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Rolling Over Right: Master Your Retirement Choices · Money In Motion with Klaas Financial

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  And the phone lines are open here at the station. If you have questions
• 0:03
  for our retirement planning professionals from Class Financial, CJ. Closs and Malia Quavis,
• 0:08
  tellphon number to get out on the air and join us six oh eight
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  three two one thirteen ten. That's three two one thirteen ten. We'll get
• 0:15
  you on the air with your question. As mentioned CJ and Malia. They
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  come to us from COSS Financial the website class financial dot com. That's Class
• 0:23
  k l A A S Financial dot com. There telephone number six oh eight
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  four four two five six three seven. No charge for the financial get to
• 0:32
  know your appointment dech loss Financial. It will be complementary to you again.
• 0:36
  Their number six oh eight four four two five six three seven has mentioned joining
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  us this morning our CJ colss in Malia Quavis, CJ. How you doing
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  this week? I'm doing great. How are you, Sean? I'm doing
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  really really good. Malia, great to see you yesterday. And uh always
• 0:50
  keeping busy or always I know you're always working. It's it's gotta be nice
• 0:55
  though this time of year, with a little bit of sunshine and uh and
• 0:58
  uh yeah, some good stuff going on. How you been very good?
• 1:00
  We're enjoying this summer, no doubt. Ye's for sure. What a what
• 1:04
  a great few days. We've had great days ahead as well. And as
• 1:07
  we talk with Lille and CJ, don't forget phone lines. They are open
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  love to have you join us, whether you have a question about the topic
• 1:14
  in particular of the week or question in general about retirement. Of course,
• 1:17
  our retirement planning professionals from Class Financial are here to take your call at six
• 1:21
  eight three two one thirteen ten. That's three two one thirteen ten. Cool
• 1:26
  feature of the program. Couple of really great things that we do on the
• 1:29
  show. Obviously a lot of great information each and every week to you.
• 1:32
  Also a fantastic opportunity to win a great prize a twenty five dollars gift card
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  to best Buy from our friends at Class Financial. We'll be doing the class
• 1:38
  quiz question a week a little bit later on the program with your opportunity to
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  win that twenty five dollars gift card two best Buy. A little tip listen
• 1:45
  closely to the program. Just about every show they question an answer come up
• 1:49
  during the program for the class quiz question week before we get rolling on this
• 1:53
  week's conversation we're talking about some of the things when it comes to old retirement
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  accounts and rolling over those type of thing things and to get ready to retire,
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  other things to just really plan on and be thinking about. Before we
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  get to that conversation, let's actually take a look back at last week's program
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  and get the class quiz question of the week and the answer there as well.
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  Maliah. Yeah, so last week we had a great conversation about the
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  reality of nominal versus real returns. As you're looking at your portfolio, it's
• 2:22
  really important to understand how those returns will impact your retirement planning. So a
• 2:29
  grasp of that is very important. So listen back to that show last week.
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  If you missed it and our question reflected the topic real returns, it
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  was true or false. Real returns are generally lower than nominal returns because they
• 2:43
  are reported after a reduction for inflation. Correct answer was true. Several callers
• 2:50
  called in to report that it was true, but only one one and they
• 2:53
  were the first one to call in. That was Donnie of Monona, So
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  congratulations to them for calling in. Listen carefully for today's question. Really nice
• 3:02
  work there, And if you missed last week's program. There was a lot
• 3:06
  of information. It was actually one that I listened back to to just to
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  kind of get a little bit of a better grasp on the subject matter it
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  was. It was a lot of really really important, vital information for you.
