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hi I'm Shari cantos co-host for consider this with Joe Clark Joe is a certified financial planner and former professor at Purdue University Joe is the managing partner for the financial enhancement group based in central Indiana and Joe's passion is teaching people about their money find out more at your life after work calm the financial enhancement group manages more than 300 million dollars for families in 31 states the financial enhancement group takes care of people who don't want to worry about their money join Joe and me as we address your questions about money and five key areas retirement planning tax planning investment planning risk management and estate planning and each week we will tackle questions that can make a difference in your life the financial enhancement group can be reached at 899 you can find out more at our website your life after work calm the financial enhancement group is an SEC registered investment advisor securities offered through world equity group inc member finra s ipeec well good morning and welcome to consider this I'm Joe Clark i'm shari cantos we are happy to have you along lots of things to talk about on the show this week yeah lots of things that are going on in this this interesting world that we live in mm-hmm there's a radio station that I'm on every Monday mornings at 7:30 and and it's a it's really talking about the weekend news if you will and and what happened and it's I heard a reporter on CNBC the previous week actually say it's it's almost meaty it's almost news fatigue there is so much stuff happening in the world right now that it is impossible yeah track of and so what happens in the in the lives of people sherry and and we we saw it happen in in Indiana I can't remember probably three or four years ago there was a major storm tornado storm that hit southern Indiana and there were like three big storms that really really were very very devastating to entire communities mm-hmm and the first one got a lot of financial support from people you know good-hearted people given to the United Way Salvation Army you know place at the Red Cross places to try to help right second one got a little less and the third one got almost nothing and what happens is you get overloaded yes you become desensitized to a degree so here we live in this world today where we've got a g7 meeting we've got a meeting with the North Korea leader you know walking God if you will the way they look at it we've got Italy saying no we are now staying in the Euro for sure and we're not gonna Ford I've got a brexit nor do they do our own exit you know you've got a lot of news and it's so easy to hide some of that stuff under the table say hey you know what it just doesn't matter because there's a lot of it doesn't mean that we don't have to pay attention to it so I don't I'm not gonna spend any time on this show at all discussing any of those issues my point is this they do still matter so each week we do we put together a four to five minute video newsletter it's called the market Carver goes out every Thursday afternoon all you have to do is go to your life after work com say you want to sign up for the market Carver it'll come to your inbox every Thursday when when our allocation team meets on Mondays I come out of the allocation team from the stuff that I have from the narrative that I thought was the most important over the course of the week my CFA puts in his part as the fundamental part my chartered market technician does his part in terms of where the the technical aspects of the market and how things are performing relative to where they are we take that information we consolidate it into that video newsletter called the market Carver and we send it out and that's a it's a free thing for you we are fiduciaries at the financial enhancement group we take care of people who don't want to worry about their money at the same time we want you to have access to information that you may not be able to get on your own if you're gonna try to do it on your own we want to give you as much help as we possibly can you're listening to consider this I'm Joe Clark along with sherry cantos we got to take a break but we'll get right back into the show hi I'm Joe Clark host of consider this and managing partner the financial enhancement group over the past 20 years the financial enhancement group has developed a process that's straightforward and simple I'll share with you that process that we use to protect over seven hundred families and more than three hundred million dollars in retirement assets we take care of people who don't worried about their money I started in this industry two weeks before the crash in 1987 I've been an active participant helping families like you were strive to build a secure retirement here's what I've learned as a certified financial planner a former professor Purdue University and a trust advisor for the last three decades nothing will separate you from your retirement like the IRS you can reach us at eight hundred nine two eight four zero zero one worry consider this at your life after work comm with an angel enhance McGrew Piz an SEC registered investment advisor securities offered through world equity group incorporated member finra s ipeec in that numbers eight hundred nine two eight four zero zero one your life after work calm well good morning and welcome back to consider this I'm Joe Clark I'm sherry cantos we are happy to have you along not happy that it's falling through the year but how can I help you I have some questions I know actually I saw this one on investopedia but I know people that have been in this position I'm asking this is when the bottom falls out okay okay so the question is why am I being taxed so much after withdrawing my 401k and taking out a loan so here's the situation persons 57 years old and lost their job yep after losing the job he took out his 401k it also took a loan out and was taxed twenty percent on this he took a loan out before he took his 401k out really yeah he was mistaken then he says I got tax twenty percent for the money I was drew from my 401k yep so taxed on both yep why isn't the balance on my tax owed not twenty percent ok so here's here's what he's trying to say in in the in the details and it yeah it is a little bit it is a little bit challenging when you when you take money out of the 401k mm-hmm the in you're taking money right so it's not talking about rolling it over to an IRA right you were talking about Sherri's getting a check because I lost my job and I gotta forget - losing your job anybody you're taking money out of a 401k will start there right right so you're taking money out of the 401 K the IRS says by law without looking at your tax return without understanding your unique situation the IRS says by law that they must hold withhold 20% tax and send it directly to the IRS okay we had she's passed away so I could actually say her name but I won't but in 1997 we had a lady who worked at General Motors hey all right and she went to her bank and her bank said you should take the money out of that crazy market and put it in our CDs ken had her had her take the 401k check yes from and we're talking about $300,000 Wow had her take the 401k check from the 401k and it got mailed to her made payable in her name yeah getting paid again getting