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 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. Well, this is Nate Kreinbrink bringing you today’s show.
Hard to believe we are middle of May. A lot of activities, a lot of happenings, I think, this time of the year, as we transition from one phase into another. I know if you’re looking at high school sports, either Illinois or Iowa, getting to some exciting seasons across the river there in Illinois. State softball, baseball seasons kind of coming to an end as they get ready for tournament on this side of the river. You’ve got track seasons gearing up for sectionals coming up. High school soccer for those schools that do. Spring golf, I know they’ve got sectionals coming up here. I want to wish them all best of luck as they transition into that exciting time.
And obviously, the high school baseball and softball seasons here in Iowa, I know they’re trying to work in their practices in between some of the spring sports for those athletes who are playing both. But they will get started here very, very shortly. I think this coming week is where they get going officially, so wish best of luck to all the area teams as another season kind of completes in the spring and then transitions there into the fall.
Also an exciting time seeing a lot of, as you’re driving through in the evenings through communities, the youth programs are well underway. Whether it’s spring soccer, whether it’s spring baseball, spring softball, T-ball, whatever age you have them, seeing those kids out there. And again, kicking the ball around a little bit, but again, just hopefully out there enjoying it, so I want to wish a very healthy and happy and successful seasons to all of them.
Again, this time of the year, as we do get to mid-May, it also signals another end to a school year is pretty much upon us. I know for those seniors, a lot of them, this is their last week. Graduations this coming weekend here. I want to wish all the area graduates a very best of luck as they move on to whatever their next phase of life is here in the next couple of weeks as they get into that. Then obviously, the end of school for everyone else, for the teachers, another school year is checked off, so hopefully end it positively here and have a good end to the year. And again, transition into the summertime, which is an exciting time, I guess, depending on who you ask. But again, I think the kids are ready. I’m sure most teachers, faculty, staff are ready for that summer break here coming up. So with weather, temperatures we’ve been having, it feels like summer, so I think that makes it all the much easier to transition into that phase.
But again, [inaudible 00:03:40] today, second Wednesday of every month, David was on last week with the 30-minute live program, talking a little bit of markets and economy, and then some of the impacts that some of those headlines are having on a lot of the accounts on what we’re doing. Next week is the third Wednesday of the month. We’ll be having Andy Ferguson with NelsonCorp Tax Solutions on here with us talking taxes. I’m sure he’ll kind of hit that, again, the recap of the past tax season. Some things that kind of kept popping up that he wanted to make sure he addressed that probably could have an impact on a lot of people listening.
The next week, last, fourth Wednesday of every month, we usually have someone on, usually Mike or Mike, Mike Steigerwald or Mike VanZuiden on. And we kind of discuss Medicare a little bit more, some of the key topics, some of the changes, some of the areas, again, of question that we continue to see come up with questions when we meet with people, and again, address some of that. So again, some probably good topics coming up here in the coming weeks.
For today’s show, I know again, going with where we’re at in that time of the year, wanted to kind of spend a little bit of time today talking about just simply starting investing. And again, as you see seniors transitioning into the workplace, hopefully getting a position where they’re eligible to start putting money away. It also applies to area high school students that may be getting a part-time job or a summertime job where they’re having a little bit of income, and maybe some options and some possibilities that they can look at to again, start that process of putting money away.
And again, it’s tough. I mean, when you’re younger, you have bills. Paychecks may not be as big as what you wanted with, again, paying for gas, fuel for the car, insurance if you are, and things along those lines. But again, we joke all the time, and I think it remains true and it has a lot of impact and truth to it, is that we’ve never had anybody that has came in and said they started saving too early or they saved too much.
I think when you break those down into the simplistic form, I mean, I think starting early and understanding, putting money away at an early age and the compounding interest impact that that will have over the course of the next 40 to 50 years of that money being invested, I think, is a very powerful thing. And those young individuals that grasp that concept, again, will put themselves in a much better place down the road by just starting to save a little bit, versus trying to have to play catch up later on in their working career. And again, you got to start putting in a lot more to get back to close to where that was as opposed to starting early and letting that money continue to snowball, to continue to build in your favor. So again, I would encourage those individuals that are in position to do that, again, seniors entering the workforce, other high school students, young adults that are maybe getting a little part-time job this summer, again, starting to earmark some of that.
