0:00:00 - Speaker 1

Discussions in this show should not be construed as specific recommendations or investment advice. Always consult with your investment professional before making important investment decisions. Securities offered through registered representatives of Cambridge Investment Research Inc. A broker-dealer member, finra, sipc Advisory Services through Cambridge Investment Research Advisors Inc. A registered investment advisor. Cambridge and Greenway Wealth Advisory are not affiliated. It's time to dive into some insider secrets of investing and retirement planning To make your retirement as smart and as elegant as possible. This is Money Chic with Sherry Rash.

0:00:31 - Speaker 2

Welcome into another edition of the podcast. It's Money Chic Women in Retirement, with Sherry Rash, for Greenway Wealth Advisory, and myself to talk financial literacy and also take a few email questions that have been submitted into the show. If you've got some questions of your own, feel free to stop by Sherry's website, greenwaywealthadvisorycom. That is greenwaywealthadvisorycom Sherry how are you?

0:00:55 - Speaker 3

I'm good. It's Happy Financial Literacy Month.

0:00:58 - Speaker 2

Yeah, let's talk about that. What is that?

0:01:00 - Speaker 3

Yeah, so you know this holiday was and I'm sure I might be the first person to ever wish you a happy financial literacy month- Let me be the first to wish you Right.

But it's definitely worth celebrating or at least worth talking about. Our government decided to create National Financial Literacy Month to raise public awareness about the importance of financial education. So hopefully by just me wishing all of you a happy financial literacy month, we can. That prompts you to explore a little bit of what financial literacy really means. But odds are, if you're listening to the podcast, you're already interested in it.

0:01:42 - Speaker 2

But this is true. This is true.

0:01:44 - Speaker 3

Yes.

0:01:45 - Speaker 2

Yeah, I think. Well, our financial literacy and education really in this country has been very bad for a very long time. So I think you know anything is a good thing, right To help, kind of bring that up.

0:01:57 - Speaker 3

Absolutely. I mean, I read a statistic the other day. A survey came out by Capital One and 77% of Americans report feeling anxious about their financial situation. I would say that probably comes. It goes hand in hand with the lack of financial literacy that we do have. We're just not taught it. We're not taught it in schools, we're not taught at home, many times because we think talking about money is taboo. So we don't pass any education on to others. So of course we're financially illiterate and, as a result, we're stressed out because of it.

0:02:35 - Speaker 2

Yeah, well, that's a standard statement, right? We certainly get a little under stressed out Anything you know, anything you kind of like to, because I was noticing that there is a financial planning month. United States financial planning month is in October, so we'll have to talk about that when we get to October. So, as I say, is there anything from a financial literacy standpoint that you think is a good idea for people like a place to start if you're feeling a little behind or feeling a little unsure about things?

0:03:02 - Speaker 3

Well, to add confusion to it, if you were to just Google what is financial literacy? There's not a definition of it.

0:03:10 - Speaker 1

Oh, probably not.

0:03:12 - Speaker 3

Depending on where you go, everyone has a different definition or what are the components of financial literacy. But, just to make it simple, it's being able to manage your money and, I would say, in a way that works best for you, right? Because everyone manages money differently. Everyone has different needs. So the qualities of financial literacy include, but, of course, aren't limited to budgeting, investing, borrowing or debt.

0:03:43 - Speaker 1

Yeah.

0:03:43 - Speaker 3

Taxation ID theft prevention.

0:03:46 - Speaker 2

Oh, that's one.

0:03:47 - Speaker 3

Yeah, saving protection meaning insurance risk management. So there's a lot to it and it is overwhelming all the aspects of it. So you can, because there's so many components of it, you can understand why so many Americans are stressed out about finances.

0:04:07 - Speaker 2

Well, because what we wind up doing is we go ugh this is too much right, that's right, it's too much and I got too many things to do.

And how is this going to help me with what you know? X, y or Z, right? What's whatever's on your docket that you've got to get done? So, but it can help in the long run because, like, I'll use an example, I've been doing some remodeling in one of my rooms here and my brother and I are going through where we're doing some stuff and it's looking really great, and the second we put something up.

That's kind of there. We don't want to, you know, mark up the walls. Now, once we've done whatever, I go, oh, you know what, I've been a good idea. And then we talk through it and it's like, dang it, that would have been a good idea. But now we don't want to mess up the wall by, you know, taking something down and redoing something. Right, and the same thing, I think financially, like, take the time to learn a little bit so that you don't make a mistake, that you then find the better idea later on and go, oh, I should have totally done this and maybe cost yourself money that you didn't have to spend, so to speak.

