Hosts: Roger Johnson, CFP®, AIF® and Joe Bert, CFP®, AIF®
It’s an Ask the Expert weekend on WDBO and this is On the Money, brought to you by Orlando’s oldest and largest — Independent — Firm of certified financial planning professionals, that being the Certified Financial Group in Altamonte Springs. With us this morning we have two of the twelve certified financial planning pros. Say good morning to the Oracle of Orlando, Joe Bert.
Morning.
And back with us again, Roger Johnson.
Good morning. How are you guys?
Doing great.
It’s nice to see you both smiling in the studio this morning.
Nice to be seen. Thank you very much.
We’re trying.
Survived Hermine. Listen, tell everybody, Joe, what you and Roger will take calls about this morning.
Well, as we say in our ads that run here on WDBO, that the educational system, our school system, has failed miserably when it comes to teaching us how to save and invest for our financial future because somewhere down the line those paychecks will stop and if you haven’t saved for your future, then the only thing you will have in retirement is the — unless you’re fortunate enough to have a pension from somebody — is a Social Security check and Social Security is not going to get you through it. Social Security was meant to be a safety net, not a retirement plan. So, it behooves all of us to try and save and invest during our working lifetime. Unfortunately, our educational system has failed us when it comes to teaching us how to do that. And we stumble through life trying some of this, trying some of that, going to these free lunch and dinner seminars, buying the product that sounds like it’s going to solve all of our ills, only to be disappointed somewhere down the road. So, Roger and I are here this morning to clear up the mind fog that you might have regarding your personal finances. So, any questions that you might have regarding your IRA or 401k, regarding life insurance, regarding annuities or reverse mortgages, real estate, stocks, bonds, all that and more. Roger and I are here to take your calls and the good news for you is there is absolutely nobody in line this Labor Day weekend and all you need to do is pick up the phone and dial 844-220-0965.
844-220-0965, or you can text. Here’s the number from your mobile device. Text this number, 21232. 21232. Or, if you’re so inclined and you want your voice to be heard on the program, you could use the News 96.5 open mic and you’ll find that on the app, okay? So, if you’re so inclined, why not tell us what’s on your mind?
Oh, wow.
What do you think?
I like it.
Did you just make that up?
I have it on my answering machine.
Some of the things we’re going to talk about this week, among your phone calls of course, are it’s not your grandfather’s retirement.
<Inaudible>
No, it’s not your grandfather’s retirement. <Inaudible> his Oldsmobile either.
You heard correct, sir. Your grandfather probably had a pension.
That’s right.
And pensions are few and far in between these days —
And a whole lot less.
You mentioned that just a moment ago. If you’re so lucky to have a pension.
Yeah, unfortunately most people today don’t have a pension to fall back on and that’s how I think — this is why we’re facing a retirement crisis in this country, Roger.
Huge.
Yeah, because folks did not —
<Inaudible> generation for the most part don’t have —
Our parents and grandparents might have a pension, so —
My grandfather had a pension from working 40 years for the railroad.
Yeah.
And a lot of folks came away from working all those years and they didn’t live long in retirement either.
Yeah, so pensions didn’t have to last long. So, we as youngsters did not see our parents or grandparents struggle in their retirement years. We thought people retired, this is what you do. You go fishing, you go traveling, life is good, you don’t have to worry about it anymore.
We never saw them struggle.
Yeah, we never saw a struggle because they were, frankly, taken care of. The house is paid for, they have a pension, didn’t have the big college expenses, the big wedding and all that stuff that people are dealing with today.
Didn’t have the big medical bills.
Big medical bills.
You got it. So, the world has changed as I said in my opening remarks, our educational system has not prepared us for this. So, we’re here, folks, to answer your questions. So, pick up the phone and dial.
844-220-0965. If you have a penchant to save for retirement, or as Joe might say being continental, a penchant for saving for retirement 844-220-0965. Or text us at 21232. And once again, Dave Wall is in the News Center keeping an eye on things. There’s a big ball game today down at the Citrus Bowl, so you might want to avoid — it’s not the Citrus Bowl.
