Announcer:
It’s time now on KROS for Financial Focus, brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research Incorporated, a broker dealer member of FINRA SIPC. Investment advisor representative, Cambridge Investment Research Advisors Incorporated, a registered investment advisor, Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now here’s today’s Financial Focus program.
Nate Kreinbrink:
Good morning and welcome to this week’s Financial Focus brought to you each and every Wednesday morning right here on KROS. This is Nate joined again to here by James from the office. And kind of a bitterly cold morning out there today. Looks like it’s not going to be too pleasant of a afterschool and after work commute later this afternoon.
James Nelson:
Yeah, winter’s back. I guess we’re due for it, but I don’t think the temperatures are supposed to stay cold for long. I guess we can’t complain too much.
Nate Kreinbrink:
We got to cold temperatures coming and some more of that white stuff coming later this afternoon through the night. But like you said, I did see, like you said, James, 40 degree temperatures through the weekend and pushing a lot next week.
James Nelson:
We’ll take it.
Nate Kreinbrink:
Brings us close to the end of February and then we’re March. Pitchers and catchers I think for a lot of teams reported today, I think it was.
James Nelson:
Oh no way, really?
Nate Kreinbrink:
I think.
James Nelson:
Wow. Yeah, baseball spring training gets underway. Although our Cubs, or my Cubs haven’t made any deals or really anything to get too excited about this off season. I don’t know how exciting spring training is for a lot of Cubs fans.
Nate Kreinbrink:
It’s always this time of year, everyone has all that optimism. Like this is a year and everyone starts out in first place that first game of the year.
James Nelson:
Your Reds have made some moves though, so you got to be excited.
Nate Kreinbrink:
We’ll see if they pay off. It’s again, it’s still a tough division and if they can get some of their young guys to continue to contribute, and again, I think what’s done them in in the past years or couple years have been just slow starts. They just get behind so early and then they’ve got to dig themselves out of such a big hole to even get middle of the pack in that division. And that division that’s tough to do. Hopefully they can get gone and we’ll see. Just excited to see that sunshine and green grass and the ballgames going on.
James Nelson:
Yeah, no doubt. Hopefully it’s here sooner than later.
Nate Kreinbrink:
Today’s program, I know James and I always talk and then one of the things that always continues to keep coming up and seems to be a regular question with individuals that we meet with is, what should I do with my 401k once I leave my job or once I’m switching jobs? And should I leave it there? Should I take it out? Should I roll it over to something? And understanding what your different options are is imperative to making sure that you don’t pay more in taxes than what you need to actually pay in that. And one of companies just really kind of close here to us here is Medical Associates and with the transition that they’re going through and have been going through to MercyOne and some of their employees having questions with what exactly they should be doing with their plan as they transition over to MercyOne and that new plan that they have.
Nate Kreinbrink:
And I know James, you’ve met with quite a few of them and some of the different options that they have. Good, some bad and go from there with it.
James Nelson:
Yeah, exactly. And pretty convenient. We’re right across the street. Yeah, we have been getting plenty of calls and yeah, it’s a big item. People say, “Hey, should I move to the new plan? Leave it in the existing? Role to an IRA? And that’s kind of where we come in. Generally speaking, there are a heck of a lot more investment options if it’s in an IRA. That’s kind of our starting spot. Most 401k, 403b, any retirement plans have a pretty limited menu. If somebody is looking at the 401k options, they may have 10, 20, 30 options, but it doesn’t really allow them to drill down maybe in some specific areas like an IRA would. An IRA, you can literally buy whatever you want. There’s tens of thousands of different investment options within an IRA versus a 401k plus is pretty limited menu.
James Nelson:
That’s kind of our starting spot. If the 401k plan is pretty limited or aren’t the greatest options, we like to see that money in an IRA so we can go get whatever we want. There’s also other limitations as far as being able to kind of do some advanced strategies as far as managing the money, offering some hedges or some tail risk or anything that kind of helps limit the downside can’t be duplicated in a 401k plan. You can’t buy options in a 401k plan. You can’t buy some of these specific investments inside a 401k plan. That’s kind of where we’re at. We’re 11 years into this bull market. At some point we’re probably going to have to play some defense. Where can we play the best defense? Obviously that’s an IRA versus a retirement plan through work just because those options don’t exist.
Nate Kreinbrink:
Right, and I think it’s important to understand as James mentioned too, those different options and how to go about making those or executing those options. I know we keep talking about Medical Associates and they’re merging with a MercyOne and their plan having a new plan at MercyOne. Their old plan is being left there. This also goes into when individuals retire, when they switch jobs, just when they have some type of separating event from their current employer’s plan and normally what happens is they get a packet of information that they have to fill out in order, and make their elections on that plan.
Nate Kreinbrink:
You want to make sure that those are filled out correctly to making sure that who the check is going to be made out to directly, make sure it’s made out correctly so that way, again, we don’t want that to be a taxable event where again, you think you’re taking your money from a 401k from a 403b and going to be rolling it over. But unless that paperwork is filled out completely, correctly, that could potentially be a devastating taxable event where all that would be taxable to you in one year.
