Good afternoon everyone. Like to welcome you to our presentation today on how to get rollover ready. I got 12 o’clock here. I’m just going to give it another minute or so. Let other folks have a chance to join in and connect to the audio. Just kind of watching the attendance. It looks like we have some uh people connected already. I’m just going to do a systems check here. Just want to see if anybody could respond in the uh chat feature. But uh just let me know if you could hear me. Okay. if you could see the uh presentation. Okay. Yeah, if there’s any technical difficulties, I’ll try to get those adjusted and we’ll get started here in just a moment. Okay, I think we’re in good shape. It looks like everybody’s had a chance to uh to join in here. So, I’d like to get started. Just about 1201, but introduce myself here. My name is Tom Davia. I’m a financial consultant at Alliant Credit Union. Our department is called Alliant uh Retirement and Investment Services. And today’s presentation, we’re going to be talking about how to get rollover ready. So, we’re going to be talking about rollover options in and we call them qualified retirement plans, but your 401k plans, 457, 453, any retirement plan like that. We’ll talk about some uh rollover options. As all of our presentations, we ask that you do not record, reproduce, or distribute any part of this presentation. And uh questions come up quite a bit. We don’t record these presentations, but if you do have questions, I’m happy to go over that with you as well. Uh this is a kind of a scheduling of our upcoming webinars. So, um I myself I run a uh every other Wednesday schedule, but if you’d like to see the complete list of all our webinars, uh we have webinars. I’m the co-host of the uh financial podcast here for the credit union as well and we have a blog available on financial topics. But uh basically it’s the alliancreditun.com/events
for the webinar schedule/mpodcast for my podcast series or blog for the blog information. I know that’s a very long uh website address. I don’t expect you to memorize nor write all that down. The simple way, if you’re interested in more information, you could let me know. Or if you go to the credit union website, there’s a button on the top that says uh investments. It’ll take you to our landing page at the credit union. And then right at the top here, it’ll have the schedule for webinars, podcast, and blog there as well. So, you can access all that information on the credit union website. But again, we are a uh investment services arm of the credit union. I always say we’re the best kept secret here at the credit union. So, not many members know we exist. So that’s why we do these presentations and put the podcast together to let you know that we do have a fullervice financial firm at the credit union, no cost uh service to members of Alliant and uh we are a fiduciary firm as well. So that comes up uh quite a bit as well. But I’m uh just sharing a sample of a financial plan. So I’m a certified financial planner. We do full financial planning. We uh talk about investments here. I’m a registered investment adviser and uh pretty much uh everything in between on the investment front. But uh with a financial plan, this is a sample output and I’m going to be referring back to this a little bit today. We’ll come back to some of the outputs and the financial plan to explain these rollover opportunities for you as well. But basically to put together a financial plan, again, it’s part of the service here at the credit union. But we sit down with you, we have a conversation about your situation, your goals, gather some basic information from you that’ll allow us to create this comprehensive financial plan. Basically, we’re looking at ways of reducing taxes, fighting inflation, creating more income from your nest egg, deal with raising rising volatility in the market. make sure your portfolios are positioned correctly and also talk about rising health care costs in retirement as well. So, just a service again that not many people are aware of that we offer here. Uh, only 36% of Americans have a written financial plan. Again, I can’t do this for everybody at the credit union. We have something like 900,000 members, but just want to let you know that we’re here as a resource for you. whether it’s talking about uh the rollovers today or whether it’s working on a financial plan. It’s a couple bullet points on a financial plan. Uh we do this to give you a clear picture of where you are today and where you want to go. A financial plan will help you make sure your investments, retirement account, taxes, insurance, estate planning, everything is working together. This financial plan will help you identify potential gaps and opportunities that you may not have known about or have been overlooked and help you determine if you’re on track for retirement and which accounts to withdraw from in a taxefficient manner as well. And of course, today’s topics are rollovers. A financial plan will help provide a framework of making an important decision like today’s topic of the rollover opportunity for you. And once you have a financial plan in place, it’s an ongoing conversation. It can be reviewed and adjusted as your life change, markets change, and your goals change as well. So, let you know that service is available to you, and we could talk to you about that. So, we are back on track, right? We’re going to be talking about rollovers today. We’re getting rollover ready. So, there’s a lot of uh information to know here. Can be tricky sometimes. So, we’re going to talk about all the different options available to you on the rollover. I would mention too that if you do have any questions, if anything comes up, uh, feel free to use that chat feature as I’m giving the presentation, kind of talking through this that comes to mind, put your question in there. I’ll get to the questions