0:05:00 - Speaker 3

Absolutely, and I would also say finding you know. So I, that was not where I thought your story was going. I thought your story was going Well, we did something, we screwed it up and then we called someone in to fix it for us.

0:05:13 - Speaker 2

Well, we came close. We came close, but we figured out how to do it ourselves. But a lot of times people don't have that patience or even that, I guess, desire to do that, because they just get so frustrated with the financial they do turn to someone else to fix it right.

0:05:27 - Speaker 3

And that's a good thing. I mean turning to someone else to help you if you can feel yourself starting to get stressed out or overwhelmed and you're on the brink of going. Forget it, I'm done.

0:05:36 - Speaker 2

I'm not even dealing with this Right head in the sand, yeah.

0:05:39 - Speaker 3

Yeah, sticking your head in the sand, bringing in someone that can help you with it, is very important Just because it's. We consult with professionals for so many different things, but with our money sometimes we hesitate, because it's ours and we take ownership of it. I'm not sure exactly why, or why pay someone when I can do it myself, but we can say the same thing about a lot of things that we outsourced other people so.

0:06:05 - Speaker 2

I would say Especially now that it is right, we all very DIY motivated and a lot of arenas now.

0:06:11 - Speaker 3

Yeah, absolutely. But I mean just from those seven, eight items that I mentioned about what are the components of financial literacy. If you can find someone to help you with just a few of those, it might take a lot of the stress off your plate.

0:06:26 - Speaker 2

And it's financial literacy.

It's not necessarily financial competency right, that's right Having a good work, cause, even if you say, hey, this is not my bag, and you know that you're talking about yourself, and you turn to a professional, okay, great, but you still wanna be fairly literate, right, so that you can understand. That way, you know that if you're working with someone who's also not trying to take advantage of you, or maybe just not even doing things that are in your best interest, right? So having some a baseline of good information is never a bad idea.

0:06:56 - Speaker 3

That's right. That's a very good point, yeah okay, well, good.

0:06:59 - Speaker 2

So again, financial literacy month. It's April. You know a couple of ideas Sherry gave. So pick up. Yeah, listening to a podcast is a great way to get more in tune. As a matter of fact, go listen to some of our prior podcasts on various different subjects. That might help you. You know, we just talked about some spring cleaning tips on the prior one and a couple of weeks ago it was kind of like the moving your retirement goalpost right. It's like kind of finding excuses to push things back. So it's not always just the X's and O's, right, sherry, it's not always the let me do this complicated math problem, and sometimes it's just some of the emotional or other things that kind of go into it.

0:07:32 - Speaker 3

Absolutely yep.

0:07:33 - Speaker 2

Okay, all right. So, with that said, let's turn our attention to some email questions this week, and again we'll encourage folks to be financially literate here this month and drop an email question if you've got a question about something that we don't cover. You know, if we haven't talked about a specific topic or something that's been bugging you and you wanna learn more, shoot an email over to the show and to Sherry and have a conversation. Get that ball rolling Again. You can reach out to her at GreenWayWealthAdvisorycom. And we've got Toby, who sent in a question. I'm retiring in about five years and I'm currently maxing out the 401k, not adding to any other savings, though Should I be saving someplace else, even if it means possibly putting less money in the 401k?

0:08:14 - Speaker 3

I like this question a lot. This is something I go through with my clients when we're going through the Financial Foundations Program and then as we're planning for retirement, because one issue that many people face is that most of their monies in two places. One, it's in the equity of their home, right. But then the second place is that the vast majority of our net worth is in our 401k, our employer provided plan. I'm making the assumption that his 401k is a traditional 401k, meaning it's pre-tax. Many more employers now are offering Roth 401ks, which I can talk about in a minute. But assuming it's pre-tax, he's maxing out his 401k, which is great. He's putting the most amount that he can away, but he's not adding to any other savings.

He has three types of dollars. There's pre-tax dollars, which is your traditional 401k, traditional IRA, which is funded with money that you have not yet paid taxes on. We then have Roth dollars, which is money you've paid taxes on which then grows tax deferred, withdrawn tax-free. Then after tax money, which is basically the money that, after your paycheck hits your checking account, you've already paid taxes on it. If you were to invest it, you pay taxes each year on the gains. Flash is making his presence known. He's already chewed some cable cords. He is chewing my blinds right now he's very passionate about. We got him all excited talking about finance.

0:09:56 - Speaker 2

He's ready to roll. He's wanting to learn how many blinds do I need to eat before I get a treat? That's right, he's counting.