Nope. It’s a campground. Camper’s World.
Camper’s World. Yes.
Or, you could go back and say it’s the <Inaudible>.
Who’s playing?
I don’t know.
The Florida State game is Monday. Florida State and Mississippi State is Monday night.
I haven’t a clue. Okay, I was on your website early this morning and this week’s must read is kind of a must read. If this pertains to you, or maybe your parents or your grandparents’ age, you know. Joe, what hospitals must now reveal to Medicare patients.
You know, I did not know about this, Joe.
We proposed it and our crack research team back at the office put this out on our website and it’s what hospitals must now reveal to Medicare patients. And it is called The Notice Act. And if you are going into a hospital situation and you are not admitted, but you’re on observation status, that’s going to really affect your pocketbook.
Why is that?
<Inaudible> Johnny Carson, yes indeed. Well, if you’re admitted, you’re fine. If the hospital admits you, then Medicare will cover the tab.
<Inaudible> on here, on his bed. They’re <Inaudible> veins, they’re bringing me food, they want to know if I’ve peed. I mean, what’s going on. Right.
You’re close, but you’re not in. You have not been recognized by a hospital. You’re on observation status, possibly, so you’ve got to make sure you know about this. Now, the hospitals are required to tell you about this, but they’re telling you all sorts of stuff. So, they may tell you and you may not hear them, but if you’re in there and you’re just on observation status, the Medicare will not pick up the tab on this. Nor will you, if you have to then go to let’s say a nursing facility afterwards and you think, well, I stayed three days in the hospital and I have 100 days of coverage at a nursing home, that would not be covered either because you didn’t have the full three days being admitted to a hospital preceding that 100 days in the nursing home.
So, the real distinction is when you go in the hospital, there’s a distinction between being admitted and under observation. And just because you’re there in the bed and the doctor is coming to see you, and they’re asking all the questions, and they’re giving you injections, and taking tests, and yadda, yadda, yadda, you may not in fact be technically admitted. You’re in observation and you could be under observation for two, three, four days and then you’ve come home and you find out that Medicare Part A, which is supposed to cover your hospital isn’t covering your hospital because you weren’t admitted. And the real kicker here is, tell us.
Well, the issue is that you would think oh, well, hospitals, well they’ll just go ahead and admit me. I’ll just ask to be admitted. Well, if they admit you and there’s a special group of auditors working for Medicare, they look at this kind of thing and if they determine later on that you were admitted and you really shouldn’t have been admitted, you should have been in observation, they will decline and penalize the hospital for admitting you. So, the hospitals have to be really tight about this.
And these auditors are a private company that get a piece of what they save Medicare.
This is a really enlightening article, and it’s a short read. It’s on our website and —
It’s in their best interest, Joe, you’re telling me there, to pinch pennies and to kick people out of hospitals.
It’s in Medicare’s interest not to have to pay the bill and so they have these auditors that determine whether or not you are admitted or under observation. If you’re under observation, Medicare doesn’t pay for it and, as Roger said, in order to go into a nursing home coming out of a hospital, you have to be admitted for three days. And if you’re admitted for three days, then you’re admitted to 100 days of stay in a nursing home. If you’re not admitted for three days — you’re in there for two days, or one day, or under observation for three days — no nursing home for you. Therefore, Medicare saves that 100 days.
Right.
So, <Inaudible> have to worry about enough for your mom and dad, but —
You’ve got to keep — not only worried about your health issues, but you’ve got to make sure that you’ve been admitted. And if not, boy you’d better be really tight about what’s going on.
If you want information on this, folks, go to our website. That’s financialgroup.com, financialgroup.com, click on this week’s must-read and you’ll be able to read it.
You’ve got to read it.
<Inaudible> the whole article.
Is there a long-term health care plan or an insurance plan that may help cover stuff like that?
I’d be happy to talk about that. Last time I was on about six weeks ago, I mentioned the big hole in most people’s retirement plan is the fact that they haven’t planned for long-term care. They want to save for retirement, they’ll do their estate planning, make sure their documents are done, but they end up missing the fact that they could face a long-term care stay or some care at home. And they haven’t set aside enough money for that possibility. And there’s long-term care insurance and there is — the one I like is life insurance that provides a rider that allows you to use the death benefit for long-term care.