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  And if you want to listen back, you can always go to class
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  Financial dot com. That's Coss k l Aas Financial dot com. Get to
• 3:23
  know Coss Financial their separate divisions. Also learn about how they can help you
• 3:28
  if you're a business or an individual when it comes to retirement planning. Another
• 3:30
  cool feature on the website is the the Stay Connected. Scroll down to the
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  bottom. We get that weekly Market Pulse newsletter I subscribed a number of years
• 3:39
  ago. It's a really cool weekly snapshot of an email of what's been going
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  on in the markets. Also link to the most recent podcast that available to
• 3:46
  you at Cossfinancial dot com and their telephone number six so eight four four two
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  five six three seven. So. I gotta guess. Folks reach out to
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  you for various reason, things like getting ready to retire or changing jobs.
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  Maybe that old retirement account looking to roll over. What should they know before
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  they do those things? Yeah, good question. When people change jobs and
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  leave retirement plans behind, it's good to find out what your options are with
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  respect to old plans. According to the Bureau of Labor Statistics, on average,
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  individuals between the ages of eighteen and fifty two could change jobs as frequently
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  as twelve times over that timeframe. Some of those jobs probably came with some
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  type of employer sponsored retirement plans, such as a four oh one K or
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  maybe a simple IRA or SEPIRA. And then, of course, when you're
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  switching your jobs, many people choose to roll over any accounts to their new
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  employer's plan rather than taking them as a withdrawal. And when you roll over
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  a retirement plan, those penalties and taxes are generally deferred to a future date.
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  So of course people ask what are my options for rolling over a four
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  to oh win K or another old retirement plan in terms of of like,
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  you know, where can it go? What can I do? So we're
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  going to go through those choices today. You can roll the plan to an
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  IRA, you can technically cash it out, you can keep the money at
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  your old plan if you want to, or you can consolidate it with a
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  new four oh one K or new employer sponsored retirement plan. So you actually
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  have multiple options when it has to do with an old defined contribution plan.
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  So what we're going to do today is just explore the pros and cons of
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  each of the options that are available to you, starting with the one you
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  probably don't want to do. So we're going to start with Again, think
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  of this in terms of if you're on the air right now and they're thinking
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  to yourself, Yeah, that's me. I have an old retirement plan,
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  or maybe I used to have an old retirement plan and I did something with
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  it. We're going to talk about the options that are available to So number
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  one, which is the worst cash it out. Of course, the question
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  becomes what happens if I do this, And the answer is the entire amount
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  becomes taxable the year you cash it out, unless of that money was wroth,
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  which we'll talk about a little bit later, but generally speaking, that
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  entire amount becomes taxable in the year that you take it out. Also,
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  if you take that distribution from your old retirement plan prior to age fifty nine
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  and a half, you will likely also ohe both not only the federal marginal
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  income tax, but also a ten percent penalty on the amount that you withdrew
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  in addition to any relevant state income taxes that might you know, pop in
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  on this. So listen, think about this. If I'm under fifty nine
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  and a half and i take one hundred thousand dollars distribution for my retirement account
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  prior to age fifty nine and a half, you could be talking. Let's
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  just call it twenty four percent federal marginal income tax plus another ten so we're
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  up to what is that thirty four percent on the federal side at the ten
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  percent is the penalty, by the way, plus in the state of Wisconsin,
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  maybe another seven. So we're up to forty one percent coming out of
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  that thing. And that's like an average mark marginal income tax penalty. That's
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  not it. We're not even going to the high end of what marginal income
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  taxes could be. So, as you can imagine, might not be the
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  best idea, especially if it's a large dollar amount. Now, every once
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  in a while somebody says, no, no, no, no, I
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  worked at an employer for you know, a few months. It's a thousand
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  bucks in there. I don't really care about the tax and penalty. I
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  just want to get it out. Well, that would be a different story.
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  Even then, we wouldn't suggest it because you're still going to be taking
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  on the taxes and penalties at the rates I just mentioned. But for large
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  distributions you'd want to be really careful talking. And then, of course some
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  other questions come up, like well, what if I accidentally pull the money
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  out, but then I realized that it's had the taxes and penalties and all
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  the stuff. Can I do anything to put it back in? And the
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  answer is yes, but you have sixty days to put it back in.