And so when you ask those questions, the first question is then that comes back to me when we kind of bring that topic up is to, “Where should I start saving, then?” And again, that’s a question to kind of look at and to kind of weigh the different options. Again, putting money away into an investment account has its pros and cons, as do pretty much any decision that we make. Just a simple investment account, there’s really no tax benefits to it. You will get a 1099 at the end of every year for any interest dividends that you made on there. If you sell positions, if you bought something for $1 and it’s now worth $2, you will pay taxes on those gains, whether it be ordinary income tax or long-term capital gains, depending on how long you’ve held that position. But again, there’s liquidity aspect of it, where you have access to 100% of your money 100% of the time, no penalty. You can put as much as you want in there. There’s no income restrictions to put it in. So again, there’s pros and cons of doing it that way.
Another popular option that I still think checks a lot of the boxes for those people that are younger that are wanting to save is putting money into a Roth IRA account. We’ve talked some shows as far as the differences between an IRA account or a Roth account. The differences is in when the money is taxed. With a Roth account, there is no tax deduction for the money that you put into it. The trade-off is that it continues to grow tax-free, and as long as you meet certain requirements as you go down the road, the money will come back out tax-free to you, even the gains as well as the money that you put into it.
Now, some of those qualifications, again, are simply just age. When you put money into a Roth, again, if I put $1 into it and it’s now worth $2, I can always take that dollar out as it’s my basis. If I touch the gains before a certain age, the gains then become taxable and may be subject to a penalty, depending on what age you’re kind of doing that. So again, there are some trade-offs with it. There are income restrictions. You have to have earned income in order to be able to put money into an account. There are limits for those that are under age 50. $70,000 … or $7,000 a year is the max that you can put into it. So again, you start looking at some of those and deciding, okay, what is the best route that I’m going to be? Again, the Roth, I think, still checks a lot of those boxes.
Again, there’s cons to it as well. Again, if you think you may need all of that money with the gains, then it may not be worthwhile to look at it, the income restrictions, the income limits, the contribution limits. But again, if you start thinking about, if I’m a younger earner, and I’d look at taxes now versus taxes later. Again, I would assume that most of them are in a lower tax bracket now than what they hope to be down the road. So, if that’s the case, again, let’s pay taxes now at that lower tax bracket, let that money grow tax-free, and not have to worry about taxes, whatever rate they are down the road, what tax bracket I’m in, I can know that I’ve paid taxes at the beginning. As opposed to the trade-off with an IRA, where you do get that deduction when you put the money in, it grows tax-deferred. Any growth that I have, again, I will have to pay taxes, more than likely, on the back side when I take that out. So again, it’s understanding some of those options.
And again, I know life happens. And I know again, when you’re young, that’s saving for a time period that may be 40 years, 50 years down the road, sometimes it seems unattainable, and some time period that I’ll start next year or I’ll get to that next year when I have a little bit more. But again, when I said starting to understand that power of compounding interest and what that will do for you, even if it’s just putting $10 a week or $20 a pay period away, what that will turn into over the course of time. And again, just simply starting those habits of saving for your future.
Those that do are going to put themselves in a great position. Those that don’t are going to probably be in a tough position, as there’s few and far between where you can walk off the job anymore and have that big pension sitting there waiting for you. The bulk of that retirement funding is going to come from the individual themselves, the employee. And so again, starting early, setting up a little bucket to have it where you can put money away is, again, just going to put you in that good position.
Again, as I run out of time here, I do again want to wish best of luck to all the area high school seniors as they kind of complete this milestone transition into the next phase of their life, and wish them all the best during that time period. I do want to mention real quick here before I run out of time that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of May will be donated to the Tapestry Farms in Davenport. Again, this is Nate Kreinbrink bringing you this week’s Financial Focus. Thanks 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 the 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 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.