So, you collect it while dying.
Yeah, you get to use the money before you pass away, and if you don’t use it, you pass it on to your heirs.
Tax free.
That is — and tax free. And there’s a whole lot of other factors. You can buy a rider on top of that that will continue on paying you if you’ve used up the death benefit. That’s important too because you may have only bought a policy for, say, a couple hundred thousand dollars, which would only last you maybe three years in a long-term care facility, maybe four years of having someone come in and help you in your home. You could run through that death benefit, so you want to actually get that rider on top of that. And it’s very, very inexpensive and they can’t raise the rates. That’s the other issue.
I love your website, Joe, and especially this part. This week’s must read, and the info to know. This week’s must read, again, what hospitals must now reveal to Medicare patients. But, you keep up your archive. Last week’s was new retirement rules that could save you hundreds of thousands, and then before that, should I tap my 401k to buy my first home? Where do we go to find this stuff, Joe?
Once again, our website is financialgroup.com. That’s financialgroup.com, and click on this week’s must read. While you’re there, you can also sign up for one of our upcoming workshops.
What have we got going on here?
We’ve got a <Inaudible> show coming up. We’ve got one in September, we’ve got a couple in October, and one in November.
Let’s talk about the September one first.
That’s a great place to start. Outstanding. Well, Gary Ably will be doing Financial Basics for Life: Strategies for Success. And that’s going to be Tuesday, September 27th from 6:00 to 8:00 in the evening. You can come to after your work if you’re working and you want to get your financial basics for life. Next will be October 20th, Thursday, October 20th, our Social Security Boot Camp hosted by Nancy and Denise. And that will be on — yeah, 5:00 to 7:30 in the evening on Thursday, October 20th.
They know everything about Social Security.
Yup, they do. October 25th, Tuesday October 25th, it will be When Can I Retire? Know Your Number. Gary Ably will be presenting that one. And then Countdown to Retirement, November 8th. So, you can get more information on that by going to our website, once again, financialgroup.com, and click on workshops. You can make a reservation right there and learn about our firm, and that’s where the information is.
You mentioned earlier that the education system lacked in teaching people the financial basics and that next workshop coming up in September is perfect. Financial Basics for Life.
Yeah.
So, go to the website, right?
Go to the website.
Sign up. It’s September 27th. It’s on a Tuesday evening from 6:00 to 8:00. I know Gary Ably.
You know Gary Ably.
In addition to being a CFP, he’s also a CPA. He’s going to provide some light refreshments there so you can come right after work.
He’s a great guy.
He is a great guy.
Here’s the phone number. We have wide open lines this morning. We’re live in the studio this Labor Day weekend. So, give us a call. Keep us busy at 844-220-0965. 844-220-0965. Or text us at 21232. It’s an Ask the Expert Saturday morning on WDBO and it’s good to have you along with us. I mean that. It’s 9:25. Coming up in five minutes we’ll head on back to the News Center where Dave Wall is keeping an eye on things. That breaking news about that earthquake in Tulsa. Interesting, very interesting. We’ll have more on that, and of course, Hermine. Or, as Joe and I were just discussing, Hermione.
Yeah, that’s the way I remembered it.
I swear <Inaudible> yes.
Remember, back in the day.
We’re showing our age.
That’s okay. At least I have a memory. We can remember this.
Hermione, we thought it was. But Hermine and it’s progress up the east coast, although some may not call it progress. They have another word for it since it’s raining out some of their picnics, Labor Day weekend picnics. If you’d like to talk with Joe — and Roger Johnson is also here — about any pocketbook issue, any financial issue going into retirement, maybe you want to help your better half plan for retirement, maybe you want to help out your parents doing something, here’s the number to call: 844-220-0965. 844-220-0965. You can text us at 21232. Here’s a text: Is there a magic formula for how much I should be saving towards my retirement? I am 37. My husband is 39.