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  So again, take my example of one hundred thousand and an old four one
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  K I accidentally distribute it to myself. Typically what happens is the they are
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  require to withhold twenty percent, so they'll send you eighty thousand dollars. You
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  then have sixty days to get that money back into say an IRA, in
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  order to avoid the tax and penalty. The problem is you have sixty days
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  to get it all back in, and you only have eighty of the one
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  hundred thousand, So you have to find twenty thousand dollars somewhere to put back
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  in to get the full hundred thousand back in, because if you don't,
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  that twenty thousand is deemed as a distribution that would be taxed and penalized,
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  and then when you go to file your income taxes at the end of the
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  year, they would send you back the twenty thousand they should have never withheld.
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  So you kind of see the point. Not a great way to do
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  it. Not to mention that if you do this you accidentally distribute, they
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  withhold the twenty percent. You try to roll it back in within sixty days.
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  In all of that, you can only do one of these every twelve
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  months, right, It's either every twelve months or every calendar year. But
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  you can only do one of these, so you need to be really cautious.
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  Talking this morning with our retirement planning professionals from Class Financial Seage colss emlia
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  Quavis, love to have you join us this week. If you've got a
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  question, we'll get you right on the air. Telephone number six soh eight
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  three two one thirteen ten. That's three two one thirteen ten. The website
• 9:09
  for COSS Financial easy to remember, Cossfinancial dot com. It's a fantastic website.
• 9:15
  Checked it out recently. Head on over Cossfinancial dot com that's k l
• 9:18
  Aasfinancial dot com and their telephone number from the office right here in Madison,
• 9:22
  six oh eight four four two five six three seven. No charge for that
• 9:26
  initial GATESNOI appoyment, ach loss financial It will be complementary to you again their
• 9:31
  number six oh eight four four two five six three seven. So CJ.
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  We talked about take it, we got let's talk about leave it. Yeah.
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  Yeah. So one great option and we see a lot of people do
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  this is just leave it at the former employer. So many companies will permit
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  their former employees to leave their funds in their company plan and the funds can
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  stay invested in the old plant. However, if your balance is less than
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  typically five thousand, your former employer may eventually request that you move the funds
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  or may even force you out of the plan. Remember though, while your
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  funds may continue to grow in your old plan, you still need to continue
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  to monitor how you're invested for risk and strategy. Not to mention, the
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  old employer still has the option of moving that money to a new plan provider.
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  So you're going to kind of get jerked around to wherever that old employer
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  decides to have their four oh one K plan sponsored. And since you're no
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  longer funding this account. You obviously will not see it grow as quickly as
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  it had in the past because it's just sitting in the old employer. Also,
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  in any four oh one K, understand that while fees you pay within
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  the plan may be lower, you're likely to have a smaller number of investment
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  choices. So this is just something to be aware of. Hey, four
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  oh one K plans are designed for companies to offer to their employees, are
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  but are also designed to lower the risk for the employer. What well,
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  the risk that they offer an investment that is outside of your understanding, and
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  if you don't have an advisor, you put your money in there and get
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  hurt. You could go back to the employer and complain to them. So
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  what the employer often does is they go, hey, guys, we're just
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  trying to give you a benefit here. You know, you put your money
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  in. We'll put a little bit of our own money in. You know,
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  when you leave, you take it with you. We all win.
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  Therefore, I'm going to make these investments pretty limited and pretty simple because I
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  don't want you to hurt yourself. Which that's what a good employer does is
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  they try to make it simplified for you. To do. But that can
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  often mean that you have limited investment options and and so you just want to
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  be aware of that. Now. I say that sometimes large for when K
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  plans, we'll have an investment an investment option that's not available on the open
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  market. And sometimes your employer will pay the majority of the fees of managing
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  that for a W and K plan on your behalf. So there can at
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  times be an actual incentive to leave money in your old four to oh one
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  K plan. So just slow down a little bit before you jump on and
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  roll this thing over. Slow down to say, hey, what are my
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  fees, what are in my investment options? And would I benefit from rolling
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  it over, which, of course leads us to the final option, which
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  is to roll over the old four to oh one K into your new retirement
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  plan at your new employer. Now, in a moment, really is going
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  to talk about another option, which is rolling it over to an IRA.