at the, uh, end of the presentation. I’ll take a look at the chat feature. I’ll also take a look at the Q&A feature of Zoom as well. So, if anything comes to mind, uh, make sure you put it in there. We used to do these seminars in person a long time ago and we’d stop and raise our hands. So this is the next best thing. So we’ll do questions at the end. But uh first slide right rollover challenge. I always say the challenge it’s pretty easy. We call the accumulation phase and then the distribution phase while you’re working and saving. That’s your accumulation phase. I always kind of call that the easy one just because you’re making contributions to these qualified plans that we’re talking about today. Maybe for most people it’s a 401k plan. Money’s coming out of your check every two weeks. So, you’re a good investor, right? You’re buying when the market goes down. You’re kind of disciplined with your purchases. Market goes down, you’re actually buying on the dip. Market goes up, your accounts are appreciating. And maybe you have a certain goal set in mind. Now, that goal for people are are are different goals, right? Maybe it was to get the 401k to a certain dollar amount. Maybe it was $500,000, a million dollars. you could see that value on the horizon or you reach that value. But times change when you go into the next phase of life which is the distribution phase. Distribution phase kind of goes in handinand with our topic today of rollovers. But now instead of just saving every two weeks and market has been performing great the last four years, now you have to worry about maybe living as long in retirement as you did [laughter] after retirement as you did working. So, we have to make sure we’re addressing longevity with these rollovers and these distributions. It’s always in the news. We’re talking about uh rising prices, inflation. So, we want to make sure that the rollover that the investments are addressing long uh inflation, longevity, tax concerns, search charges on tax concerns, beneficiaries. So, there’s more things that we look at in the distribution phase. That’s kind of why they put a little bit of a puzzle here. Lots of different things to consider for the setup for this presentation. I think it’s important to go over the rules. Uh fiduciary rules. Fiduciary rules mean right always uh acting in what’s your best interest to accomplish these rollovers to accomplish the investments or the uh distributions as well. But another way I look at these rules uh just kind of a milestone in time in retirement. Just like to walk through this just to let you know these are important issues, important ages, just some information you need to be aware of. If you caught my presentation two weeks ago, we spent a good amount of time talking about age 50 and the catch-up contributions and the power behind those. Usually at age 50, theory is maybe the house is paid off, maybe our kids are in college or out of college, and now is really a time to focus on yourself. So, if you haven’t been doing that, uh, you want to make sure you’re taking advantage of those catch-up contributions. If you’re not exactly sure what that is, contact me. I’ll go over that with you. There was some rule changes in 2026 that affected these ketchup contributions, so we could talk about that. This will come up a little bit later in the presentation as well, but at age 55, if you’re in a 401k account, you can take a penaltyfree withdrawal at 55 if your money is still in the 401k account and you’re over age 55. If you’ve left the company, that is age 55. Everybody else has to wait till age 59 and a half to take a penalty-free withdrawal from their retirement plan. Whether it be a 401k qualified retirement plan, whether it be an IRA account once you’re over 59 and a half, no more, excuse me, no more penalties. There’s also something that comes up at 59 a 12 that is kind of uh appropriate to our conversation today, but there’s also something called the inservice rollover. you are able to accomplish our topic today, the rollover, if you’re still working, if you’re age 59 and a half or older, if you want to implement funds into your financial plan and start your planning early, it’s just the IRS being nice to you and saying retirement is on the horizon. You don’t have to wait till you completely retire. There is something called the inservice uh rollover at 59 and a half. At age 60, we’re going to get into uh social security benefits. The absolute earliest conversation on social security is for a surviving spouse. Surviving spouse can start benefits at age 60. For everybody else, uh benefits can start at 62. It’s a bigger conversation swirling around that. If you do start at 62, we should probably talk about that a bit, but uh social security will be tiered 62. Full retirement age for most people is probably right around age 67. And then right in the middle of all that is Medicare eligibility. Medicare eligibility at 65. There’s different periods to sign up. So you want to make sure you understand those three different periods. Make sure you’re not missing your Medicare eligibility at age 65. And then age 70. That’s going to be the maximum for what they call the deferred credits on social security. So, if anybody out there is over age 70, if they have not started their Social Security, I would almost pause this presentation and go file for your benefits right now because you’re missing out. But you can maximize benefits all the way up to age 70 on Social Security. And then finally, uh we talk about required distributions. Required distributions are really determined by the year 1960. If you were born before 1960, your required distribution starts at age 73. 