Right. Well, there is no magic formula, but a good rule of thumb might be a good 10% of your earnings should go into some type of retirement plan, or at least some kind of savings. You may have some goals in between age 37 and a retirement at 65 or 70 that you want to save for such as college and that kind of thing for kids, but a good 10% really should be squirreled away. And that way you can get some matching funds from your 401k and those are free matching funds. Usually, your company you work for provides that kind of matching funds and that’s in the replacement of those pensions that nobody has anymore practically.
Roger, we want to save for our retirement.
We do.
Before we want to save for our kids’ college fund.
Yeah, I like to put the retirement plan dollars first before you plan for saving for college. You’ve got to — you know, everybody has kids and they want to put the kids through the best schools possible, but you sure don’t want to come out of getting two kids through college and you’re now close to 60 years old and you have nothing saved for retirement. And that’s what so often happens when you put the college savings plan ahead of your retirement plan. So, there’s many different ways to pay for college. There’s some help from you, maybe some 529 plans starting early, but kids can get scholarships, they can get loans, they can get a job and work their way through school doing part-time — you know, it’s great to hand them all the money they need for a good college education, but you shouldn’t really do that at the expense of your own retirement plan because you really don’t get any more years to save for retirement once you are in that point where either the company is downsizing. They may lay you off, you may get a reduced situation, your health may not hold up, so you can’t just automatically count on oh well, I’ll just keep working. You really have to — it’s a long period of time.
Well listen, when we come back from the break we have a couple of callers here and I want to continue along that vein. The rule of thumb for spending in your retirement. Joe, how much will somebody need in retirement as far as spending is concerned. What do you need? 70% <?> of what you spend now, maybe? 3/4? We’ll talk about that. Stick around. If you’d like to talk with Joe and Roger, the number is 844-220-0965. Or you too can text us at 21232. And Joe and Roger are planning tomorrow —
Today —
With the — Joe was a little late on that. No, it’s alright, he’s reading something. No, he’s researching.
We’re planning tomorrow —
Today —
With the Certified Financial Group. It’s an Ask the Expert Saturday morning on WDBO. Good to have you along with us. This is On the Money brought to you by the Certified Financial Group. Coming up right after the news at the top of the hour, our Ask the Expert weekend continues with a home fix-up show. It’s called Florida Homes and Gardens. We bring in the experts to help you around the house, whether it’s on the outside or the inside. We’ve got the experts to help you out coming up in the next hour, so stick around for that too. But, right now we’re helping you out with your pocketbook issues with Roger Johnson and Joe Bert, the Oracle of Orlando is in the studio. And these two gentlemen are both certified financial planning professionals. Roger, tell everybody what you all are taking calls about.
We are taking calls about your personal finance, planning for retirement, planning for some type of event, long life of financial situations come up and we will help you as best we possibly can Try to answer some of your questions you may have and get through those tough financial decisions. So whether it’s about your 401(k) or an IRA, or rollover stocks, bonds, mutual funds, long-term healthcare we were talking about earlier.
Yeah.
Real estate. Anything that <Inaudible>.
<Inaudible>.
We are there to help. We do this during the week. We do it on a fee basis <Inaudible> eat, breathe, and sleep it.
I hope so.
<Inaudible>.
I don’t — before I even get out of the bed, I look to see what the futures <?> are for the day.
You poor guy.
Not that it makes that much of a difference. <Inaudible> day in and day out <Inaudible> like to know.
<Inaudible>.
Maybe that’s it.
Yeah. Take the stock futures laying down is the key.
That’s good.
Here’s the telephone number: 844-220-0965. Or you can text us at 212-32. Let’s talk to Dave in Seminole County. Good morning, Dave.
Hi, Dave.
Good morning.
Good morning, David.
How can we help you?
<Inaudible> thanks for taking my call.
Sure.
