David Baker:
On 88.5 FM, K A L A, I’m David Baker and we want to welcome David Nelson to the K A L A airwaves. David is with NelsonCorp Wealth Management.
David Nelson:
Yes.
David Baker:
In Clinton, Iowa, but all throughout Eastern Iowa as well.
David Nelson:
Sure.
David Baker:
David, thanks for taking some time out to be with us and talk about what’s going on with retirement. I think everybody needs to look at that.
David Nelson:
Yes.
David Baker:
I am in my mid-fifties almost, I’m 53, [crosstalk 00:00:30], I’m approaching that, but, even if you’re 23, you have to be thinking about that.
David Nelson:
Yeah.
David Baker:
Tell us, is there anything major and new coming in retirement, savings or planning?
David Nelson:
It’s a great question and the answer is yes. There is the SECURE Act, is what it’s referred to as. We’ve tried our best to get some of that information out to folks, as far as the good, as well as the bad. The concept is great for most of the folks probably out there that are listening. It’s essentially making it easier for employers to sponsor retirement plans. Big employers all have them. It’s targeting more the small employers and saying hey, I realize the costs that are associated with it. We, the government will give you some money to offset some of the expense of creating that account, allowing your employees to be a part of a plan.
David Nelson:
So, it’s a great bill in that regard, for those individuals that are on the other end of the spectrum, they’re more getting closer to retirement. Those individuals, again, are doing maybe some estate planning and they’re looking at the monies that they have in 401k plans and 403 b plans and things of that nature, and they’re saying, hey, I want to enjoy this and spend a whole bunch of it, and when I pass away, I want it to go to, to my heirs.
David Nelson:
If that happens to be kids, in the olden days, prior to this law passing, give or take a few months back, you could do what’s called a stretch with your plan. In other words, you could have those distributions come out to your heirs over a long period of time, subsequently, a delaying and minimizing the tax liability over a period of time. The new rule basically said you will take that money out over a ten year period of time and at the end of ten years that money all has to be bled out of there. You can do it one tenth per year, you can take a chunk here and a chunk somewhere else but bottom line, the money has to come out.
David Nelson:
That’s a big item for individuals that have been very disciplined saving money and wanting to pass it on to the kids. The tax exposure is going to be greater and quicker with this new bill.
David Baker:
And so that’s new?
David Nelson:
Yeah.
David Baker:
Okay. Do you have a recommendation, if someone’s listening and they just have done nothing yet for retirement? So they may be in their 30s, they may be in their 40s, even getting closer to retirement, they haven’t done anything and they’ve got to catch up quickly.
David Nelson:
Sure.
David Baker:
What is the minimum thing that somebody should do or could do, even if they’ve only got a small amount that they can devote to that every month?
David Nelson:
We’ve never spoken to anybody that had started too early and saved too much. The average person out there has put it off and put it off and at some point, the light goes on and they think, hey, I do need to save.
David Nelson:
So our discussions typically center around and we’ll have people that’ll come in and say, I want to save with you, and then we’ll ask, “Where do you work? Are you in the plan currently at work?” And you find out, no they’re not. But they want to work with us and we pretty much say, “No, you’re not going to work with us because your employer’s matching, to some degree.” Almost every employer has some match.
David Baker:
Mm-hmm (affirmative).
David Nelson:
More often than not, it’s typically going to be, if you put in six percent of your income, I’ll put in, I being the employer, will put in three percent, so that’s nine percent. So, as we explained to people, that’s a 50% guaranteed return on your money. You’ve got to do it, that’s a must. Most employers do that. The easiest is payroll deduct, because once it hits the checking account, it’s open season for, I need this, versus I want this. So what we tried to get people to understand is to get the free money first, and then if there’s extra money, that I would like to put away as well, then you can start looking at other things.
David Baker:
Mm-hmm (affirmative).
David Nelson:
And with the 401ks, simple retirement plans. If you work for a small employer, it’s typically referred to as a simple retirement plan. Basically, it’s a shrunk down 401k and this vehicle allows small employers to be able to set it up at very nominal costs. In most situations you’re looking at a match. Then the next question would come down to, David, do they want to put it in pre-taxed, or post-tax?