made payable sent to your house it's not a problem it's who it's made payable to sir made payable to her she took it to the bank the bank cashed it she wondered where the 60 grand went it was three hundred thousand dollars in her 401k they the General Motors fidelity I did what they were supposed to do they withheld to the 20% 60 grand they sent the 60 grand to the IRS the banker said it's no problem we'll call them and get the sixty thousand dollars back really inaccurate that did not happen she had to go get a loan for sixty thousand dollars and in order to put it back in now she got the sixty thousand dollars back with the help of us at the financial enhancement group but not until the following April when she was able to file her taxes because she technically had an overpayment but that sixty thousand dollars would have was taxable to her because they sent it in as tax and yes you pay taxes on your taxes it's kind of a complicated thing now where it gets to be interesting is if you have a loan and that was one of the big things that came out of the December 22nd 2018 tax or 17 tax change that it really is beneficial to people and so this guy took a loan on his 401k perfectly legal so he Annie took that alone he didn't do it in that order he took it he took a loan okay and then he and then he got lost his job and he rolled out his 401k it's the only way this can work okay so when he had the loan let's say you had a balance of $10,000 that he owed back on the loan when you take a loan out of a 401 K you have to make payments out of your check okay to pay that loan back got it under the old rules you had 60 days to pay that loan off whether you lost your job whether you quit regardless they no longer have a paycheck that they're sending you you had 60 days to be able to pay that loan off right otherwise it is deemed taxable again 20% of the money should be sent to the IRS if it's alone and they don't have any balance left right then they don't have that they don't have the money to dissent right so that's why you the loan is taken care of before the 401 K could be moved that's how we know that the that he was wrong but she had 60 days to pay that loan off the change that came out December 22nd of 1817 rather was that you now had until the final tax filing of that tax year so if it happened in July of 2018 hmm you really your final taxes are really do October 15th of 2019 so you would have you know about a year to figure out a little over a year to figure out how to come up with the money to pay off the loan so that it wasn't taxable so what should he have done well you should be aware of what happens if you move money out of the 401 K works if you have a loan you know that's one of the on our checklist when somebody comes in and we're we're getting ready to help them make a change we always look to see if there's a loan that's on the 401 K that's out there or not yeah make sure that we understand what it's gonna do to their tax return if they take the 401 K out without the loan being paid off we just had one not not too long ago the the lady had about two hundred and fifty thousand dollars inside of her 401 K mm-hmm she had about a seven thousand dollar loan that the payment because it was it's down to seven thousand dollars but the payment that she was paying back e twice a month right in order to maintain the loan they had some special deal because when it was done and the loan payment that she was making was actually greater than what the tax payment would be to go ahead and pay the taxes on the seven grand and they were worried about cash flow and one to have the cash flow so we recommended that she go ahead and and move the 401k pay off the you know go ahead and pay the taxes on the $7000 and stop making those bi-weekly payments so that she was able to have more cash flow Wow okay hey one more quick question I have never personally been audited that I can remember yeah but it seems to me that if you're doing all the complicated things that maybe you guys do with your people I don't know the question is is there any way to lower the chance of being audited I use a CPA firm that is highly reputable that signs off new people who do their own taxes tend to get audited more often than others when you start adding additional schedules or businesses or K ones that kind of happens and and what happens is they take all of the they used to have a line-by-line audit for fifty thousand lucky Americans every year and then they would figure out where people were making mistakes and they would look for returns that had those kind of filings I say the audit process isn't near as egregious anymore is that for the for the typical person walking down the street and each time one of the you know one of the big reasons that we did the raise the standard deduction from the the 12,000 and change to the 24,000 for married filing jointly people one of the big reasons is that get the lot of the mistakes quote-unquote are in then we're in the itemization right and extent now if you're if you're not there right yeah I mean I've seen people say that they gave away $5,000 worth of used clothes yeah oh yeah to the Salvation Army and Goodwill and it's kind of like okay I probably have done that the IRS you know the IRS would ask for receipts and the standard for that is if you're giving away a shirt yeah they won't tell you what it cost but now it will has a thing that says you go look at this shirt and here's the amount of money that you're able to take for that action that they give and it's um you know so that's that's what you can do but CPA firms I will tell you are very careful about not letting people take d-duck they shouldn't take because when they get audited if the IRS wins they're more of their families tend to get audited yeah and places who don't right yeah yeah that's why in the in the big firms there's a full-court press hmm when somebody's about to get audited to make sure that there's no success on the form of the IRS because then they think there's they believe there's a chance so there's absolutely no connection between an investment complicate I mean I like how I would say an investment yeah complications for mistakes but I but I can't tell you that in itself is what they're looking for hey you listen to consider this I'm Joe Clark along with Sherri cantos we've got more to come go to your life after work comm don't forget to get signed up for the market Carver we'll take a break and be right back hi I'm Sherri cantos co-host for consider this with Joe Clark Joe is a certified financial planner and former professor at Purdue University Joe is the managing partner for the financial enhancement group based in central Indiana and Joe's passion is teaching people about their money find out more at your life after work on the financial enhancement group manages more than three hundred million dollars for families in 31 states the financial enhancement group takes care of people who don't want to worry about their money join Joe and me as we address your questions about money in five key areas retirement planning tax planning investment planning risk management and estate planning and each week we will tackle questions that can make a difference in your life the financial enhancement group can be reached at 899 you can find out more at our website your life after work calm the financial enhancement