1960 and later, they’ve just increased this to age 65 with the Secure Act 2.0. So, again, 1960 line in the sand. Uh, if you’re 1960 and later, it would be age 75. Getting back on track to rollovers, right, off of our milestone list. So, what we’re going to talk about here is number one, we’re going to do a rollover, but you want to determine first what you want to do with your retirement plan savings. Again, retirement plans, call them retirement plans, qualified retirement plans. Uh we’ll just use this as a general term. 401ks, 403bs, 457, any kind of a like employer sponsored plan. So, we want to determine what you want to have happen with these plans. You want to choose a distribution option. And this is kind of our agenda. We’re going to go through each one of these uh points. We’re going to review the sources of funds within the plan and potentially consolidation in there. We’re going to look at some advanced planning techniques. We’re going to look at actually performing a rollover. And we’re going to uh look out for some common mistakes or complications that happen with the rollovers as well. So again, as I’m going through this, anything that pops up, please feel free to uh put it in the chat feature. But the first thing that we’re going to talk about is what do I do with the money in my retirement plan. So the first goal is determining where this funds are are ultimately going to go. Uh you may find yourself in a situation where you did your proper planning for retirement. You have fixed income sources. You have social security. Maybe a pension. Maybe some rental income. Other sources of income. Maybe the account value in the retirement plan has reached such a level that you don’t envision yourself spending this money. So, we’re going to talk about leaving an inheritance using the plan for leaving money to the next generation. So, that could be one option for you. Next option could be as we go through that financial plan, maybe social security and a pension just isn’t enough. Maybe you need a little bit extra from your retirement account savings to pay for living expenses. So with living expenses, if that’s part of it, again, we need to determine what the appropriate withdrawal is and what the appropriate withdrawal strategy is. So strategy could be twofold. Number one, it could be what is the most taxefficient way to uh withdraw money from my accounts using in consideration both your retirement accounts and the non-retirement accounts and possibly some tax-free money in a Roth account. So what’s the best uh option here for living expenses tax efficiently? Now the other way to look at this is investment wise. How do I need to structure my investments to provide me an income stream? What is an acceptable income stream where I wouldn’t project that I would run out of money. So all things to consider on living expenses as well. Next option uh leaving money to charity. And I have another slide on this a little bit deeper in the presentation talking about charity. So if you find yourself in charitably inclined, if this is one of your ultimate goals, we’ll talk about this as well, but this would be one of the determinations of what you want to use with these retirement plan funds. giving to a charity. There’s two ways to do it really, and we’ll go over this, but you could do some distributions while you’re alive, do a charitable distribution from your retirement account, or you can also some clients will name a beneficiary as a charity as well. So, that would be another option for you. And here we also have uh cash out, right? So cash out. I think you know years ago if you watched any of the commercials on retirement, we are all supposed to buy a vineyard or a second house or in this situation a yacht. So if there is some retirement savings that is kind of earmarked for a large purchase, you just need to determine what the tax consequences are going to be for something like that. because if it is a large distribution, you just need to make sure you’re not incurring any additional taxation or sir charges from say Medicare by doing something like that. But once you have that determined, say you might fall in a couple different categories. Some of this money may go to the kids. Some of the money may go to the yacht. Some of the money may be living expenses. But you may find yourself not fully understanding how much or when or which accounts are going to which sources when you’re deciding where these funds will go. I’m just going to default back to the simple cash flow overview on a financial plan. But this will help really determine maybe the last side, right? may be beneficiaries. How much money is left over in your financial plan after we take into consideration, say, healthcare expenses, possible long-term care scenarios, taking care of yourself first with your income needs. In this example, there was $2.1 million left over to the beneficiaries. We would say, “All right, everything is satisfied as far as living expenses. what is the most taxefficient way to get this projected asset portfolio base to the beneficiaries. So really a financial plan can help you determine how much may be available to give to charities, how much you need to live on and what sources to take, how much is also left to the beneficiaries in the proper way to plan for each. So number one, uh we took care of that, right? What we want to have happen with the funds. Number two, we’re going to talk about distribution options. So, we’re going back distribution option. It’s a qualified plan. It’s a 401k plan. You do have a couple options, right? Options really fall into these three categories. Number one, your option could be to do a rollover to a IRA, an individual retirement account, an IRA. So, you do a rollover, you roll over your funds, it’s not taxable, it goes into an IRA, which is also tax deferred. If you have Roth funds at the 401k, it would go Roth IRA. If you have pre-tax money in the 401k, it goes to a traditional pre-tax IRA. And we’ll talk about this as well, but once you’re in an IRA, the investment world really kind of opens up to you. So many