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  But at least for my section, you could move this money into your new
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  employer. And the good news is with this that you're simplifying your life by
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  not having multiple accounts at too many institutions. And you know that by doing
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  this it is not a taxable event. That's the whole idea. A rollover
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  is I am rolling over my tax liability to the future, so I'm moving
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  it from one pre tax retirement account to my new employer's retirement account and avoiding
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  the taxation. Be aware that you may have have both pre tax and WROTH
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  money inside of your four oh one K, and if you do, you
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  need to make sure that when you move it to the new employer that they're
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  accepting it into the pre tax bucket and into the WROTH bucket. And you
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  have to make sure that your new employer allows for incoming rollovers. So what
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  we've gone through so far are three options. You can cash it out,
• 13:26
  which has some risks associated with it. You can leave it in the old
• 13:31
  four oh one K plan, which has some risks and potential benefits. You
• 13:35
  can roll it over to your new company sponsored retirement plan, assuming that employer
• 13:39
  plan allows for that, and then Malia will be getting into another option.
• 13:43
  Here a more looks like some great stuff ahead and great information lay in the
• 13:48
  groundwork from CJ. Of course Cjmalia our retirement planning professionals from Class Financial.
• 13:52
  You can learn more about Cjmalia and the whole team at cost Financial on their
• 13:56
  website colssfinancial dot com. That's laasfinancial dot com mentioned earlier the opportunity as well
• 14:03
  to sign up for the weekly Market Pulse newsletter. Just scroll down towards the
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  bottom. You'll see the envelope it says stay current. There you can subscribe
• 14:09
  right online. That is free to you. Speaking of things that are free
• 14:13
  to you, the telephone number six oh eight four four two five six three
• 14:16
  seven, that first appointment at Coss Financial. It's not going to cost you
• 14:18
  a thing that will be complementary again their number six oh eight four four two
• 14:24
  five six three seven. And then number to get on the air this morning
• 14:26
  six soh eight three two one thirteen ten. That's six soh eight three two
• 14:30
  one thirteen ten. We'll continue our conversation with Malia and CJ. We will
• 14:33
  do that next as Money in Motion with Coss Financial continues right here on thirteen
• 14:39
  ten. WIBA hanging out with our retirement planning professionals from Class Financial, CJ
• 14:46
  Closs and Malia Quavis. If you've got questions, we'd love to get you
• 14:48
  on the air this morning. Six oh eight three two one thirteen ten.
• 14:52
  That's six o eight three two one, thirteen ten, we'll get you on
• 14:56
  the air with Malia and CJ. Of course, Class Financial's website is COSS
• 14:58
  Financi. That's k l a A S Financial dot com and their telephone number
• 15:03
  six so eight four four two five six three seven. No charge for that
• 15:07
  initial get to know you appointment tech Loss Financial. It will be complimentary to
• 15:11
  you again their number six oh eight four four two five six three seven.
• 15:15
  So Malia CJ mentioned there's a little bit more. I shouldn't say that's underselling
• 15:18
  it. There's much more to this. But there is another angle, another
• 15:22
  thing you want to think about, which is rolling your old four oh one
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  k into an ira. Is that another option for folks? Yeah, it
• 15:28
  absolutely is. And you know, I think really the sum of all of
• 15:33
  our shows on retirement planning and dealing with these situations is really about slow down.