David Nelson:
And that sounds like a fairly simple decision. Yes, I want to take the deduction and get it today because I’ll take it out tomorrow when I’m in retirement and I’ll be in a lower bracket. That’s the theory. In reality, that doesn’t happen very often to very many people. Normally, the tax brackets are pretty comparable, or even sometimes, it’s actually greater.
David Nelson:
So we have these discussions with people and we do it through forums like this, on the radio, on TV. Our goal is to get out and educate as many people as we can about the need for saving, and then number two, how to go about it, what’s the best path, and we typically start from the employer perspective, the employer plan that they have.
David Baker:
So someone in their 20s for example, looking at 35 to 40 years to retirement age, could potentially be looking at a higher tax bracket if they’re doing this.
David Nelson:
Yeah.
David Baker:
You know, they’re basically not paying the tax upfront. So a Roth product or something like that.
David Nelson:
Correct.
David Baker:
Where you do pay everything in advance.
David Nelson:
Exactly.
David Baker:
So it’s your money.
David Nelson:
Yes.
David Baker:
When you’re 59 and a half, you can start drawing on that Roth IRA. That’s something an individual can do, of course.
David Nelson:
Correct.
David Baker:
And there are a lot of financial institutions that allow you to walk in there and say, “I want to do something.”
David Baker:
What’s the minimum somebody could do, could they do 10 or $15 a month or is that just, not worth the time of the individual, or maybe have it grow later, is there a minimum?
David Nelson:
Terrific question, and it depends on the particular company. Through your retirement plan, the answer is, that would be very doable. Almost every 401k plan, simple plan, there are no minimums so you could put in whatever.
David Nelson:
Again, start slow. This is the problem with most people, “I just don’t have any money,” and we typically respond, “One less pizza, one less Coke, one less this, one less that. It’ll add up over a period of time.” Doesn’t seem like it. The other secret to it, David, is that when it goes into the plan, you forget about it, because the problem is, once it goes into the plan, some of us, “Oh, I got this crisis and I’m going to need to take some that money out. I know there are penalties, but I still need it,” and what we try to get people to understand, is all of us have crises. Figure it out some other way so that that money has a headstart, it’s able to grow, and you’ll be stunned down the road, how much money might be in there.
David Nelson:
So, I guess to wrap it up I would say, through the plan, probably no minimums.
David Baker:
Mm-hmm (affirmative).
David Nelson:
As far as you get outside the plan, 25 a month, 50 a month, is probably going to be the low end, that most of the companies are going to be looking at, that they would accept from whatever investment firm that’s out there.
David Baker:
Okay. Well, there’s also another end of the spectrum. Some people have done very well in their lives and they’ve also inherited from an aunt or an uncle, or parents, grandparents, godparents, a sizable amount of money.
David Nelson:
Sure.
David Baker:
And they’re sitting on that right now and then they’re looking at, what do I do with this? When I pass away, does it go to my heirs to be spent however? Does it go to some other charity? There is the charitable gift annuity, which is not a brand new topic.
David Nelson:
Correct.
David Baker:
It’s been around for a little while, but there is a way to make that work for an individual, as I understand, and we’ve had some speakers come here, you brought some people in to talk about that.
David Nelson:
Sure.
David Baker:
Not just because you come to Saint Ambrose, because Saint Ambrose might be one of the one of the recipients.
David Nelson:
Sure.
David Baker:
But, there are other nonprofits that could be, so any bonafide nonprofit could be a recipient, but, how does a charitable gift annuity work?
David Nelson:
So charitable gift annuity is a really interesting vehicle. As you say, they’ve been around for decades and large organizations, non-for-profits, have been essentially offering these type of vehicles to individuals for a long time. Smaller shops, smaller charities can tie into, like locally here, we’ve got the community foundation. Most towns are going to have some a variation of a local foundation, many of which offer these type of vehicles. I could walk into the community foundation over in Bettendorf and say, hey, I’ve got this $20,000; this $50,000; that I’m contemplating doing one of these gift annuities.