different choices on a rollover option, and that’s kind of the focus of today as well. Um, option number two is cashing out. Maybe it’s that large purchase. Maybe it’s that second home, that yacht. Maybe it’s to help some family, but second option would be to cash out. Third option, do nothing option is an option. Leave the money within the company plan. So, we’re going to take a look at each one of these in a little more detail here. But the first one is the last one. The last one we talked about, right? Leaving the money in the employer plan. So, leaving the money behind. There’s pros and cons to everything. So, one of the cons is statistically somebody throughout their career may have 10 to 12 different jobs. So, you may have accumulated a lot of these 401k plans in the past. Maybe you don’t know how how they’re invested. Maybe you’ve lost track of them. Maybe you don’t know the beneficiaries, but leaving money in employer plan, right? Some of the pros, these plans may have lower fees than are available elsewhere. Uh potential for good investment choices. And that’s also one of the cons as well, the fewer investment choices. So, usually there’s a basket of six to 12 options and I kind [clears throat] of lump all those target date retirement funds into an option, but they don’t give you the complete world or universe of investing. They have a few pre-planned choices. So, could be a pro, could be a con in there as well. uh company stock. We’re going to touch on this in a few more slides, but if you do have company stock, and it’s highly appreciated, there’s some tax advantages inside the uh the plan as well. If you have the ability to purchase or if you’re being matched with company stock, that may be a uh a pro in the conversation. As well, as I mentioned earlier, if you’re 55 or older when you leave the plan, you have to be 55 when you leave the plan. you retire, separate from service, whatever the situation is, you would have the penalty-free withdrawals if you leave the money in the plan. These are shielded from creditors. We’ll talk about this as well. So is the IRA or the rollover IRA and the pro, right? Savings continue to grow tax deferred if it’s traditional pre-tax and it may be taxfree if it’s in the uh Roth portion in there as well. but leaving your money in the plan. Con, right? Fewer investment options. We talked about that. So many different choices outside of the plan. If you’re utilizing one of those IRA accounts, if you’ve left the company, right, you have no more contributions allowed. You’re not getting payroll every two weeks. So, they’re not taking money out of the account. So, generally not too big of a concern. This goes handinhand with no loans. So no loans. You’re again not being paid every two weeks. So they can’t take the loan payment out of the IRA. So no loans if you leave the employer plan. Uh if you are staying in the plan limited withdrawal options, they may restrict some of your withdrawals. They will also in a 401k plan if you do withdrawal, they will automatically withhold 20% for that withdrawal. So it doesn’t give you the ability to manage your own taxes. is they’re going to do a lot of that for you on there. They may limit transactions if you want to buy or sell some securities. Uh they may be limited securities and you may have a limitation on the number of times you can make a transaction. Uh limited beneficiary options again rolling over in an IRA much more beneficiary options, trust options, more creative ways to get the money to the next generation or create that legacy. So if we look at that, that is leaving money behind. Uh, number two, we’re going to talk about cashing out. So, if you cash out your plan, uh, good news is you get immediate access to all the funds. And cashing out is exactly what it means. You cash out, you get a check, you no longer have a retirement account. You now have a check in your name. So, you cash the whole thing out. And uh again, we’ll talk about this in a little bit, but company stock might have a a tax benefit to doing that if you have highly appreciated company stock that you work for. So, the pros, right, immediate access to the funds, maybe some tax savings. Uh the cons is it probably has been something that you’ve been saving for a long time. It probably has a substantial uh value to it. It is going to go through the marginal tax brackets pretty quickly because it’s all treated as ordinary income. The 22% bracket, 24% bracket, 35%, 37% bracket. So, that’s going to push you into higher and higher tax brackets where if you didn’t cash out and you systematically took withdrawals or systematically did Roth conversions, you may uh manage your tax brackets much more efficiently. Uh penalties may apply, right? If you’re under 59 and a half, if you’re not 55, you may have a penalty to do all this. And again, if you cash out, beware, mandatory 20% withholding from the account. So, we’ll talk about this a little bit more cuz there is a way to put money back if you’ve done this, but that 20% withholding goes right to the government. So, you would have to at least pay taxes on the 20% withholding. And then cashing out, it’s in your bank account. It’s in your investment account. So you lose the creditor protection that retirement accounts have been offering you over that time period. Third option is we’re going to talk about uh rolling over, right? So we’re going to roll over the qualified plan, the 401k with a retirement plan into a traditional IRA. More pros on the left side than cons on the right side. Pros, uh again we talked about this uh complete accessibility to any type of investment portfolio. Uh ETFs are index or exchangeraded funds, stocks, bonds, portfolios. We have investments with certain amounts of protection. We have the best access to the best money managers and the biggest risk management firms in the world as well. So much more access to some