There was an article in this morning’s Wall Street Journal about John Vogle of Vanguard, and John expressed his thoughts. Of course, he’s a proponent of <Inaudible> investing that even going forward based on today’s market valuations, that he thinks passive investing still has an advantage of active mutual funds. I’ve heard contrary opinions and I just wanted to get your take, as I’ve been a Vanguard investor for over 30 years. And it’s done well, even despite a few market turndowns. But as I go forward into retirement, I’m not going to get the dollar cost averaging and I’m wondering, maybe, if a good active manager might be better than passive investing. Just wanted to get your opinion, thank you.
Sure. First of all, there are a few schools of thought on that, as you say. And there is a place for passive management. What you don’t want to do is turn your entire portfolio over to passive management because, as you have seen and experienced, I think, in the downturn when you have a passive manager, all that passive manager can do is ride that index down. He can’t make moves. He or she can’t get defensive and can’t be in the right place at the right time to protect you on the downside. So we’re a believer in passive management to some degree, but don’t build your entire portfolio around passive management. And the other side is that the indexes, the only real true index is the S&P 500. The rest of them try to mirror certain types of index, whether it’s the Russell 2000 and some international indexes, but they don’t do really do a very, very good job. I’m a big believer in paying for something and getting something in return. But you want to be sure that you’re getting something in return. I don’t disregard what people say about passive management. I use it; I believe there’s a place for it. But don’t build your entire portfolio around <Inaudible>.
Sure, you can build that into — a good diversified portfolio could be some low cost indexed funds, exchange-traded funds possibly. There’s a great place for that. But I’m a big believer in both. There’s the key. I don’t think one trumps the other, and I think you need to put both of them into your portfolio. There’s some great managed funds out there and there’s some mediocre managed funds. So you just try to stay away from the mediocre and stay with the best managed funds and also mix in some indexed funds for low-cost expenses.
What we look at when we pick out a fund, there’s one distinct criteria that we use at our firm to determine whether or not a fund should even be added to a client’s portfolio. And two of these criteria are what’s called alpha and the sharp ratio, which is a function of how much return is that manager getting for the amount of risk that he’s taking. There’s risk in every kind of investing, but what you want to do is have managers that will give you far greater return than you’d expect for the risk that they’re exposing you to. Because, as we’ve learned in the past, any fund manager can be locking in the right place at the right time, you think he’s a genius. But when the tide turns, you found that he was taking great risk and the bottom has fallen out. So you can’t pick a fund purely on performance. Unfortunately, that’s what people do. They look at what did good last year, who’s blowing the doors off, and this is where this guy’s a genius. Only to find out when things change, he really lost <Inaudible>.
Consistency is very important.
Yep, yep.
So hopefully that helps. I just think it’s better to have both in there, low-cost indexed funds are a great place to start with building a portfolio around that.
Okay, if you’d like to call and have that line, the number’s 844-220-0965. This is Steven on a cell phone with a question about taxes. Good morning, Steven.
Hi, how are you?
Good morning.
Good morning.
How can we help you?
Hi. I’m 57 years old. I’ve been plumbing for 40 years. Divorced. That wiped me out. And rebuilding again. Since the divorce, which was quite a few years ago, I haven’t done my W-2 forms, I’m sorry to say. It just kind of snowballed into — she used to take care of all of that stuff. I do pay the taxes on a weekly type of deal with — through the pay stubs and stuff like that. Is there a way I can get that stuff cleared away? I have somebody in my life that I’d like to continue to be in my life. And without her getting tied up in this whole thing.
Let me be sure I understand what you just told me. You said something about W-2. Your W-2 is the form that your employer gives you to file with your taxes. Are you telling me you haven’t filed a 1040, your tax return?
That’s correct.
Okay. So you haven’t filed your taxes. But you have been having taxes withheld from your paycheck.
That is correct.
Okay. So you’ve been paying in, but you just haven’t —
I haven’t accumulated — calculated anything. Is that going to be a thing that hurts me later on because it hasn’t been — it will?
Yeah. They haven’t caught you up — haven’t caught up to you.
Yeah.
Yeah, what you —
<Inaudible>.
What you need to do is you can contact the IRS directly or work with a CPA that has experience in that. They’ll work with you. They’re not going to throw you in jail, but you’re going to have to pay some penalties and fess up and may what the taxes are due. And that’s —
<Inaudible>.