• 15:41
  Just slow down and make sure you understand all the choices that CJ just
• 15:45
  reviewed. Understand that there's not necessarily the right answer for your neighbors, not
• 15:50
  the right answer for you. You want to look into your situation and sit
• 15:54
  down with someone and make sure you're making the right choice before you just do
• 15:56
  something. I'll be honest, stupid and then find out, oh, I
• 16:00
  have to pay taxes on that or something something similar, So just slow down
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  and understand your choices. So this is most likely one of the more common
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  ones we see people choose to do where they can actually move their four oh
• 16:15
  one K plan, their old four one K plan into an IRA. And
• 16:19
  the reason that many people choose to do that is usually not always, but
• 16:25
  usually four to oh one K plans are limited to an average of eight to
• 16:29
  ten investment options, where within an IRA you might have many, many more
• 16:34
  options. So what we look for people to do if they're going to do
• 16:38
  a rollover into an IRA, you could move your your pre tax portion of
• 16:44
  your four one k into a traditional IRA, and then you could move your
• 16:48
  WROTH four one k portion into a roth IRA. You want to make sure
• 16:52
  that like goes to like. We don't want anything messed up there because you
• 16:56
  don't want to pay taxes unnecessarily, so you want to keep them streamlined going
• 17:02
  into the appropriate iras. Understand again, this is not a taxable event.
• 17:07
  When it's going to a like to like, you're not going to incur taxes,
• 17:12
  But just understand that the tax deferred accounts. Like I said, the
• 17:17
  ROTH, those will continue to grow tax deferred and come out tax free for
• 17:21
  you. At some point, your pre tax for a one K that will
• 17:25
  go into a traditional IRA. Should you choose that, you still have to
• 17:27
  pay taxes on that. You never pay taxes on the way in, so
• 17:30
  on the way out when you have a distribution from that IRA, someday you
• 17:36
  will pay taxes on it. But understand also that prior to age fifty nine
• 17:41
  and a half there is this penalty of ten percent. So these funds have
• 17:47
  always been deemed as your future retirement. But if you choose to decide to
• 17:53
  take money out of whether it be your old for a one K directly or
• 17:57
  through an IRA, and you are under fifty nine and a half, you
• 18:02
  are going to have to pay not only taxes if it's the pre tax portion,
• 18:06
  but you're also going to have to pay a ten percent penalty. So
• 18:08
  you do want to be delicate with the way in which you make maneuvers within
• 18:12
  those accounts. But the good news for people that choose to move these old
• 18:17
  four one ks into I raises, now you have discretion, you have flexibility.
• 18:22
  So should you come upon a situation where you needed to access quote your
• 18:26
  own money, you would have access to that. You would just have to
• 18:30
  understand you would have tax implications. But if you leave it in your four
• 18:34
  oh one K, your old four oh one K, you could also still
• 18:37
  do a distribution. Again understanding that the requirement on the four oh one K
• 18:44
  or the retirement plan side is they do require a minimum withholding of twenty percent
• 18:49
  for taxes, whether that's your tax bracket or not. So again there's a
• 18:53
  little more control if you're leaving it behind on the employer's in talking to something
• 18:59
  go ahead, real quick talking this morning with CJ. Colss Amalia Quavis ot
• 19:02
  Retirement planning for professionals from Class Financial, the website class financial dot com.
• 19:07
  That's Class k l a as Financial dot com and they're telephone number six So
• 19:11
  eight four four two five six three seven sorry, Mali. Are other things
• 19:14
  that we need to know. Yeah, So you want to understand your investment
• 19:18
  choices within the new IRA, and so your financial advisors should be able to
• 19:22
  show you an appropriate asset allocation depending on your retirement to directory, your comfortable,
• 19:30
  how comfortable you are with risk and so forth, how many years out
• 19:33
  you're looking to retire, but people don't quite understand the registration what that means.
• 19:41
  So if you transfer your four oh one K into an IRA, remember
• 19:44
  the IRA is just a registration. So that IRA could be invested in a
• 19:51
  CD at your bank, it would still be an IRA. It would still
• 19:55
  be an IRA, it would still be held as pre tax if it came
• 19:57
  from a traditional forum one K. And so if you put it, for
• 20:02
  example, in a CD, I'm not recommending this, but if you did,
• 20:06
  perhaps you would have, you know, less risk of dollars, but
• 20:10
  you also may not have over the long term possibility more risk to possible inflation.