David Nelson:
What do they offer me? Well, the rate of return that you can get today from those type of vehicles is probably double, if not triple, what you can get in a money market CD type investment, maybe even greater. Depending on your age, you may be looking at anywhere from three and a half percent to upwards of six, seven percent. The older you are, the higher the payout, so you get a nice cashflow from it. You also get a nice tax deduction because you’re a generous, kind person. I, the IRS, bless this thing and I’ll allow you to get a nice deduction.
David Baker:
Right.
David Nelson:
On top of that, that nice cashflow that you’re getting is going to have a tax-favored treatment attached to that as well. In other words, a good percentage of it is going to be defined as return of basis, which is a very fancy way of saying it’s going to be tax-free. So when we wrap this stuff all together, that’s a really nice investment.
David Nelson:
Now the catch, if there is a catch, and again, I want to qualify that, the catch is that when you pass away, or if you’re married, and you have a gift annuity that’s for two people, when you both pass away it’s going to go to charity or charities that you care about. Most situations, people have some organization that they’re attached to. It may be church, it may be a university, it may be a lot of different things, but bottom line that money’s going to go that direction.
David Nelson:
So when we look at this thing, did it really cost me anything to give money to charity, because I got a deduction upfront, a really nice fat deduction upfront, I got great cashflow, far better than I could have gotten in other instruments. Oh and again, a good percentage of it is tax-free. On top of that, I got that warm fuzzy feeling, and this is where typically the 20 and 30 year old don’t understand this, but 40, 50, 60, 70 year old people get it. They’ve been blessed, they want to make a difference, they can make a difference and these gift annuities are a real powerful instrument that can allow you to get the benefits during your lifetime and then after you’re gone, whatever’s remaining in those buckets, that money that went in there that wasn’t paid out to you, goes to the non-for-profits so that they can use it to make a difference in what they do, helping out a lot of people on the backside of that transaction.
David Baker:
You know, dovetailing off of that, NelsonCorp has done a lot of things to help nonprofits, and I met pastor Ray Jimenez [crosstalk 00:12:19] through you, and pastor Ray was on K A L A this fall, talking about his Thanksgiving fundraiser. But I know that you’ve worked with him before.
David Nelson:
Sure.
David Baker:
To bring him in to Saint Ambrose, we had Ed Slott speak.
David Nelson:
Yes, yes.
David Baker:
The nationally known financial speaker, the financial guru, Ed Slott spoke, and I got to meet Ray. And learning from Ray, just how important the work he does in Clinton, and then, I find out that you guys are sponsoring a bunch of other nonprofit events.
David Nelson:
Yep.
David Baker:
That’s really not required, of course. I mean it is that warm, fuzzy feeling of giving back and helping.
David Nelson:
It is.
David Baker:
So, tell me about a couple of the things that you guys have been sponsoring or involved in.
David Nelson:
Sure. I’ll just back up briefly and give a little bit of back background. I’m a big believer of, to whom much has been given, much is expected. So, this is part of it. I was very blessed 30 plus years ago, I was able to go down to the Carolinas and spend some time with some really smart people, and these people were talking about these new concepts called gift annuities and charitable trust and things of this nature. They’re being used by very wealthy people, that I believe have really smart people working for them, and they too are very smart, and they realize that by positioning assets in certain manners, you can have your cake and eat it too.
David Nelson:
So the goal has been since that day, to try to educate smaller organizations that don’t have the firepower that the big non-for-profits have, but they need this type of support. When Yale and Harvard run campaigns, they run it from multimillions. Most charities are hoping to get 10 grand here and there and a hundred grand here and there. So what we want to do is to take this knowledge and to make it available to the small non-for-profits.
David Nelson:
So we’ve done a lot. I’ve got one actually, coming up Friday, for the public school system in Clinton. We’ve got 24 people that are signed up to come to this thing. We’re going to have a nice little meal that’s going to be prepared by the culinary school at Clinton High School.
David Baker:
Oh, okay.
David Nelson:
They’re going to sit, they’re going to enjoy a nice meal, then I’m going to come on for roughly 40 minutes and I’m going to talk about how they can improve their life, these are retired school teachers, the bulk of them, and how they can make a difference. As we explain to people all the time, we ask them a very simple question and the question is this, if there was a legal way that you could basically redirect dollars from the IRS and give them to a charity or charities that you care about, would you have an interest? Now keep in mind, this is money you can’t keep. It’s either going to go to the IRS or it’s going to go to a charity that you care about. Where would you rather go?