Having a good CPA with you on that to build a case — because you have a case situation. It’s not just cut and dry. You have a situation that you need to let be known, but have somebody working with you that can guide you with the right requests and to the right departments.
Are you self-employed? You said you’re getting a W-2. Is somebody doing pay roll for you?
It’s not my company, no. I do plumbing —
Okay. So you’ve been working for a plumbing company. You get a W-2 that they’ve been paying into this —
Different plumbing companies. Like I say, I’m an independent contractor. So here in Florida, as things get built, you’re there on the job until —
I understand.
<Inaudible> caught up and then you’re on a new job with a new company.
But you’re getting W-2 income now. What we call 1099 income.
W-2s.
W-2. So all these companies that you work for have been paying into the system. You just haven’t been filing a return in <Inaudible>.
<Inaudible> back taxes.
Yeah. You need to get together with a CPA, go through your records. It may not be as bad as you think. If you have a house, you get an interest deduction. Charitable contributions. You may have some <Inaudible> you may not have even had to have filed.
And the situation might be you’ve used some tools and equipment in your trade that you might be able to write off. I would get together with a CPA and have him or her between an advocate for you. But this way, you can sleep at night.
Earlier, we had a question via text about is there a magic bullet. I have a follow-up question to that: Is there a rule of thumb about spending in retirement? Joe, how much will the person who retires spend in retirement?
It’s all over the ball park. Some people spend less than what they — than when they were working and some people, because of lifestyle, end up spending more. Going to see the grandkids, travel, medical costs. It’s all over the ball park. And this is one of the things we do when we do planning, right, Roger?
Yeah, when we do a plan for a client, one of the big things we start with, with that client is for them to go home and calculate what they’re going to spend in retirement. And divide it by 12, that’s their monthly expenses. It’s so wide variety of numbers. We see sometimes $2,000 a month. I’ve seen that. I’ve seen $6,000 a month. And these are regular families. It’s not — they don’t have yachts or anything, but that’s their lifestyle. Maybe $6,000 a month is what they need in retirement. We hopefully will be able to plan and provide for that. And what you have to remember is that what you need in retirement is going to increase because the price of gasoline, groceries, and electricity is going to continue to go up throughout your remaining lifetime. If you retire at 65, we draft the plan for almost 30 years in retirement.
<Inaudible> retire last year, too.
Pardon me? Well, of course not.
<Inaudible>.
New car.
And a roof every few years and a couple of air conditioning units over a lifetime. These things need to be budgeted in as well.
Wow.
That is, in fact, the benefit of planning. It clearly shows you where you are and what you need to do now is, as we say in our <Inaudible> don’t look back 5 or 10 years and then think, gee, I wish I’d have known or gee, I’m sorry I did. And I think — in fact, I’m convinced of this. The biggest thing that clients get out of this is peace of mind. Because oftentimes, for the first time in their life, they know where they are. And as adults, they step up and say, okay, this is what we need to do.
They know they’re on the right track, or they know they’re not on the right track.
Unfortunately, people go to bed at night and worry about this stuff when there’s really help out there. But you want to deal with somebody — not to sound self-serving here, but you want to deal with somebody that does this for a fee, not trying to sell you something.
And <Inaudible>.
A fiduciary.
A fiduciary, that’s correct.
And you can find out all about the Certified Financial Group online.
That’s right. Financialgroup.com and there’s a little video that I like that says — when you go to our website, there’s a little video that pops up. Says learn the difference and show you the distinction between a fiduciary and a broker.
You don’t like to toot your own horn. I can’t blame you on that. That does sound self-serving, but there’s no rule that says I can’t say it. Was it Forbes Magazine or Fortune that rated you in the top 10?
Fortune.
Fortune Magazine, that rated you in the top 10 as certified financial planning professionals. That is a statement. See? Congratulations.
Thank you very much.
I have <Inaudible> congratulations. That’s a pretty outstanding achievement.
We’ve been around for a bunch of years.
How long?
<Inaudible>.
How many years?
Well, all of us have been in this 40 years.