• 20:15
  Right, Or you could put this money into an IRA, as I
• 20:19
  mentioned before, with a diversified choice of investments. So the IRA is simply
• 20:26
  a registration. How in which you allocate it depends on the type of instruments
• 20:30
  you want to use for that. You should also remember that all investments,
• 20:36
  believe it or not, have associated fees with them, so your four oh
• 20:40
  one K plan does as well, So make sure you understand what fees you're
• 20:42
  paying for the various investments that you have. Ultimately, there's a portfolio manager
• 20:48
  out there who manages funds, and you have to understand the fee calculations for
• 20:55
  those. So one thing we tell you to do, as I started out
• 20:57
  with, is slow down, pause before you do a rollover if the following
• 21:02
  situations might apply to you. If you're thinking about retiring between the ages of
• 21:07
  fifty five and fifty nine and a half, that's where we really want you
• 21:11
  to slow down, because if you do retire after age fifty five, you
• 21:15
  likely might be able to take a distribution from your four oh one K without
• 21:19
  penalty once you separate from service. Now we're talking about a current four oh
• 21:25
  one K, a current employer, and should you separate from service leave them
• 21:30
  after the age of fifty five, you could actually take continued distributions from that
• 21:38
  four oh one K and not pay a penalty between fifty five and fifty nine
• 21:45
  and a half. So this goes against what I was talking about earlier,
• 21:48
  but it's an important caveat for many people who are looking to retire sooner.
• 21:53
  This is again we can't get rid of the tax, but to not have
• 21:56
  that penalty. So in this case, we would be suggesting to a client,
• 22:02
  let's leave a portion or perhaps all of it in your old four one
• 22:06
  K so you can access it as needed. For these next four and a
• 22:10
  half years if you're fifty five, so really good things to know about that.
• 22:15
  And another consideration we might say is if you're going to continue working into
• 22:18
  your seventies. I have a client who has done this and you are continuing
• 22:22
  to add to your employer's four one K, you can continue contributing and you
• 22:27
  do not have to take those required minimum distributions that we've spoken about many shows
• 22:33
  at this point, So you know, age seventy three is the current age
• 22:38
  where you are expected to start taking rmds. However, if you are currently
• 22:45
  working for an employer, even after the age of seventy three, you are
• 22:49
  not required to take money out and pay taxes on it yet. So I
• 22:53
  have a woman who's seventy five still adding to a four one K does not
• 22:57
  have to worry about the rmd rm ds coming out. So just understand that
• 23:04
  you have choices. We want you to understand clearly what the expenses are as
• 23:10
  you move into some of these other areas, and the discretion that you might
• 23:12
  want to have as you enter that next phase of retirement. Great points all
• 23:17
  around there. From Malia Quavis, our retirement planning professional from Class Financial of
• 23:19
  course CJ along with us as well also our retirement planning professional from Class Financial,
• 23:25
  Mallia mentioned our mds. We've done a couple of shows on those.
• 23:27
  If you want to listen back, just head on over to Cossfinancial dot Com.
• 23:32
  That's Coss k l Aasfinancial dot Com. There telephone number six oh eight
• 23:37
  four four two five six three seven. No charge for that initial gets to
• 23:40
  know your appointment at Cost Financial. It will be complimentary to you again their
• 23:44
  number six oh eight four four two five six three seven. Maybe some of
• 23:48
  you are asking, well, what if I've got appreciated stock, what do
• 23:51
  I need to know about that when it comes to my retirement plan? We'll
• 23:53
  get the details from CJ Walls through the class quiz quench Leak. We'll do
• 23:56
  that next as Money in Motion with COSS Final continues right here on thirteen ten.