0:10:04 - Speaker 3

How much do I need to eat for Shari to stop talking and take me outside? That's right. Then, after tax dollars, you're paying taxes on the gains each year. There's three types of dollars. If Toby's maxing out his 401k again I'm assuming it's a traditional he has a big pot of money in pre-tax dollars, which means when he retires that's what he's living off of. He's paying taxes, 100% taxes on all of the withdrawals he takes from that bucket. Not knowing anything else about the situation, yeah, I would look into starting to increase either the Roth bucket and or the after tax bucket. That way you have a little bit of a strategy a tax strategy entering retirement of where's my money going to be coming from? Because, again, when you withdraw from a Roth, you're not paying taxes on it. If you withdraw from your traditional 401k bucket, you're paying taxes on 100% of that amount. The answer is I would look into if a Roth makes sense or just saving after tax dollars in a brokerage account or savings account looking elsewhere.

0:11:18 - Speaker 2

Okay, all right, thank you so much, toby, for that question. Hopefully that helps. Of course, as always, if you need to get into some specifics, make sure you're talking with Sherri one-on-one. Of course she's going to reach out to obviously everybody who sent an email in, but just for others who are in a similar situation, it's kind of a 401k kind of question day, because we got one from Claire. It's fairly similar in some way. She says I got some big bonuses coming in this year, hopefully, fingers crossed, so big that my 401k will get maxed out, probably early in the year. So we're into April with this one. So, yeah, so she may be getting some stuff here pretty soon, maybe summertime bonuses or something. But anyway, she says I'm wondering, because I could max this out, do I still want to save for the rest of the year in some other place? Should I just max it out and be done? So she's kind of thinking, hey, okay, if you hit that in 401k this year is was it 22.5, sherry, I think.

0:12:11 - Speaker 3

Yep.

0:12:12 - Speaker 2

Unless she's over 50, which we don't know because she didn't tell us in which case I think it's 30,000. So, yeah, if she's put, let's say, she's over 50 and she's put 30,000 in for the year, you know, should she continue to save someplace else and, if so, where?

0:12:25 - Speaker 3

Yeah. So again, making the assumption that it's a traditional 401k that she maxed out, this is where we can start to look to the Roth bucket or just the after tax bucket to start saving to. So if she's getting those big bonuses, it could be likely that she makes more than to directly contribute to a Roth IRA, but that's where she could then take, you know, those bonuses after tax and just move them into an after tax account and non-qualified account and save there.

0:12:58 - Speaker 2

Hey, sherry, would it be worth it for someone like this maybe to look and see if the company has now starting to offer like a 401k Roth, because more companies are doing that? Would it be? Would it make sense to have both of those, possibly, or no?

0:13:10 - Speaker 3

It could. It definitely could make sense. The contribution limits still do apply, so it's not as if you can max out the traditional side and the Roth side, oh, okay. But if you can treat so a Roth 401k, it works very similarly in that you have the salary deductions but, it's after you pay taxes, so it comes out of your paycheck after you pay taxes, but it goes into your 401k as a Roth and again, it doesn't have the income limits like a regular Roth does.

Exactly, there's no income, thank you. There's no income limits with the Roth 401k, so that could be a really a good step for Claire to take is to inquire with her employer if they offer a Roth option. That way she can still max out her 401k but change up the dollar types that she's saving, yeah, exactly yeah.

0:14:01 - Speaker 2

So, and to your point or some sort of other, you know, after tax savings account, because basically what you're kind of for both these questions, Sherry, it's like okay, let's start thinking about tax efficiency. Right, Paying the taxes now versus the likelihood of higher taxes on these dollars in the future.

0:14:16 - Speaker 3

Right, and I'm going back to talking about financial literacy. Both of these people are doing the right things right. They've done research on their own, they're maxing out their 401ks. That's the right thing to do. But now let's take it one step further and create some tax efficiencies, like you said. Let's take what you're doing, which is already great, and let's make it a little bit better.

0:14:38 - Speaker 2

Yeah, well, you know this works out really well. So we've pulled three different questions that kind of fit in this framework. It's funny how that works right. It's almost like we planned it a little bit. So Doug has a question and his is kind of similar, so a little bit different, though. He's like look, I've heard so much about doing Roth conversions with the money in my IRA, but I make too much money to do a Roth. So I'm confused. So this kind of is similar to what we just touched on, so maybe you can kind of clear this up for Doug and others like him. So he's thinking about he has a lot of money in the IRA and he should do a Roth conversion, but he makes too much for a Roth. So he's confusing the two types of things. He's confusing conversion and contribution.

0:15:18 - Speaker 3

Right. So when you contribute to a Roth, there are income limits. So if you are single head of household, if you make more than $138,000, you cannot contribute to a Roth IRA directly. If you're married, filing jointly, and your income is greater than $228,000, you cannot contribute to a Roth IRA.