of those top money managers. You could work with a financial adviser and we would love it if you work with us here at Alliant Investment Services. But doing the rollover then can introduce some financial planning into the conversation and working through some of these tax situations or income distribution situations as well. Uh liquid and portable, right? It’s your account. It’s your IRA, individual retirement account. You can move it from firm to firm. You can move it from investment to investment as well. One thing I would stress is uh I do get the question where can I combine this with my spouse’s account? These are individual retirement accounts. So it would have to stay within your name individually with your spouse as the primary beneficiary. And we could do that vice versa on spouses as well. But the IRA rollover IAS, we do retain creditor protection. So that’s a pro for this conversation. uh beneficiaries may have the ability to stretch the benefits uh when they receive them over their life period over their lifetime. As my last presentation, we talked about the new beneficiary designations. The eligible designated beneficiary can stretch over life. You could have trust designations. You could have so many options within the IRA account that may not be available within the 401k beneficiary or legacy planning as well. flexibility, ease, and use of converting money to a Roth. We’ll talk about the Roth a little bit more in a few slides, but I do presentations on Roth conversions. It’s going to be uh become wildly popular on my conversations in the fourth quarter where everybody kind of procrastinates till the end of the year. But [snorts] within the traditional IRA, it’s very easy just to determine the appropriate amount for this year and then quickly do a conversion. Sometimes the previous employer’s plan, they don’t do it, they don’t allow it, they get backlogged in December, they can’t accomplish it, and they don’t really help you with the tax brackets or the tax planning to do one of these conversions as well. Mentioned before, right? Consolidating accounts. So, this one takes it a little bit step further. Uh, consolidating accounts, not only retirement accounts, maybe you have a few different IRA accounts, maybe you have a few different 401ks. kind of consolidating, making sure you can see them in one statement, in one place, one login view, but also working with us at the credit union, you can also link together and see your non-retirement accounts. You can see your brokerage accounts, your investment accounts kind of consolidated on one statement, so you always know where you sit and what your position is. So, we’re talking about rolling right into roll over into the traditional IRA. uh potentially higher trading costs uh depending on what the 401k offer. 401k may limit some of this, but uh there might be some cost. We completely disclose any cost to you as a fiduciary firm. Um you’re in an IRA. Again, there’s no loans allowed. They don’t have loan provisions. They don’t have the ability to withhold from your payroll. So, a individual retirement account cannot offer a loan. Mandatory distributions, right? the required minimum distribution either at age 73 or if you’re born after 1960, age 75. This is really applicable to leaving the money behind or bringing it into an IRA. You’re going to have a required distribution. If you’re still working, if you’re working past age 73, if that’s your number, if you’re working past age 75, kind of few and far between. But if you’re still working and the money is still in the 401k, you are not subject to the required distribution. And once you leave or once you stop working, then you have to take the required distribution. So that may be a benefit or a consideration to leaving the money behind if you’re still working. and uh again rolled over company stock taxed as ordinary income. So there’s a little tax advantage to that as well, but uh we’ll go over that just it’s actually a tax saving, so not a a big con. So uh right, there was three there. This is kind of a uh fourth one or a part 3B, if you will, on rolling over to a traditional IRA. This is a Roth IRA. So Roth IRA, if you have a Roth, you have after tax dollars in the Roth. It has the Roth designation. So the Roth is receiving taxfree compounding. So assets, your base, you’ve already paid taxes on it. Your bases, your earnings are growing tax-free. They’re never taxed again. No mandatory distributions, no required distributions at age 73 or 75. and no taxation to your beneficiaries. So, a lot of pros to doing a Roth or a Roth conversion. The con is you must pay taxes at the ordinary income rates today if you do a conversion. So, whatever your tax rates are today, you look at your income for the year. You take away that standard deduction. You kind of see where you’re falling within those tax brackets and then see how much room there is for a conversion. But that money would be due April 15th of next year if you do a 2026 conversion. So you must pay the ordinary income taxes. So lots of pros, but uh you do have to keep that con in mind. So step three, we’re going to talk about sources of funds. So if you ever look at your 401k statement, your qualified plan statement, they’re going to say this is your pre-tax money. This is your matching money. This is the after tax dollars in the plan. This is the Roth portion of the plan. You’re going to see about four or five different categories. So, you may again find yourself scratching your head. How did that happen? What are all those numbers? How do I roll it over? Where does it all go? The biggest one is going to be those after tax dollars. This might not apply to everybody here. For the most part, uh most clients, they’ve done uh pre-tax money. They’ve done pre-tax matching from the company. Maybe some Roth contributions in there. That’s all after tax. But you do have the ability