• 24:02
  Wuib A talking with CJ. Closs and Malia Quavis. They are our
• 24:07
  retirement planning professionals from Class Financial online Class Financial dot com that's Claus k l
• 24:14
  a as Financial dot com and their telephone number six so eight four four two
• 24:18
  five six three seven. So let's say I've got some appreciated stock from your
• 24:22
  employer and your retirement plan. How should folks be handling this one? We're
• 24:26
  talking about rollovers from retirement account to an IRA CJ. Yeah, good question,
• 24:33
  Sean. So for those who who didn't hear everything, we are talking
• 24:37
  about what to do with old retirement plans today. And so we went through
• 24:41
  all the different options from cashing it out to rolling it over to your new
• 24:45
  employer plan, to leaving it to rolling it over to an IRA, and
• 24:48
  there really is. There's a lot of good choices, but you probably just
• 24:52
  need to, you know, in Malia's words, slow down, talk to
• 24:55
  somebody who you trust, talk to your financial advisor, and come and decide
• 24:59
  on what's best for you given your age and circumstances. But then we run
• 25:03
  into this group, a rare group that has employer stock inside of their employer
• 25:11
  sponsored retirement plan. So for those who don't know what I'm talking about,
• 25:15
  this would be the equivalent of working for ABC Company. You know, that's
• 25:18
  not a real company by the way, just a company, ABC Company.
• 25:22
  And then as you make contributions into that four oh one K plan through ABC
• 25:30
  company, they match your contributions, which is pretty common, but they match
• 25:34
  it in their companies stock inside of that plan. Well, if that's you,
• 25:40
  if you're going oh yeah, yeah, yeah, that's me. Well,
• 25:41
  there's this little known provision called net unrealized appreciation that you may need to
• 25:47
  be aware of. I'm going to try to summarize it here at the end
• 25:49
  of the show. But first disclaimer, we are not accountants. We don't
• 25:55
  file income taxes for our clients. We are professionally trained in tax But I
• 25:57
  only tell you this because if you were to actually move forward with an NUA
• 26:02
  transaction, you would highly want to involve your financial advisor and highly want to
• 26:07
  involve your accountant or CPA. But let's dive into it a little bit here.
• 26:11
  So while pre tax distributions from retirement accounts are taxed at ordinary income tax
• 26:18
  rates, an exception to this rule applies to appreciated employer securities distributed from an
• 26:25
  employer plan that are part of a net unrealized appreciation transaction. In such instances,
• 26:32
  the NUA net unrealized appreciation, or the appreciation in those securities, is
• 26:37
  taxed at the more favorable long term capital gains tax rates when the stock is
• 26:44
  sold in a taxable account. Given the disparity between the two rates, being
• 26:51
  the marginal income tax rate and the capital gains tax rate. The ability to
• 26:55
  swap what would be ordinary income tax rates for long term capital gains tax rates
• 27:00
  on a portion of a worker's retirement savings plan could obviously sound appealing, but
• 27:06
  it's not always the right play. While the NUA itself gets the benefit of
• 27:11
  long term capital gains treatments, the portion of the shares, the portion of
• 27:15
  the shares basis had they purchased with taxable dollars, is subject to ordinary income
• 27:22
  taxes right away. This could greatly drive your income tax rate for the year
• 27:26
  in which you do a rollover way up. Additionally, completing an NUA transaction
• 27:32
  removes the assets for which anyway is used from the protected tax deferred wrapper provided
• 27:37
  by a retirement account. So let me put this in more just common terms.