group is an SEC registered investment advisor securities offered through world equity group inc member finra s ipeec well good morning and welcome back to consider this I'm Joe Clark i'm shari cantos happy to have you long we are more questions to Washington more questions okay I don't think we've ever talked about this before should I withdraw funds from my thrift savings plan at one time or over several years this person is 70 and a half years old okay so he's seven in it does it say if he's retired or not says he needs to close it out okay so he's retired so the TSP as we call it that's the the 401k for federal employees okay and it does have some glitches we have a problem right now where if you have an IRA and it's a TD Ameritrade and I die we can roll it directly to barb as a spouse mm-hmm and get it into a spousal IRA for some odd reason the TSP is not allowing that we've gone through all sorts of loops we finally found the form that they said didn't exist where they have to do it Wow now we're having to get things notarized it's been a nightmare right into so the but it is it is their version of a 401k plan okay I has a great option and therefore fixed income the G option that is just an incredible no but there's no way I could buy it anywhere else on the planet so when I have somebody and I do have people who have the TSP the money that we leave in their 401k we use that G fund because I can't have any I don't have anything in the public sector that comes anywhere that's near it the answer is you when you go to roll it out though you're gonna roll it out as an IRA you can move it all out there's no reason to leave money behind in there unless you're using that G fund and there's a reason for that remember we talked about not making silo decisions you want to have your allocation be overly right and if you're going to have a fixed income exposure that is my favorite place in the world to be able to have it in the world that we live in today the money that you weren't going to leave in the chief and I would certainly move to an IRA and get it out there so you had a better to more diverse portfolio again always use that checklist go through the fiduciary focus you know what's the risk and volatility you're taken by staying there yeah what are the fees and expenses by staying there versus where you're going what's the tax impact going to be and as long as you're rolling it in IRA there is none but you weren't gonna have to begin to take required minimum distributions because of your age 17 yeah okay um next question I inherited an IRA that was passed down two different times okay do I qualify for a five years disbursement well everybody qualifies for the five year disbursement the question is do you qualify for the stretch so doctor don't look in the tax code for the Verte or anything called the stretch it doesn't exist the stretch is a tax concept that we put a name to because people think in pictures as opposed to not encodes so what happens with a with a with an IRA when somebody dies is you've got two types of beneficiaries you have spousal and non spousal right so if I die barb can inherit my IRA yeah and there's no no problem at all it becomes her IRA and life is good right okay because barb is under fifty nine and a half she has the option to leave it as an inherited IRA an inherited IRA there is no 10% federal penalty for distribution regardless of age because you always have to take the required minimum distribution sir so barb would take the the RMD based on her life expectancy mm-hmm and then a spouse only spouse would change that or should change that to her own IRA once she attains 59 and a half okay um so that you are now at a first generation IRA again right let's say she didn't write Oh barb was my beneficiary so she now has an inherited IRA mm-hmm it would say the the beneficiary they would say that the inherited IRA of Joseph a Clark this date of death you know for the benefit of Barbara Clark it's got to be properly titled she would barber the name the beneficiaries sensibly Kaylee and Kendra Clark my daughters Palmer now one of them's married and when something happened to barb they would be the inheritor now that's second generation right I died yeah barb chose not to roll it into her own IRA so it was an inherited IRA the kids are the second generation right okay ii ii ii step down now here's where life gets to be interesting mm-hmm the tax code clearly says yes they can inherit and use the stretch which means that they can take the money out over the life expectancy of the first beneficiary okay so barb takes a life had to take the IRA out at her life expectancy right is the first to inherit sir the kids get to take it out at over life but they're taking out over Barb's life expectancy even though par no longer here sir yeah they're take over her life expect and and that is perfectly legit and legal well this is this this is a three generation inherited thing but it's that not it's the son who gave it to the grandmother we've never seen it happen okay I mean it would take a serious accident and theory to be able to make all of this happen the key thing is on an IRA 403 B 401k you need to have a living breathing beneficiary or a very very specialized trust you can do it in a trust just not your normal grantor revocable living trust I totally disagree with that okay the point here with this five-year rule is if you don't have a living breathing beneficiary mm-hmm whoever winds up with the money has to pay the taxes on that entire account within five years of receipt I see right and that's that's where it gets to be okay that's where it gets to be interesting okay if they're taking it out under what's called the stretch which means over your life expectancy we're gonna stretch out that deferred payment right then it's it's paid out as you receive it okay all right all right last question where should I move my 401k account from my past employer well you can do a couple different things so that if the 401k the the provider the your previous plan if you have enough money in it has to let you leave it there if you want to write hey that's one two if you go to a new job they will almost always let you roll previous 401k money into existing 401k money that's perfectly legitimate and in a way to go or you can roll it out into an IRA now different states are different ways there's a difference between bankruptcy law and creditor protection so don't don't forget that if I move money from a 401k if you're worried about creditor protection if you're wheeling and dealing and you know you've got business loans that are out there and everything else if you move money from a 401k I would move it to its own IRA because that still maintains the creditor protection because it came from my 401k in some states other states could be a little bit different you need to consult your attorney on that one if it if it arises obviously but it's just one of those things too be aware of if you're not worried about creditor protection you can roll that money directly to your own IRA there's no tax consequence there's no there's no problem there if you're married your spouse will probably have to sign off because remember your spouse always has to be your beneficiary out of 401k right not necessarily so in an IRA okay well okay so real quick someone wrote in we've talked about this lots of times