in a 401k in a qualified plan that once you meet the maximum, you can go above the maximum and you could do additional contributions on a aftert tax basis, which there’s some good news and bad news, right? You got to pay the taxes on it. It doesn’t go in the Roth. It goes in an after tax basis. But then you got to make sure when you do that rollover that you’re tracking your aftert tax dollars and you know what that basis is so you don’t have to pay taxes twice on that. You can don’t get double taxed on the after tax portion of the plan. Again, if you find yourself uh wondering what you have should be on the statement. If you get a quarterly statement from your uh 401k plan administrator, uh I could talk you through it as well if you see a couple different categories, but you just want to make sure you’re you’re uh staying aware of the after tax and you’re tracking those after tax dollar amounts. This is a a big chart with lots of boxes and lots of yeses in there. For the most part, there’s yeses, but this is talking about rolling from rolling from a qualified plan. 403b plan, 457 governmental plan, 401k, private plan, all those different things. You just watch the tax treatment. So, if you roll from a 401k and it’s a Roth, you can roll that into a Roth IRA. Yes. If you have a Roth 401k, if you go to the second box on the bottom, Roth 401k, no, you don’t want to roll that to a traditional IRA. That would be a bad situation. it would uh kind of put you backwards in the tax situation. But the thing to keep in mind, you just follow the tax treatment. So any one of these qualified plans, we want to know what the uh taxes is on it, whether it’s pre-tax, Roth, or after tax. We’re going to follow that same taxation chart to the IRA and make sure it stays in the same category. So we’re keeping these same taxation on the accounts. We’re going to talk a little bit here uh section four on advanced planning. advanced planning uh techniques, right? Are they only for the rich and famous? There is some very very advanced techniques. We would talk about trust and irrevocable trust and tax planning. But for everybody who has some pre-tax money, if you go through that financial plan and you see that, all right, maybe some of this will be left to my beneficiaries, these accounts, uh, pre-tax retirement accounts are not a good wealth transfer vehicle. Basically, either you have to pay the taxes at your ordinary income tax rate or your beneficiaries do. And your beneficiaries were kind of hurt in this conversation a few years ago. They used to be able to spread it over their entire lifetime. Now they have to take the money out in 10 years. So they could take it out equally over 10 years, add a little bit to their taxation. They could wait 10 years and then pay it all at once, but they’re going to add that to their income. They’re going to go through the marginal tax bracket. So not a great tax situation. Great retirement savings vehicle, but not a great wealth transfer vehicle. So we’re going to look at and say, “All right, again, my pension, my social security, everything’s fine. Life is good. I’m meeting my obligations. I’m traveling, maybe taking some money out of my cash accounts, my brokerage accounts. I’m supporting everything I need to, but I would like to leave money behind to my children, to my grandchildren in the most tax advantaged way possible. So, as I said, uh pre-tax money, pre-tax retirement accounts is not the most taxefficient way. What we want you to do is we want you to consider converting a portion of the pre-tax retirement accounts to a Roth. Big bullet point here is heirs can inherit this money taxfree the tax-free income. They still have that 10-year rule. They have 10 years to take it out, but those 10 years would still be in a Roth designation. So even after we leave this money to our kids, they could still have another 10 years to grow this tax-free. So there’s a lot of benefits to the Roth conversion. And I’m just going to walk you through one of those scenarios, right? Hypothetical example, we have somebody uh I think it was the past slide, the mom and the daughter, but we have momed [snorts] 66. She has 250,000 in a 403b qualified retirement plan. What she’s going to do is she’s just going to take her required distribution every year. She’s going to do nothing, right? Just take the required distribution, pay the taxes on it. She doesn’t need the money. She’s just going to put the money in an investment account. Both accounts are growing at 6%. But what happens if we take her all the way out to age 90? What we’re going to have is taxation during mom’s lifetime because of all those required distributions. Her taxation and we have her at the 24% bracket here or 28 I think on this slide, but she has a total tax liability that she has paid of $120,000. She has not depleted the 403b retirement account. So the daughter still has income tax of 93 almost $94,000 on the retirement account that she inherited. So over this example, there’s going to be taxation of about $214,000 due on this $250,000 retirement account. And again, that’s a do nothing scenario, right? Just take the required distributions, put it in an investment account, don’t do any advanced planning, don’t do any Roth conversion planning. Now this next slide is mom’s going to say that’s not the optimal way to give money to my daughter. I want to convert this because I am at a lower tax break bracket now than she may be in the future. So what mom did is systematically over four years the first four years she has done a Roth conversion. She has ended up converting all the money and she has paid all the taxes on it. So from there mom has no more required distribution. Mom has no more taxation on the gains in the account and the daughter has no taxes due on the inheritance. Previous slide said total tax liability was 214,000. In this slide by systematically doing it over four years, total tax liability was 76,500.