0:15:42 - Speaker 2

And that sounds like he knows that already, right. So that's the numbers, okay.

0:15:46 - Speaker 3

Exactly.

But there is no income limit to convert a traditional IRA or pre-tax retirement dollars to a Roth and all what you're going to do is it's kind of like flipping a switch or moving money from the left hand to the right hand.

So you have money in your traditional IRA, decide how much you want to convert and that could be something that you should work out with your tax advisor if there is a potential of bumping you up into a higher tax bracket or what have you. But you're going to. So let's say, we're converting $20,000 of our traditional IRA to Roth. There's no income limit, so it's wherever you hold that money. It's a form usually to just switch that money from a traditional IRA to a Roth IRA and then what you're going to do is you're going to pay taxes on that conversion. So whatever dollar amount you have not yet paid taxes on, you're going to pay taxes on that full amount. So if it's $20,000 and 20,000 of it is pre-tax because it is a result of a 401k rollover, you are going to be paying income traditional income taxes on that $20,000.

0:16:57 - Speaker 2

Yeah, and the question might be well, why do I want to do that? Why don't I pay the taxes on this to convert it over? And we just kind of touched on that, right, sherry. Because it's tax efficiency, hopefully for later. Because the money when you move it to a Roth, is now going to grow tax-free versus the traditional IRA, whatever, or the 401k excuse me for this one, what it might be, 20 years from now, or 10 years from now, or whatever the tax rates might be.

0:17:20 - Speaker 3

Right, believe it or not, tax rates are low right now, so if you have the opportunity to pay more taxes. Although it's a tough pill to swallow right paying taxes on a big chunk of money, it may be worth it because we can bet that taxes are going to be higher.

0:17:34 - Speaker 2

Yeah, it's a regular pill right now. It may be a horse pill in a couple of years right.

0:17:40 - Speaker 3

Right, exactly, so it might be worth paying a little bit of taxes now in order to avoid them in the future, as long as you follow the rules of the Roth.

0:17:50 - Speaker 2

Yeah.

0:17:50 - Speaker 3

So, and it all doesn't have to be done at once. You can spread it out over a few years, depending on when you're planning on retiring.

0:17:58 - Speaker 2

It probably should. Right, sherry, to your point about the tax bump up Because you want to, let's say, Doug, you got a million bucks. You don't want to go in and just convert this whole thing over because you're going to have a hefty tax bill on your plate, right? So you can do this smartly over time and you should be working with some financial team really an advisor as well as a CPA on this.

0:18:17 - Speaker 3

Yes, okay.

0:18:19 - Speaker 2

Anything else we need to highlight for these folks in this arena. I think we've got it pretty good. They're fairly similar conversations, right, but it sounds like people are trying to you know, get this information and understand it so they can make smart moves.

0:18:32 - Speaker 3

Yeah, it sounds like they're reading, doing research, talking to people and they have really good questions. They're doing a lot of the right things. It's just taking the good things that you're doing and tweaking it just a little bit to make it potentially even better for you.

0:18:46 - Speaker 2

That's a great point for sure. Well, thanks for the email questions folks. We certainly appreciate it. Again, before you take any action, make sure you're talking with a qualified professional like Sherry, so you can walk through the specifics. You know we're kind of doing generalities here with the podcast anytime we talk about just about anything really. But certainly even with these email questions, because there's still a lot of information.

For Doug, for example, we don't know if he's over. You know 59 and a half. So there's, you know, there's all kinds of different little other little stipulations that could kind of play in. So you want to make sure that you're always checking with a qualified professional to see how it might affect your unique situation. So sending an email is fantastic, but certainly also follow up as well. And of course, like I said, sherry is going to follow up with these folks as well. But if you've got questions and are similar kind of vein or really just any kind of financial planning aspect, reach out to Sherry. Get yourself some time on our calendar, have a conversation, and you can do so by reaching out to our GreenwayWealthAdvisorycom. That's GreenwayWealthAdvisorycom. Don't forget to subscribe to us on Apple, google, spotify, whatever platform you like using and type in Money, chic Women and Retirement into the search box of the app and find it that way, or just find it at our website, greenwaywealthadvisorycom. Sherry, thanks for hanging out with us and maybe take Flash outside.

0:19:57 - Speaker 3

Yeah, he's done a lot of damage.

0:20:00 - Speaker 2

I heard him kind of chirp it a little bit. He's like, hey, I want to go do some stuff.

0:20:04 - Speaker 3

So wrap this up, please, that's right, wrap it up.

0:20:07 - Speaker 2

Well, thanks so much for your time. As always, folks, and next time here on Money, chic Women and Retirement with Sherry Rash.

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