how can I verify that my advisor is a fiduciary well first ask them if they're if they're a registered investment advisor I mean there there's a series of questions you can ask if they're registered investment advisor offering and using discretion mm-hmm then by law they are acting in a fiduciary manner what you want to ask is do you have any conflicts of interest interest yes are you acting in my best interest and are you deemed a fiduciary and most people want why three times if you asked me if I was acting in your best interest I would have always told you yes yes yeah um if you would ask me if I had conflicts of interest when I was younger I didn't necessarily understand what were I'm pretty clear about them now and understand them it's one of the first things we search for but if you'd asked me if I was a fiduciary the answer was no you know we very much are now it's all the only way we we function is under the fiduciary standard hmm but it is a it is a very very important question to ask because many people believe they have a fiduciary helping them and what they have is a broker or somebody else and when you get into the when you really get into the weeds and ask the questions you find out that you don't necessarily have somebody acting in your best interest with without verified and understandable conflicts hey you listen to consider this I'm Joe Clark along with sherry cantos we've got to take a break don't forget your life after work com get signed up for the market Carver love to see you on a weekly basis take care we'll be right back hi I'm Joe Clark host of consider this and managing partner of the financial enhancement group for the last twenty years the financial enhance book group has developed a process that's straightforward and simple I'll share that with you what we use to protect more than 700 families more than 300 million dollars in retirement assets we take care of people who don't want to worry about their money I started in this industry before the crash in Maine in 87 and I've been an active participant helping families like yours strive to build a secure retirement here's what I've learned as a certified financial planner a former professor Purdue University and is a trusted adviser for the last three decades nothing will separate you in your retirement like the Internal Revenue Service you can reach us at eight hundred nine to eight four zero zero one at your life after work calm the financial enhancement group is an SEC registered investment advisors securities offered through world equity group incorporated member finra and si pc again that number is eight hundred nine two eight four zero zero one and you can reach us at your life after work calm well good morning and welcome to consider this I'm Joe Clark I'm sherry cantos happy to have you along yes we are listening if you're new to the program I'm the managing partner at the financial enhancement Group in Indiana based registered investment advisory firm we take care of people in a little over thirty states a little over three hundred and fifty million dollars that at the time of this recording and this is uh this is the show that kind of drives me it so when I wake up in the morning I know my why thank you simon Sinek it's to educate people about their money their finances so they don't make inefficient financial decisions that lead to frustration and devastation so the point of consider this is to give you things that you need to consider in my opinion that are going on in the financial world many of you write in questions either to our website at your life after work calm email me consider this at your life after work calm or they go to a place called investopedia and put in the question and then i'm able to go in and answer there as well so regardless of how you want to do it we're more than happy to answer the questions if you're if you're new to the show you will know you may not notice but i don't talk a lot about the market intentionally i don't think that's something that you should consider every day however we have an allocation team meeting every Monday and at the end of that meeting myself or my CFA Adam harder foot put together a video with three to four things that we think are the most important things that happened in the economy last week things that we're paying tension - could be economy could be market but you can go to our website your life after work com get signed up for the market Carver it is free and more than happy to have you along alright okay so I yeah here's a question now I recently purchased a home and that's why this question is interesting to me and I didn't pay cash for the house so I got a home loan so the question is would leasing a car impact my ability to get a home loan and the answer is well it does why well I car payment impacts your ability because it's a debt it's a debt so I supposedly seeing a car would be considered a debt leasing a car would be considered a debt it's a contractual payment sure okay so what what the question is really about when you when you go to buy a home especially when you're younger the big challenge for most people there's there's three big issues that they have one is debt to income ratio right we'll come back to that second one is credit score right and then the third one is having the down payment right amount of money so this question is pertaining to a debt to income ratio and so the the banks have a specific number remember you'll hear them use the word conforming loan a conforming means that they can put it in a box that looks like a lot of other things and then they sell them off to investors okay so investors will buy mortgage-backed security funds that are a bunch of mortgages that are put together right go back to the housing crisis yeah house and then seven and eight right and that's really where the dominoes began to fall people didn't understand that that's how it was working yeah but they want you to be under a certain debt to income ratio the longer the loan the more the debt to income ratio matters in the bankers opinion thus you can get a car lease or a car loan with a much higher debt income ratio that you can't a mortgage because cars cars aren't out there quite as long on the 30 the 30 year mortgage there are people who are getting these long seven year mortgage yes okay next question should I share should i sell shares of certified stock or shares from the dividend reinvestment plan that's a new dress that's because they don't they're they're very rarely around you have one yeah anyhow so here so here's what happened in the old days and and I know some of you still have them and I'm not trying to be demeaning I apologize but they are a tax nightmare in the old days people would buy stock in their company plan yeah or alongside of their company playing a lot of my pharmacists do it at CVS where there have the ability to buy stock at a different thing there is no really such word as certified but they buy stock and so they they own a share of CVS and they don't have it at and then they retire and it usually goes to the the Bank of New York or place like that as a custodian of the shares so ok it'll tell you in there that you've got a thousand shares of stock it's not it it's not a TD Ameritrade it's not a Schwab so you're gonna get a 1099 from them every year ok drip says it's it stands for dividend reinvestment