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. Raina 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.
[00:00:40] Speaker B: Oh, everybody's talking about the new sound funny, but it's still a Roth or traditional to me. So there's your Billy Joel nod for today, but you've got traditional options or you have Roth options within TSP and you can go ahead and get rid of the tax, handle the tax and check it off, or you can say, nope, I do not want to pay tax right now. I want to reduce my taxable income as I'm working.
So to Roth or not to Roth? That is the question.
You don't have to just do one or the other. Remember, you have a threshold of contribution that if you do reach the maximum, that is even if you're doing catch up. Right. So right now the maximum is like, I don't know, 25 something thousand. Don't quote me. They change every year and I just haven't memorized it. But 25,000 ish, right? Plus the Roth contribute or the catch up of like 32 and some change or something. But if you're there or you're close to it, why am I doing what I'm doing? That's the only thing I would ask you to know. Because what if you, you just want to know what you're doing and why. So, okay, let's say I make $150,000 a year.
I may want the traditional to bring me down, potentially bring me down a notch in taxes. Could it bring me down to another tax rate? It depends. Single, married, what am I doing?
So that's a factor. There's also the other side of it to say, yeah, but taxes are inevitable. The Piper is going to get paid. I want to maybe go ahead and start at least a small bucket of money that has already been taxed.
So that way, when I'm older and Uncle Sam calls it in, I have some that I've already checked off that I don't have to pay tax on. When I take money out, I can tell you it is a very nice gift you give yourself in your later years. To say, oh, look, I can pull from this one and Uncle Sam can't touch it. But this other one, of course, Uncle Sam, he gets the first sip of my coffee. He gets that first percentage as a withholding. But handling taxes upfront can be a benefit because you're able to use time to your advantage the younger you are. A lot of people say the younger you are, you should contribute to the Roth. I'm an advocate for that. I'm a great advocate for the Roth. Because you can take time. When you've got a lot of time, you don't need a lot of money. You can use that tick tock time interest rates that are going to grow in your, say, TSP or your Roth IRA and use them to your advantage so you can actually earn interest and have. Because it's only the interest in the Roth that does not get taxed later. You already pay tax on the money going in.
But the other side of that is, oh, but Raina, I need to reduce my taxes. That's the teeter totter we walk. And sometimes you want to do both. Get the tax deduction or tax, you know, reduce your taxes, but then also pay tax on a portion to start building that accumulation of tax free money. And remember, I know a gentleman that wrote a book called Taxes Are on Sale, and it's specific to how low our highest tax threshold is right now. If we go back to the Reagan years and things like that, the highest tax threshold was in the 90s. Like, that's why Reagan didn't do a certain amount of movies in a year, because he did not want to reach that high tax threshold. He's like, why would I work to make 10% of my money and give, you know, the irs the other 90? That doesn't make any sense. Why would I do that?
So we just didn't. Now our highest tax threshold is under 40%, which is a significant difference. So knowing that and that gives you a little bit of a paradigm, maybe perspective to say, okay, yeah, I want to save on taxes, but how bad could it get? How bad has it been? Could history repeat itself? Absolutely. But I don't want to get too dark and deep, but you see things that you want to consider.
That's one of the big reasons I'm an advocate for at least having a Roth and contributing to it, whether it's a little bit or a lot. And maybe you increase that as time goes by. That way you do have a place that is all yours that will not be RMD later. Reach out. We can help you make sense of this. My number here, 850-450-6500. And it's not just me. I've got an entire team ready to chat with you and if we want to get together face to face, we definitely can. We do workshops across the nation to explain this, to make sense of it in a way that you can understand, and we'll talk to you soon.
[00:05:05] 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 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, FELI, 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 or investment advice and do not engage in the solicitation or sale of securities. Consult with your tax advisor or attorney regarding specific situations.