• 27:42
  Here, where would this apply Where I would actually want to take advantage
• 27:48
  of moving my employer's stock into a taxable account and then selling it there,
• 27:52
  because that's really what this is. Well, this would be where your company
• 27:57
  matched your contributions there and the stock grew dramatically, so your basis known as
• 28:04
  the amount that was contributed on your behalf is say lo maybe it's in my
• 28:08
  I'll just give an example, fifty thousand dollars of a contribution, but that
• 28:12
  stock inside of there is worth four hundred thousand dollars because of all the explosive
• 28:17
  growth. Well, if you just move that money into an IRA, well,
• 28:21
  all of that four hundred thousand dollars of stock is now in a pre
• 28:23
  tax account. Yes, it's growing tax deferred. But when you pull it
• 28:26
  out whenever that is is taxes ordinary income. Well, what if I moved
• 28:32
  that four hundred grand into a taxable account because it's company stock, Well,
• 28:37
  I would have to pay ordinary income taxes marginal ordinary income taxes on the fifty
• 28:42
  thousand, but the three hundred and fifty thousand dollars worth of growth would be
• 28:48
  eligible for taxes at a capital gains tax rate, which is a lower rate.
• 28:55
  That's a pretty big deal depending upon who you are, your income,
• 28:57
  if you retire a a bunch of different circumstances, this could be a big
• 29:03
  deal. But there are three key NUA rules that you need to follow.
• 29:07
  Number one, NUA transactions can only be made after a quote unquote triggering event.
• 29:12
  If you want to know what that is, go NUA triggering events through
• 29:15
  Google. Number two, the employer sponsor retirement plan must be emptied within one
• 29:22
  calendar year as a lump sum distribution. You cannot do this as a partial
• 29:26
  distribution. And number three, the shares of stock on which NUA is desired
• 29:32
  must be moved in kind to a taxable account. Since the favorable long term
• 29:36
  capital gains treatment in an NUA transaction is only applicable to the growth of the
• 29:41
  employer securities, while the purchase price of the sarages is subject to ordinary income
• 29:45
  tax, the strategy is generally viewed as one that is best reserved for employer
• 29:51
  securities that have experienced substantial growth. So there you go. There's the three
• 29:56
  things you've got to be careful of. Now, I will admit to you
• 29:59
  while we get a little a little bit tentative about even trying to bring this
• 30:03
  up on the air because it's such a unique, nuanced subject. So here's
• 30:08
  what i'd say. If something we've talked about here has perked your interest or
• 30:11
  you're you're saying to yourself, yes that this is me, I have this
• 30:17
  inside of my four oh one K plan. Please do not think to yourself,
• 30:21
  great, I'm gonna go do this transaction. Think to yourself, let
• 30:23
  me talk to my advisor, let me talk to my accountant and work through
• 30:26
  an application of this to see if it will if it will work for me.
• 30:30
  Fantastic guidance as always, CJ. Colosse EMILEA. Quavis. They are
• 30:33
  our retirement planning professionals from Class Financially. You can learn more online the website
• 30:37
  class financial dot com. That's Class k l aas Financial dot com and their
• 30:42
  telephone number six soh eight four four two five six three seven. No charge
• 30:47
  for the initial get to know you appointment tech COLSS Financial. It will be
• 30:49
  complimentary to you again that number six oh eight four four two five six three
• 30:55
  seven. Go on hold on to that telephone number because it's time now for
• 30:56
  the Class Quiz question of the week. It works like this, I just
• 31:00
  want to ask you the class quiz question a week. You will then have
• 31:02
  thirty minutes from the today's program to call the COLSS Financial office right here in
• 31:04
  Madison at six oh eight four four two five six three seven. If you
• 31:08
  are the first call with correct answer to win this week's prize, which is
• 31:11
  say twenty five dollars gift card to best buy this week's Closs Quiz question the
• 31:17
  week. Is this true or false? Rolling your previous pre tax retirement plan
• 31:22
  and your new employer's retirement plan is not a taxable event? True or false?
• 31:30
  Telephone number six oh eight four four two, five, six three seven.
• 31:33
  First call with correct answer. With that twenty five dollars gift card to
• 31:36
  Best Buy. Don't forget as well. That's cost Financials office right here in
• 31:38
  Madison. Six oh eight four four two five six three seven CEE J Malia.
• 31:44
  It is always great chatting with you guys. You enjoy this beautiful day.
• 31:47
  Thanks a on news comes your way next year. Thirteen ten Wiba