Gee wilickers. And the only one who hasn’t aged are you two.
No.
<Inaudible>.
<Inaudible> definitely <Inaudible>.
Alright, listen, we have another segment to come and we’re going to take some more phone calls. The number, if you’d like to dial, is 844-220-0965. Erica’s a teacher. She has a question for you. 10 years a teacher. She has an FRS. When she leaves, she wants to know what to do with it. Take it with her, roll it over, or how to take it? In one lump sum or what. Jeanette wants to ask your opinion about the advantages of moving a 401(k) to a Roth, advantages or disadvantages. We’ll answer those questions coming up on WDBR.
This is News 96.5, WDBO.
You just heard Scott <Inaudible> talking about remodeling his home. Kitchens, bath, you name it. All of your remodeling plans start at S&W Kitchens and that’s who we’re going to hear from coming up in the next hour on Florida Homes & Gardens. S&W Kitchens. The three big ideas to help get you started in the remodeling program. Right now, we’re talking with Joe Bert and Roger Johnson from the Certified Financial Group. You can, too. We’ve still got time. 844-220-0965. I’ve got a couple quick questions here. One from Erica, who’s a teacher for 10 years, with an FRS, first off, Joe.
Florida Retirement System.
Alright. She wants to know, when she leaves, should she take it with her, should she roll it over, should she go to an IRA, and how should she take it?
It depends.
It depends on her situation. The Florida Retirement System is a guaranteed pension. Unfortunately, it really doesn’t build up to anything substantial unless you’ve been in the system for 25, 30 years. So for most people, they’re oftentimes better off to roll it into an IRA. You don’t want to have the money sent to you. You want to do a direct transfer into an IRA, get together with a certified financial planner, have him or her lay out a plan for you, and tell you what to do. But once again, everybody’s situation is unique, depending on what the other assets are and resources are, she may be better off to leave it there.
Jeanette wants to know the advantages or disadvantages of moving a 401(k) to a Roth.
The advantages are, under current law, when you do that, you’re converting a tax-deferred account, going to pay taxes coming out, put it into a Roth with the idea that somewhere down the road, it’s going to be totally tax-free. So you’re going to give up, right off the bat, anywhere from 10% to 40% of whatever that account is. So you’ve got to have a lot of growth to make up that.
That moves you into a higher tax bracket.
Yeah, if you’re in a 10% tax bracket, it might be okay. But you don’t want to do it — I’ll tell you what you do. We talk about Roth a lot. Google Roth a wolf in sheep’s clothing. It’s an article I wrote for Kiplinger sometime ago. And I’ll talk about the <Inaudible> about doing Roth.
I’ll tell you what. Sally in Bavard County, we’ll see if we can help her out real quick. Sally, good morning.
Good morning. Thank you for taking my call.
Sure, Sally, what can we do for you?
I set up a 529 for my daughter, and she is enrolled in college now. I’ve already taken a disbursement from that. But it’s evident there’s not going to be enough money in the 529 because she chose an expensive college.
Isn’t that great?
Yeah. So, my question was, a friend of mine told me you get a 1099 — 1098Q at tax time. And I wanted to know what to do with that. Because, in addition to the money I took out of the 529 to pay her tuition, I’m paying for living expenses out of my pocket. So I wanted to know what to do with that because I kind of, I guess, made a quagmire for myself.
I don’t think you made a quagmire. If you’re providing more than half her support, then you can still claim her as a dependent; she’s a student. So you’re okay there. What you have to do is have back-up for what that money was used for in case you’re ever audited. And I think you’re okay. I mean unfortunately, you’re going to have to come out-of-pocket for the costs that you’ve incurred because she chose Harvard instead of <Inaudible> Valencia, but that’s it.
Alright, Roger, Joe, what’s the best way to get a hold of you guys?
Go to our website. Financialgroup.com. And check us out. If you’d like to come in sometime and talk to us on a complementary basis and kick your ideas around about your finances, make an appointment through calling our office, 407-869-9800 or go to the website, financialgroup.com
Okay <Inaudible> Roger will answer it standing by. You’ll get a private return there.
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