plan and every time those thousand shares of stock pay a dividend then those dividends are used to buy more shares or partial shares the same same stock ok so it's a it's a tax nightmare because you're paying taxes on the dividend right yeah but you're not getting any cash flow and and it's and it creates a 1099 that you have to pay attention to only so we would move that we would move all of the stock frankly into what we would call street name that's where you use a custodian a TD Ameritrade a swab yeah we would move it there it doesn't mean you have to sell it but you can you can have the dividends either go to buy other stock remember when I when I started the financial enhancement group back in 1997 I try to remind people that it was three hundred dollars to make a stock trade yeah you know and you know 21 years ago is a long time in one hand not that long ago on the other um so you know I would sit there and in in a dividend reinvestment plan back then when they were buying those shares for free for people there was some justification to it right yeah today when we have you know 300 exchange-traded funds that we can buy and sell for free mm-hmm right and a stock trade is six in a core the concept of doing the drip doesn't make near as much sense as it does before yeah and if somebody happens to pass away while the plan is there there's rarely a beneficiary designation attached easily Kauai ends up in probate you know just just creates a lot of problems and I would strongly discourage it so but to answer your question it doesn't matter which of the shares that you sell what you would obviously want to sell are the ones that had the highest basis in other words the ones that you had paid the most forward right that way you recognized the least amount of taxation so I have a question if you're invested in stocks that typically pay dividends are you not typically investing in those so that you would actually take the dividends I mean isn't that the the majority people don't take income out of their portfolio so the in our case the dividend goes to the essentially the money market account it's the same account we use it to really to buy buy new things or additional things of that okay um but know that there are I may have five families out of 850 that have the dividend sent to their house and it checks because they live on them Yeah right it's not what most people do yeah it is what some of the higher net worth people do where they have one very consolidated position a one person's got a below to Lilly another one that's got a hold of a bank stock right and they take they have no intentions of ever selling them mhm and they'd get the dividends into their house every quarter and that's essentially they're spending money interesting that is how they live okay can I still open a 401k if I'm already retired that's a quick question no a 401k means you have to have an employer oh yeah you cannot even open an IRA if you do not have earned income great so you the the age is important if you're over 70 and a half you can never open an IRA you can a Roth you can't Roth but not a traditional mm-hmm but you can't open a 401k plan unless you have taxable income that is earned and you have an employer to go with it now if you have earned income and you own your own company I said I mean then you can very much open up what's called a solo 401k can you but you have to have earned income yeah yeah the best way to define that is in that is subject to Social Security tax to FICA and futa well a lot of people are retired and still have income though but that's not earned income I mean you're you don't you said yourself you have a lot of people that have retired and still work like yes and that's and that they can do but they okay but most of them don't have the the income source to go open up a 401k I see and that's that's not what they do they're doing they're working because your life after work don't just watch grass grow hey you're listening consider this I'm Joe Clark along with Shere Khan toast you got a question or comment shoot me an email and don't forget to visit your life after work com share and I'll take a break we'll be right back eight hundred nine two eight four zero zero one hi I'm Shari cantos co-host for consider this with Joe Clark Joe is a certified financial planner and former professor at Purdue University Joe is the managing partner for the financial enhancement group based in central Indiana and Joe's passion is teaching people about their money find out more at your life after work on the financial enhancement group manages more than three hundred million dollars for families in 31 states the financial enhancement group takes care of people who don't want to worry about their money join Joe and me as we address your questions about money in five key areas retirement planning tax planning investment planning risk management and estate planning and each week we will tackle questions that can make a difference in your life the financial enhancement group can be reached at 899 you can find out more at our website your life after work calm the financial enhancement group is an SEC registered investment advisor securities offered through world equity group inc member finra s ipeec well good morning and welcome back to consider this I'm Joe Clark cantos happy to have you along yes it is a question and answer day there ant questions are flying hopefully the answers are helpful yes okay so how should I convert my 401k to a Roth IRA to get the most benefits okay so the the person has a 401k couple things could be happening here they could have a 401k and they've separated from service meaning they've quit this is what I've retired that's what happened or they could still be working and this is some that you need to consider in my opinion if you're working with a fiduciary not somebody who's selling annuities and not somebody who's trying to sell you mutual funds but if you're working with a fiduciary one of the things that we have people ask is if they're eligible for an in-service non hardship distribution insert an in-service means you're still working a non hardship means there's nothing wrong distribution so right you know it's some places at age 50 you can do an in-service non hardship distribution for part of your assets in your 401k okay so you can build some diversification between the 401k and an outside source yeah sometimes you have to be 55 some places don't let you at all but it's always a question that we ask so the in this case the person quit or lost their job no Vinay they're played for a year no longer working there and so this is perfect this is a great question for them because okay if they're not working the odds are they're tax rate is lower than what what is normal okay right so when you do a conversion to a Roth you are going to pay taxes on the amount that you convert yes last year in 2017 if you did a conversion and the market went down we could do a recharacterization we would recarey characterize it back to the IRA and then wait and then do the Roth conversion again later because there's no reason to pay taxes on money that's gone down right and we lost that option December 20 seconds of 2018 or 17 so now you cannot do a conversion with a conversion there's no recharacterization long no longer allowed so in this case he can take the amount of money and what I would