David Nelson:
David, to my amazement, nobody’s ever said the IRS.
David Baker:
The poor IRS.
David Nelson:
Yeah, exactly. So it’s great and what we’ve been able to do, through that, is to open people’s minds because most people don’t view it that way, that they have a choice. When they understand the tax law, you really do have a choice, and the key is to understand you have it, and then how do we go about creating this type of situation that’s going to make, not only their life better, but also the non-for-profits’ life better.
David Nelson:
And I’ll go back to the warm fuzzy feeling, how good does it feel, when you can make a difference and you can see that kid that you helped sponsor, that was able to go to school or what have you. It’s just this real turn on and we’re excited always to be part of that. We do many of these a year and we’re hoping that it makes a difference. We believe that it is and we’re hearing from the charities that it is and that’s exciting for us.
David Baker:
It’s interesting because that’s part of your work too.
David Nelson:
It is.
David Baker:
You’re actually out here helping nonprofits.
David Nelson:
Exactly.
David Baker:
In kind of a roundabout way, but you really are.
David Nelson:
Yes.
David Baker:
But you’re helping also educate a whole lot of people who didn’t know that they could do something like this, and, you don’t have to allocate all of your savings, you could do just a portion.
David Nelson:
Good point. A lot of times what happens is people start small. They’ll say, well, okay, I’ll give it a try. I have 10 grand I want to do something with or 20 grand I’ll do something with. Then they get the feel for it and they understand, and in a world that we’re in right now, David, with interest rates as low as they are, if a person could pick up three, four, five, six percent interest, guaranteed for the rest of their life, that’s pretty powerful stuff. That’s what these gift annuities do.
David Nelson:
I don’t want to sound like a broken record. It’s one instrument that people can use, but for the typical person out there, that’s a fairly cautious investor, these are an outstanding instrument. And, understanding tax law today, are your donations that you make to charity, deductible anymore? With the change in the tax law, for many people, they’re not.
David Baker:
Mm-hmm (affirmative).
David Nelson:
So with these instruments, we’re basically able to package things in such a way that we drive up the amount of their deduction, that now makes it deductible, and that too is a very exciting thing when people understand that.
David Baker:
You’ve got a lot of great people on your team. If people do want to contact you, if they’ve got a question, because we’ve covered a lot of territory today, is there a phone number or email or website?
David Nelson:
Yes, there is. NelsonCorp wealth management.com is probably one path to go. As far as the phone, I’m an old fashioned guy, I like the phone. That would be 800, 2-4-8, 9-0-4-2. We’ve got an office, as you mentioned. My hub is Clinton, that’s where we started 37, 38 years ago. We have an office down here over by the cinemas in Davenport, soon to be on Utica, just next to Hy-Vee on 53rd over there. We hope to be breaking ground on that come, give or take, March? And then we have an office up in Dubuque as well, that’s the local offices that we work out of.
David Nelson:
In addition, we have branch offices that we oversee, and we help those folks operate their business day to day. That’s from Honolulu to North of Chicago and several in between, Des Moines, Kansas.
David Nelson:
We’re an operation that basically has a lot of really skilled individuals, and those individuals can help people make better financial decisions for themselves and at the end of the day, feel really good about it because many of the times we’re incorporating some type of charitable giving to some charity that you care about, that really, you get excited about.
David Nelson:
And again, we’ll show you ways how to do that and not take so much money out of your pocket by doing it, redirecting some dollars from the IRS.
David Baker:
Well, David Nelson as always, it’s great to have you here. I learn something new [crosstalk 00:19:24] every time and I actually feel better talking to you. It’s a good feeling because I know you’re doing good work.
David Nelson:
Thank you.
David Baker:
And we appreciate it. Please keep us up to date [crosstalk 00:19:34] with what’s coming up, we’re excited about the groundbreaking [crosstalk 00:19:37] your new facility.
David Nelson:
Thank you. Yes.
David Baker:
We’ll be there for that.
David Nelson:
Sounds great.
David Baker:
David Nelson, we want to thank you for being with us on K A L A from NelsonCorp Wealth Management.
David Nelson:
Thank you David.