: listeners and so listen, most of you have had, do have,
• 26:47
  Speaker 2: or will have some sort of employer sponsor retirement plan
• 26:50
  Speaker 2: and learning how to navigate that employer sponsor retirement plan
• 26:54
  Speaker 2: for the benefit of you. And your family is just critical. Listen,
• 26:59
  Speaker 2: if you look at the wealthiest Americans and see what
• 27:03
  Speaker 2: do what is what are some of the most common
• 27:05
  Speaker 2: things that those wealthiest Americans do. At the very top
• 27:10
  Speaker 2: of the list is save into an employer sponsored retirement plan.
• 27:14
  Speaker 2: Now listen, some of you may roll your eyes and say, well,
• 27:17
  Speaker 2: of course the investment guy, the financial planning guy would
• 27:20
  Speaker 2: say that, okay tooche. Then then don't take my word
• 27:23
  Speaker 2: for it. Go out and chat GBT that. Go out
• 27:26
  Speaker 2: and you know, test me on it. Go out and
• 27:28
  Speaker 2: look at the academic literature and see what it all
• 27:31
  Speaker 2: has to say about where people are saving for the future.
• 27:35
  Speaker 2: So just cannot suggest enough to consider getting involved in
• 27:39
  Speaker 2: that employer sponsored retirement plan and make that a big
• 27:41
  Speaker 2: part of how you're saving for the future.
• 27:43
  Speaker 1: Fantastic advice and guidance this week. As always, don't forget
• 27:46
  Speaker 1: missed any part of today's program. Or you want to
• 27:48
  Speaker 1: learn more about Class Financial or even schedule a complimentary
• 27:51
  Speaker 1: chat right online, just head on over the website class
• 27:54
  Speaker 1: financial dot com. That's coss k l a A s
• 27:57
  Speaker 1: Financial dot com telephone number for the office right here
• 27:59
  Speaker 1: in matt Us in six oh eight four four two
• 28:01
  Speaker 1: five six three seven. No charge for that initial gets
• 28:04
  Speaker 1: no you appoinment dech Loss Financial. It will be complimentary
• 28:07
  Speaker 1: to you again their number six oh eight four four
• 28:09
  Speaker 1: two five six three seven. You want to hold on
• 28:11
  Speaker 1: to that telephon number as well, because it's time now
• 28:13
  Speaker 1: for the COSS Quiz Question of the week. It works
• 28:15
  Speaker 1: like this. In just a moment, I'll ask you the
• 28:16
  Speaker 1: COLSS Quiz question of the week. You will then have
• 28:18
  Speaker 1: thirty minutes from the en Today's program to call the
• 28:20
  Speaker 1: COLSS Financial Office right here in Madison at six oh
• 28:23
  Speaker 1: eight four four two five six three seven. If you
• 28:25
  Speaker 1: are the first call with the correct answer, you will
• 28:27
  Speaker 1: win this week's prize, which is a twenty five dollars
• 28:29
  Speaker 1: gift card to the Olive Guard. This week's CLOSS Quiz
• 28:32
  Speaker 1: Question the week is this in twenty twenty six, as
• 28:35
  Speaker 1: an employee, assuming you're under the age of fifty, what
• 28:39
  Speaker 1: is the maximum dollar amount you can contribute to your
• 28:42
  Speaker 1: four oh one K plan telphon number six oh eight
• 28:45
  Speaker 1: four four two five six three seven. First cost correct
• 28:48
  Speaker 1: answer win this week's prize. No forkod as well. That's
• 28:50
  Speaker 1: Loss Financials Office right here in Madison. That number six
• 28:53
  Speaker 1: oh eight four, four, two, five, six three seven CJ.
• 28:56
  Speaker 1: It's always great chatting with you, my friend. You enjoy
• 28:58
  Speaker 1: this great Dan and we'll do it all again in
• 29:00
  Speaker 1: a week.
• 29:00
  Speaker 2: Thanks Sean.
• 29:01
  Speaker 1: Doctor Greer comes your way next year on thirteen ten
• 29:03
  Speaker 1: wib A