do with him as I sit down with his 1040 and I would figure out what tax bracket he was already gonna be in right if he's married you know she may have income you know etc etc right figure out what bracket they're in and let's say that they were in in the 12% bracket so if they're married filing jointly they could have up to 79 thousand dollars worth of income on line 43 mm-hmm and still be in the twelve percent tax bracket now remember line 43 is your taxable income so that's a after your standard deduction if not itemized and if you're married filing jointly your standard deductions twenty four thousand right so you add that right on top of the 79 and then you know what your income really is going to look like there are no more personal exemptions so it doesn't matter how many kids you had right it's your income you're in don't forget your interest dividends and capital gains if you have any of those pensions if you have any of those Social Security if you have that and then take $24,000 off and that's gonna be your taxable income and then the best way to think about our tax system is in a series of stair steps so you have a block that you're gonna pay at 10% again married filing jointly and for 2018 it's about 19 grand the first that will be taxed at 10% and then you take that next step to 12% bracket up to about 79 thousand and we're only talking federal tax here not state right right so don't get don't get confused there but let's let's say they have $50,000 worth of taxable income the expects to get a job or he's gonna go back and make $75,000 yeah that would put them into a higher bracket in the future right so this is all so I would take out every dollar out of that 401 K into a Roth conversion into a Roth IRA that I could up to what would get me to the top of the 12% bracket what I call bracket bumping when you read recharacterize or when you move it from 401k to IRA it's not he can move at all he limited no no he could move it all to an IRA right there's no tax there right and then you pick what you want to move out to the Roth from there okay Oh isolate you're saying technically you can take in a 401 K and take it directly to a Roth right I've just seen too many paper errors you know if somebody made a mistake and then you have to go back and fix it on the other side and I can only control one end of the treat of the deal right but he's not limited to the one year no okay no not at all so you I would take the 401k out I would put it in an IRA and then I would help him pick the exact amount of money that he could take and to do into the Roth conversion yeah the first week in November we always send out a tax letter what we call a tax package and it says very clearly of any of these eight to twelve things happen to you your adult age children people over 25 or anybody in your any your parents if they're still living yeah and what we're looking for things like that hey Joe I didn't tell you but I lost my job hey yeah I didn't tell you but I fell and broke a hip sir hey Joe I didn't tell you about a hit Powerball you know yeah they probably tell me over that one so the next question is from someone totally different but exactly in the same box same discussion what are the benefits of rolling over a 401 K into IRA if I'm not working and this guy's 67 not working there's there's two benefits that are very very very very clear and obvious and then there's some things that are you've got to decide which is better for you the the obvious one is if you have three or four 401k plans when he reaches 70 and a half he has to suddenly be take requirement of his distributions from three or four different places yeah yeah if you have multiple 401 k's you're making you're making multiple RMDs you've only got one you know that's that's not that big of a deal but keep in mind if you've got an IRA and you've got a 401 K you have to take our MDS from both places yeah the second one is if you move it to an ir if you move it from a 401 K to an IRA and you're going to a fiduciary who actually manages money they have the opportunity to invest in an unlimited amount of options where you're stuck in the 401 K with what they have there mm-hmm but the checklist again is the fiduciary focus right you you always look at risk and volatility and say okay am I better in the 401k or am I better in the IRA hmm you know if somebody's trying to sell you an annuity or trying to sell you mutual funds you're probably just as well off in the 401 K as you are and the other the fees and expenses generally 401ks are cheaper and expense and less it's backed by an insurance company so if you see any of the insurance carriers names that are on your 401 K is the provider I'd get out of Dodge okay there's just no there's no reason to be there and if you're an employer listening to this I would tell you the same thing that you know we manage 401 KS for people we've got a 401 K we put together my money is in it I won't ever put my money in something that your money and something that my money is not in we have no mutual funds in our 401 K it's exchange-traded funds and it's got a Roth option and it's no more expensive than what people have that have these insurance plans that they that they put on on their employees so the the other option then and that is kind of a little different it's easier to execute Roth conversions in an IRA than it is inside of a 401k okay just because you can control the process okay I have one quick questions on the same thing this guy inherited to I raised from his mom once traditional ones Roth and he wants he has to take required minimum distributions above even the Roth he wants to know should I start a new Roth and deposit the RMDs into it if he has earned income he could do that you can't just take the money from the from the the RMD and put it in because you want to put it in yes you can use that as the funding source but he has to have other earned income and qualify to be able to contribute to a Roth in order to do that yeah it's a great strategy many people would ask and I thought that's where you were going can I combine the two or can I convert the are the traditional to a Roth yeah once it's inherited it is stuck no more Joe so you you're you it's it's he's gonna have to inherited IRAs right until they run out or he dies and somebody else is just saying cuz he's only in his fifties hey you've been listening to consider this I'm Joe Clark along with sherry contests there are all sorts of questions that we have no problem answering it's it's what we really function for as a as a company my personal why is to educate people about their finances so they don't make financial decisions in efficient financial decisions that lead to frustration and devastation and we take care of people who don't want to worry about their money if you want to worry about it that's your business if you want a fiduciary that's our business go to your life after work calm to find out more talk to you soon and we'll take a break and be right back hi I'm Joe Clark host of consider this and managing partner of the financial enhancement Group over the past 20 years the financial enhancement Group has developed a process that's straightforward and simple I'll share with you that process that we use to protect over 700 families and more than 300 million dollars in retirement assets we take care of people who don't want to worry