Episode Transcript
[00:00:00] Speaker A: Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation or needs and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.
Welcome to Reyna Retirement Reyna Reyes has dedicated her career to helping people make smarter financial decisions. Reyna Retirement is all about breaking down complex financial concepts into language you can actually understand.
Now here's the co founder of American Federal Benefits Consultants, Reyna Reyes.
[00:00:39] Speaker B: For whatever reason, the song my daughter grew up singing goes like this. There were 10 in the bed and the other one said roll over, roll over. Well that's not the kind of rollover we're going to be talking about today. But now that song will be stuck in your head for the rest of the day. I am counting on it. And you're wondering how does rollover affect me? Well, you probably know what I'm talking about. If you have a TSB 401K5, 403B5, 529 plan, all kinds of things, that's a bucket of money that has never been taxed that you want to put in another bucket with the same tax qualification that it currently has. What does that mean? I have a bucket of money. Uncle Sam hasn't touched it yet and he's itching to touch it. So whenever it goes to another location, Uncle Sam has to know about it. You get what they call a 1099 R. That means rolled over or replaced or relocated and Uncle Sam follows it. Why? What are the letters? Rmd. And Uncle Sam is waiting to tax you and me at our rmb. And all that means is he needs to know where this bucket of money is because he wants to tax us when you reach that certain age and he's going to make you take out a little bit every year to tax you because he's waited all this time. Well, this idea of a rollover is, hey, for whatever reason, I'm not totally cool with 100% of my money being where it currently is.
And that could be for a host of reasons. You've heard me, you've heard a lot of other people talk about goods and bads of every financial vehicle. And I think there is some people say yin and yang and that's fine too. There's a little bit of good in a lot of these plans and then they all have some type of holdup or restriction or irritation that's going to bother you. It does this but it doesn't do that. It does this, but it doesn't do that. Just like when you're getting a regular vehicle, it does that, but it doesn't do that. Dog gone it. My sedan has low gas mileage, but it won't pull the boat right. Or my van can carry everybody in the family, but it doesn't look so cool. So all different things have a lot of value, but then there's always something restricting us. We've talked about TSP in how it has a value, but it also has some other limitations. And so many people say, I'm going to put a portion, probably not all, a portion of my money in something else.
And in order to do that, you need to understand what is and is not being taxed. So let's take a look at this happy little image I made for you. And that's you in the center. And you say, what do I do with all this money? Well, you've got your bucket on the left. Say tsp. Well, it's my left. Not sure if it's your left. Right. That could be a whole conversation. But the one on that guy's left, correction, his right. Stage right, ladies and gentlemen.
So he has his TSP and he wants to put the money somewhere else. In this example, an ira. Well, let's define this ira. I've given this example of different financial vehicles, like buying a car. Well, if you say to your buddy, hey, I'm going to go buy a car, they say, okay, which one are you going to get? What are you looking for? Specifically?
New car purchase, we get. But what are you looking for? Same thing with an ira. IRA is just an independent retirement account, individual retirement account. But what's the actual financial vehicle? It could be a vast array of different options, whether that's stocks, bonds, mutual funds, municipal bonds, fixed accounts, CDs, fixed index annuities, indexed annuities, variable annuities, fixed annuities. There's a ton of different places money can go, and that's going to depend on what your purpose is for moving the money. So what you need to understand, though, in terms of taxes, is that a rollover goes over your head. That's the definition of it. It does not tax you. A rollover doth not tax me. And so it's just left pocket, right pocket. It goes from one source to the other, and it does not tax you. That's when you get the 1099 R, as in relocated, rolled over.
And it still hasn't been taxed. It's just in another location. So Uncle Sam knows when he. You turn 70, whatever, 73 or 75 depending, and that could change again in the future, that that's where the money is. That's where he's going to call it in.
So you're not taxed until you grab it out and put it in your purse or your bank or your spouse's purse. Wherever this money's going to, once you take it out and it remains in the bank, that's when Uncle Sam gets his tax. And that's what he's waiting to do when you get old enough so he can force that required minimum distribution. So what's interesting about this too is you say, okay, well, I can put it anywhere. Well, some people say my IRA needs to guarantee me a lifetime income. And we can do that. I'm the queen of that. Holy cow, call me for that.
Some people say, no, no, I want to move a portion over to an IRA to be my long term sort of safety net.
The G Fund in tsp, it's safe, but I'd rather get a better average return and consider something like that. Hey, call me for that too.
Somebody says, hey, I'm going to move my money to be very, very risky and aggressive. Well, that's not me. I'm not that person. I don't do risk at all.
But remember what you have in TSP already, you have the CSNI funds, which, oddly enough, almost spell the word casino, which is a high risk location in terms of direct stocks and the ability to be very, very aggressive. So look at the CSNI history. If you're looking at going very aggressive, remember that the TSP is very inexpensive for the stocks and, you know, aggression. You've got the risk involved there, which a lot of my retirees do not love. But it does have the ability to have potentially high earnings.
So a lot of people will just peel off something like what they would have in their G into something like what I would propose kind of that, that real, safe, but also indexed option. And we like to get the best of both worlds. That's always my goal. But I want you to first understand you're not paying tax on a rollover as long as it goes into a traditional ira. Somebody keeps asking me about Roth. I was like, oh, is that a Roth? Is that a Roth? Well, no, absolutely not. You would not move, say $200,000 or $500,000 or even 100 into a Roth because you're going to pay tax on that straight away in order to move it from traditional into Roth. So a Roth conversion can be really good but it doth tax you.
So we love to do them, but we got to watch what we're doing, when we're doing it, and why we're doing that. So if you have Roth questions, reach out to me. We can get that answered for you and potentially even help you take action on some of those conversions to start getting an account that grows but will never be taxed when you actually take that distribution down the road at an older age. But regular traditional stuff, a lot of people are really considering this Postal just had a vera had an early out. We had a lot of federal employees just taking the DRPs and exiting much earlier in age than is the norm and this option is huge for you. Let's get together, let's talk, let's see what the options are, what makes the most sense and how we can best help you to take action in the way you want. That can not only potentially save you money, save you tax, but also be a great, great tax advantage down the road. Well, we'll look forward to seeing with you soon and we'll get you retired the right way the first time.
[00:08:23] Speaker A: Thanks for listening to Reyna Retirement. With a strong commitment to ethical standards, Reyna works hard to find the right solution for each individual or family who reaches out for advice. To contact Reyna directly, call 850-450-6500. That's 850-450-6500. Or to reach the team at American Federal Benefits Consultants, call 1-800-872-8857. That's 1-800-872- 8857. You can also go online to AmericanFederal.org not affiliated with the United States Government. Opinions expressed are subject to change without notice. These opinions are not intended as investment advice, nor do they predict future performance of any product. All information provided is believed to be from reliable sources. However, we make no representation or warranty as to the accuracy of any statement. The information is intended to to be educational in nature and does not provide a guarantee or specific result. All copyrights and trademarks are the property of their respective owners. American Federal Benefits Consultants is an independent organization, not a government agency or affiliated with the federal government or any state government. The terms CSRS, FERS, FEGLI and FEHB are all registered trademarks of the U.S. office of Personnel Management. American Federal Benefits Consultants, agents, consultants, or any independent contractors do not provide tax, legal, legal or investment advice and do not engage in the solicitation or sale of securities. Consult with your tax advisor or attorney regarding specific situations.