Uh considerable savings, $160,000 or so in savings in that conversation. But what mom did here is she had the conversion pay the taxes. So she grossed up how much the conversion was. Told her IRA account custodian to withhold for taxes from the conversion. Send 10% send 20% to the IRS to pay for all this because I don’t have the money available in cash or stocks that I want to spend on this. So in this example, the IRA paid its own conversion taxes and the ending value came out to $772,000.
So again, starting at 250, total tax liability 76,000 left taxfree to the beneficiary $772. The IRA pays the taxes. One more example. One more example. Mom did the same thing except [snorts] when she did the conversions, she said, “I’m going to pay the taxes out of pocket. I have plenty of cash available. I have brokerage accounts. I have an inheritance. I have other money.” So each one of those years, first year the tax was 17,500. Then 18,500. She wrote a check every year. So by writing a check every year, there’s more money in the account. There’s more money that’s growing and compounding over all of these years. Again, there’s no required distribution. It’s all growing tax-free. The tax liability was the same, $76,000. She just paid it out of pocket, but we’ve increase the inheritance to the daughter tax-free of $1,73,000 completely tax-free to the daughter. That’s the way to make retirement accounts more tax advantage, tax efficient for the beneficiaries, for the next generation. Now even in this situation the daughter inherits a million dollars. That million dollars is not required to be distributed for another 10 years. So the daughter can enjoy more tax-free growth of that million dollar before she has to completely withdraw it and at that point she would have to put it somewhere else, invest it somewhere else. This uh summarizes everything I just talked about. Left hand side is the do nothing scenario. Mom paid taxes of 120,000 and daughter paid taxes of 93,000. That left uh potential after income tax inheritance 589,000. Middle scenario, the IRA paid for the taxes. Total taxes due at the bottom 76,000, daughter gets 772,000. And then final scenario, mom wrote a check every year for the conversions. Total taxes at the bottom still 76,000 but the daughter got a million dollars a million73,000. So that’s the power of these Roth conversions. Usually at this point hopefully this is getting some people excited either for themselves where they don’t have to take the required distribution for themselves. They don’t have to pay higher taxes on those distributions possibly going through Irma uh search charges on Medicare or if they want to help their beneficiaries. Right? This is a motivating conversation, but when you look at these charts, you say, “I don’t know what’s the best thing for me. How can I figure all this out? I don’t know my tax rates today. There’s some special standard deductions going on in the tax code for the next couple what what does all this mean for me?” But again, going back to our financial planning capabilities, this is a tax bracket report. This summarizes everything I just put in the last four to five charts. This is a personalized look at your tax rates, not only now, not only 5 years from now, but for the next 20 to 30 years, counting in those required distributions. This is usually the way the graphs go. And this is usually what we’re looking for. But left-hand side, somebody’s still working for a few years, your tax rates are going to be higher. When you stop working, you can see those blue bars really go away. That’s your tax income base. Income tax base. That’s how much you’re paying your taxes on. And that’s moving through the marginal tax brackets. The green one being the 12% bracket. So, you can notice in this example that we could pinpoint ideally when you stop working, you’re going to have some very low tax years. You’re going to have possibly that standard deduction in there that you might not be uh fully taken advantage of. And then when you turn 73 or 75, the taxes are going to start up, the required distributions are going to start up. So, we pinpoint that low tax year. So, we look at the bottom and we say, well, the do nothing strategy that leaves you with uh total tax liability $746,000 that you paid to state and local taxes. And on the bottom, you have a total portfolio value of 2.1 million. How can we improve this for yourself? How can we improve this for your beneficiary? So what we’ll do is in the interview process, right, when we’re gathering this information, we’ll identify the years to look at low taxes. And then when we identify those low tax years, we’re going to say, “All right, we can, in this example, fill up a tax bracket. We could fill up the 10% bracket. We could fill up the 22% bracket. We could do sideby-side comparisons. We could do a specific dollar amount, 20,000 a year, 50,000 a year. We can look at all these different scenarios. And on the bottom, we’re going to pick on what accounts to convert. When I say that, that is your pre-tax accounts that you have to pay taxes or your beneficiaries have to play pay taxes. But if we put all this together right here, we’re illustrating the Roth conversion as denoted by yellow. Yellow is filling up that 12% tax bracket. So, we kind of spread out the taxes, the future taxation. We filled up that low 12% bracket. And at the bottom, just by using the 12% bracket, we have tax savings in this example of $112,000. And we’ve also added ending portfolio value to the beneficiaries of an additional $600,000 by having this Roth conversion conversation. So, there’s still some taxation here. We didn’t complete everything. We didn’t convert everything. Sometimes it gets very expensive to do something like that. But I always say everybody should consider this conversation. And when you consider this