about their money I started in this industry two weeks before the crash in 1987 I've been an active participant helping families like you were strive to build a secure retirement here's what I've learned as a certified financial planner a former professor Purdue University and a trust advisor for the last three decades nothing will separate you from your retirement like the IRS you can reach us at eight hundred nine two eight four zero zero one or II consider this at your life after work calm the van angel enhance McGrew paz an SE c-- registered investment advisor securities offered through world equity group incorporated member finra s ipeec again that numbers eight hundred nine two eight four zero zero one your life after work calm well good morning and welcome to this one welcome to consider this joke part along with sherry cantos hope you're having an outstanding day yes it's not time for the segment with sherry sherry segments Oh sherry and for those of you that are new to the show or just catching it because we add a station or two every week it seems like somewhere around the country Sherry's job I'm I'm the managing partner the financial enhancement group a certified financial planner Sherry's job is to kind of be the average Joe if you will so it's Joe and so she tries to keep me in line in the other segments and this is the one where she comes up with information or questions that I have not seen yeah and then then we try to work through them and answer them just to the best of our ability right I mean they often dovetail with some of the things we talked about on the right but by accident yeah cuz people will come up to me and ask questions because they know that I know you and so anyway so I came across this article and I just want your perspective I'm gonna tell you what the article said and then because you you deal you specialize your thing is preparing people for retirement right your life to work right so this title of this article was this is what retirees would do differently if they could go back in time do over I do what what you don't get which you don't get but I'm sure you've actually I'm guessing you've heard those words before when people come to see you sure right if I could only have one more shot I'll have my size so there are three things that I mean I had pages and pages of people that responded I I should Jerry he likes photo Getty I mean I was trying to figure out what who actually wrote the article but they said they had pages and pages of people who responded who had retired so the number one thing which should be no surprise was that they wish they had started saving earlier yep so they get to age 50 and boom I in Stein said deathbed allegedly I wasn't there obviously but he said he did we wasn't sure what the seven wonders of the world were but he was sure the eighth was compound interest yeah and it is it is amazing if you start saving at 20 and stop at 25 saving the same amount from 25 each year from 25 to all the way to 65 you actually have more money I'm starting with those first five years just because the way compound interest works amazing that's it an 8% rate I believe they showed so I'm thinking they should have that like posted in high schools they do and that's why they have 401ks now where people are opted in actually have to opt out as opposed to the savings some companies are like that some still aren't some companies still don't have 401ks but it it is important to start as soon as you can and it and it doesn't have to be big amounts you know my one of the one of the old sayings that's just not right is if it's worth doing it's worth doing right well some things are worth doing you know poorly until you can do them right yeah yeah so yes you should be saving if you're if you're under 25 you should be saving five percent of your income every year but if you could only save one that beats the heck out of nothing so the overwhelming majority of people said that lowing the low cost index funds were the most efficient way to build a retirement nest egg for many people building so you member go through there's three stages of finance right accumulation where your goal is saving the right percentage of your income the second one then is the tax diversification that when you get to preservation it's about having that average return but you've got to have a discipline to be able to stick through beginning middle and end to be able to get there yeah and then in distribution it's the tax rate you pay on the average dollar that you pull out of your retirement and the volatility between distribution points so there there is no doubt that one major difference that people have today that they didn't have even 15 years ago is access to many exchange-traded funds that are index and passive investments and all that means is you're investing in a and without a manager for all intensive purposes right it's an index that's set there's no trading that goes on so we can look at the fiduciary focus right the four things that I think you always have to be aware of risk and volatility fees and expenses taxes today and tomorrow and real return meaning inflation when you look at those four categories a passive investment an index fund does not necessarily reduce risk and volatility though it does provide diversification because you're clearly in a multiple number of it positions fees and expenses are much better inside of passive investment almost always the taxes are usually better than an actively traded mutual fund because you don't have the the capital gains and everything else that's done though you still can incur dividends obviously bits in an IRA it doesn't matter and inflation is kind of covered with the first part with the risk and volatility so I would agree the access to that stuff has dramatically improved over the certainly over the 31 years of my career but since we started the financial enhancement group in 97 it cost us three hundred dollars to make a stock trade back in 97 so anybody in their right mind would have used an index they could have as opposed to an individual company just because the cost of getting in and out for the average American was so great today that's a little bit different you know we have 300 exchange-traded funds we can use for free yes I agree okay number two thing is to prepare for the unexpected they wish they had done prepared for the unexpected and you're that's part of your planning right it is it's it's one of those when we help people find their financial or define their financial vision rather it's one of the things I remind people if you've got a kid and I've got a kid and they race to Indianapolis we live in Anderson and they raced Indianapolis and go 100 miles an hour and one of my daughter's wins as parents neither of us are gonna get out of the car at high five no because we know of all of the things that could have happened sir just because it was successful right didn't mean that it was okay right and yet the extreme majority of people never understand the amount of risk they took to get the reward that they got and so people will have multiple money managers and they will compare the returns of each of them each year based on the on the on the result and the result is it certainly matters that to say that a result doesn't matter is inappropriate but to understand the risk that was taken to receive the set