Nate Kreinbrink:
Now obviously that’s a worst case scenario and we want to obviously avoid that at all cost, but again, that packet of information, you come and you start flipping through it, you have questions with it. We go through those with people all the time as far as sitting down, okay, this is what this section means, this is what this section means. Let’s fill it out correctly. Let’s get it titled correctly and get it done. And I think sometimes just having someone sit down with those individuals, it’s a bigger piece of mind and a weight off their chest because they’re so stressed that they’re going to do it wrong because they just, they’re not familiar with some of the wording. What does this mean? How should I do this? How’s this going to affect me? Again, if you have questions, give us a call, we’d be happy to sit down. But it’s imperative that we don’t make those mistakes from a tax standpoint on those forms.
James Nelson:
Yeah. Because once the mistake’s made, it’s a done deal. You can’t really reverse those issues. And again, this is stuff that we do every day, so we’re pretty familiar with this paperwork. Chances are, we’ve already seen it before with another client. We’re familiar with all of the area employers, Medical Associates being the one that we’re kind of talking about today. But it’s really important that that paperwork’s filled out properly, like Nate said, because it’s a done deal. The other advantage of having it in an IRA is just the professional management. I talked about the investment options, but also the person executing those options. When you work with an advisor, a team, you hope that you’re getting some better guidance and a little bit more direction. Most people kind of put the money in the 401k plan, don’t make a whole lot of changes, maybe set it and forget it and they haven’t looked at it in a while.
James Nelson:
We feel we can do a better job than that just making some changes during the course of the year. There’s trends and there’s ways that we can follow the markets to try to maximize those returns versus just kind of putting it in there and not doing a whole lot. I guess that would be another huge advantage of having it in an IRA is having somebody there helping you make those decisions to try to maximize returns.
Nate Kreinbrink:
Right, and when we do that, that one roller, there was an issue that came up there the other day with an individual that and our office was meeting with. And so most, it’s very common if you have a traditional 401k, you roll it over to an IRA and you can access those funds immediately after. Whenever you take those money out, it’s taxable to you pretty straightforward. Where this came up and where I think it’s going to be an issue moving forward as Roth 401k’s become more and more prevalent inside of these plans is, okay, yeah, I roll over my traditional 401k over to a traditional IRA. My Roth 401k goes into a Roth IRA. Now where the issue is going to start becoming is if those individuals did not have a Roth IRA on the outside of their plan and they set up a Roth IRA at retirement, rolled that Roth money into it. That triggers a five year window or a five year period where an individual, if they touch the gains inside of that Roth, they’re going to be taxable to them.
Nate Kreinbrink:
Now from other shows that we’ve done, Roth, we went over where Roth accounts, as long as they meet certain criterias, they are going to come out to you tax free. But that five year window is one of those qualifications and people are starting to see that a little bit when they leave their employer, they roll their Roth 401k monies over to the Roth IRAs, that they just recently set up. They’re having an issue as far as being able to access a 100% of that money. Now if you have a hundred grand in there and 80% of it was your principal, 20% of it was gains, you can still access the 80,000 in there, your principal in there. It’s just the gains is where that five year window does. Again, this is where some planning comes into play, where if retirement is on the horizon in the coming years, it may make sense to you to do some pre-planning to say, “Okay, let’s open up a Roth IRA prior to me, years ahead of me retiring to get that five year window started so that way I don’t have to worry about it at retirement.”
James Nelson:
Yeah, that’s a good point because people overlook that all the time. Don’t even know that rule really exists. I roll it over and then I’ve got a 100% access to the money. Not necessarily. The other troubling thing can be is actually getting the basis number. The basis if you are contributing to a Roth 401k, is your contributions. Well, like Nate said, the Roth IRA or Roth 401k option hasn’t been around that long. Getting the company to track that basis and getting the correct number when it comes over isn’t the easiest of things either. Again, lot of moving parts, that’s why it’s important to work with somebody and help walk you through this so you don’t have any of these bad experiences or any of these mistakes later on.
Nate Kreinbrink:
Again, lot of moving parts as James alluded to, but you have questions, Medical Associates, you’re retiring, you’re switching jobs, they’re switching plan providers at your current employer, give us a call, sit down. We’d be happy to kind of go over and walk you through those options just to make sure that that peace of mind allows you to make that correct decision.
Nate Kreinbrink:
Running out of time here, James, but did want to mention that every Friday NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of February will be donated to the Ecotourism Center. James, another great show. Appreciate you joining me again on this beautiful winter February morning.
James Nelson:
Absolutely.
Nate Kreinbrink:
Again, Nate and James with NelsonCorp Wealth Management, bringing you this week’s Financial Focus. Thanks again for tuning in and have a great rest of your week.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research Incorporated, a broker dealer member of FINRA SIPC. Investment advisor representative Cambridge Investment Research Advisors Incorporated, a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.nelsoncorp.com.