result is an entirely another story right okay you gotta be you gotta be ready to deal with both of them.last of the top three okay don't forget the personal side of retirement and by that they mean not just a financial retirement plan but a life plan for retirement and but they said they didn't anticipate the lack of identity in retirement so and I don't know how much a financial planner gets involved in it but I wanted to ask you about that well it's and it's a lot more for some people than it is for others you don't if you were in an executive level position you don't recognize the number of decisions you make on a daily basis right and you can't just shut that off so when you leave work all the sudden I've I've seen people who are just tremendous tremendously solid wonderful business people be mad at the mailman because the mail was five minutes late you're used to making very very intelligent decisions so part of that vision if you will and part of why we call it your life after work very much is that coaching of okay here here are the the mess of things that can come up in your life as you prepare for retirement here's what happens during the stages of retirement we have to remember what two people make it to age 60 actuaries tell us there's a 90% probability that one of them makes it to 90 yes and so you've got if you retire at 60 we've got 30 more years planning what hasn't changed in the last 30 years of your life because you're gonna have more changes over the next 30 then the previous 30 it's just the way that it is healthcare family issues you know all sorts of different things that pop up so the better you can plan for that the better off that you are but you do have to be ready for life happens the good the bad and the ugly of life there's just no way around it know you know prepare for it be ready for it and and and make sure that you've got those contingency things that are covered and one of those contingencies are what am I gonna do with my 40 to 50 hours a week that well previously booked right and most people find something else to do okay hey you're listening to consider this I'm Joe Clark along with Sherri Cantus you got a question a comment shoot us an email consider this at your life after work comm don't forget to go to your life after work and get signed up for the weekly market Carver we'll take a break and be right back hi I'm Shari cantos co-host for consider this with Joe Clark Joe is a certified financial planner and former professor at Purdue University Joe is the managing partner for the financial enhancement group based in central Indiana and Joe's passion is teaching people about their money find out more at your life after work on the financial enhancement group manages more than three hundred million dollars for families in 31 states the financial enhancement group takes care of people who don't want to worry about their money join Joe and me as we address your questions about money in five key areas retirement planning tax planning investment planning risk management and estate planning and each week we will tackle questions that can make a difference in your life the financial enhancement group can be reached at 899 you can find out more at our website your life after work calm the financial enhancement group is an SEC registered investment advisor securities offered through world equity group inc member finra s ipeec well good morning and welcome back to the market Carver I'm Joe Clark of the market Carver I'm Sheree contest we have the market Carver on the mind and and yeah and folks I'll tell you it's it's a it's a big issues that are taking place this week and in our country in the world and things that are going on and you know people will ask me I'll get emailed questions and you're more than welcome to email me and ask questions I appreciate those the show is based a lot of times on those questions consider this your life after work calm as the email address but each week my allocation team meets comes together and we talk about what's going on in the in our portfolios we talk about what's going on in what we call the narrative or the the story and the demographics of you will of the macroeconomy the big picture issue and then we break that down adam Harder's my cfa and he takes the fundamentals of the economy the valuations of the various sectors puts them together andrew Thrashers are chartered Market Technician he takes and looks at the technical aspects of what's going on inside of the marketplace we put those together and put them into a newsletter a video newsletter that we send out to all of the families that we serve it's five to eight minute video that we where we say hey these are the changes that took place this is are the things that are going on it's not required reading bar or viewing by anybody but we do make it available to our families every week I usually take a couple economic points and weekly we'll send those out to you our friends than in radioland and other people around the country who want to know what's going on so where I may tell the families that we serve a certain aspect about small-caps I'm a new more teaching about how small caps work in the in the video that goes out to you guys that's free all you have to do is go to our website your life after work comm you can get signed up for the market Carver it will come out to you every Thursday and and hopefully it will provide some use for you I hope you enjoyed today's show it's a what we do take care of people who don't want to worry about their money and if you want to take care of it that's your business if you want a fiduciary that's our business and we're more than happy to sit down and have a conversation with you as you know as we pointed out when when sherry was talking you only get one shot at retirement one of the reasons I when I cooked I used to go to people's homes and cook if they if they opened up an account and some people loved that some people didn't but I'd make a mistake and you know that the neat thing about making a mistake when you cook is you can order pizza yeah yeah yeah yeah you don't get to do that with retirement it's a one-hit wonder right you right you know some people go back to work and say well I really did get two shots no you really didn't you know you you trying to make lemonade out of lemons yes yeah you had a wonderful opportunity and it got away from you and I understand it's easy to make mistakes and it's easy to listen to people and feel comfortable with people that you've talked to for years this is the time when things get serious mm-hmm and when you're preparing those final couple years or a couple years after retirement you just have to be on you're on your best behavior if you will hey folks you've been listening to consider this I'm Joe Clark along with sherry contest you got a question or comment you can shoot us an email consider this at your life after work calm and of course get signed up for the market Carver your life after work calm have a great week my friends we'll see you again next time thanks for listening to consider this with Big Joe Clark Joe can be reached at 899 or via email at Big Joe at your life after work calm the financial enhancement Group LLC is based at 429 East 14th Street Anderson Indiana four six zero one six be sure to check out their website for more information at your life after work calm