conversation, really what you’re trying to focus on is number one, does it save me in taxes? Could hurt you as well. Could cost you more taxes. So we want these numbers to be on your side. Is it going to save me in taxes? And then number two, does it add portfolio value to my uh estate to my beneficiaries as well. So, next thing uh we’re going to talk about, right, shifting gears a little bit, just uh charitable giving. I know we talked about that uh previously, but when you’re in an IRA, you’ve done your rollover, you’re in an IRA account, you have the ability to do something that’s called a qualified charitable distribution, a QCD. If you’re not familiar with this, you need to be over 70 and a half years old. And a lot of times this will be kind of mirrored with your required distributions, but this is available in the IRA. And basically what you’re doing is you’re telling your retirement account or your IRA, take a certain amount each year and give that to charity on my behalf. It’s not you doing it. You don’t take constructive receipt of the funds. But by doing that, this will count as your required distribution. And this is not taxable to you. So, another benefit of the rollover to the IRA account is some of the charitable giving uh considerations. So, we could talk about this in greater detail. I think the number this year it’s up to 111,000 per person you could do as a qualified charitable distribution. There’s also something that’s called a QAC. If you’re using uh IRA accounts, QAC is a qualified longevity annuity contract. Not in 401ks. They’re in IRA. Number one, it’s a longevity contract. So, it’s the government offering you a way to make sure you never run out of money. So, this will pay you for life. But this is also a way if you’re doing the calculations, if you find yourself with a high taxation, a high required distribution, you could remove up to $210,000 from the IRA portfolios, put it in a qualified uh longevity annuity contract, defer your required distributions. is really you could push it all the way back to age 85. So if you’ve ever heard about those, we could talk about that in greater detail as well. And then finally in the charitable giving I just kind of put down here as well naming your beneficiary as a charity. We’ve had some clients that they just don’t have anybody. They don’t have any beneficiaries. I have the conversation it’s going to go to the estate. It’s going to go through probate. The judge is going to have the same problem that you’re having right now. So, if you have any uh charities that you’re you’re fond of, that you participate in, that you’d like to support, you can name a charity as the beneficiary of your IRA. The good thing is at that point, nobody pays the taxes. You didn’t pay the taxes because it was left in the IRA. Charity doesn’t pay the taxes when they receive the uh the gift as well. I know I promised a couple times a company stock. Uh this might affect a few of you. It might be uh few and far between, but if you have uh company stock in your 401k, it has to be company stock. And really for this conversation, it has to be uh substantial gains, right? So if you work for a company that’s really highly appreciated, maybe you’re at a technology company. Uh I know those tech stocks have been doing great. So what you can do is you could take advantage of something called the NUA, net unrealized appreciation. I’m not going to spend a lot of time on this, but if you find yourself in these categories, if you want to learn more about this, uh, basically this NUA, net unrealized appreciation, allows you to swap ordinary uh, taxation, ordinary income taxes on your stock, you could swap that for the more preferential capital gains tax treatment. So, instead of going through all the marginal tax brackets, uh, for most people, the, uh, capital gains taxation is 15%. But again, if you feel you may fall in this category at all, if you want to run some examples, um, we could talk about this as well, but you must take a lump sum in distribution. So, you must take everything out of the plan and then the original basis in the stock is going to be immediately taxable to you as well. So, bigger conversation here, but uh, again, if you find yourself in that situation, happy to have some of those conversations with you. So, finally, right, we’re going to talk about uh getting rollover ready. There’s a couple things that go along with this. Uh, everybody has a 401k that goes through a plan administrator. So, you have an administrator. For some people, right, it’s Fidelity, some might be Vanguard, some empower. You’re going to have all these different plan administrators. So, this slide is really based on your plan administrator, what they require. So, sometimes we’ll talk to talk to plan administrators. We’ll do a rollover. They’ll take the instructions over the phone. Some plans will have their own paperwork that need to be filled out. It’s a bit of a chore. Sometimes it’s 10, 15 pages long, requires notaries and things like that. So, if you found yourself in that position, I’m pretty detailed, pretty familiar with all those forms. So, we can help you navigate through that as well. So, you want to check with the uh plan administrator, right? see if I’m eligible. If you’ve left work, you really have to wait one to two pay cycles before the rollover is ready to be performed. If you’re over 59 and a half and your plan administrator allows it, you have that inservice rollover opportunity for you as well. You just want to touch base with either HR or the plan administrator to get that paperwork. When you go to initiate a rollover, the first thing they’re going to ask you is if you’ve seen the 402F, they will call it the special tax statement. Special tax statement. It kind of recaps all the things that we’re talking about today. But you need to get that. You need to review that. You need to understand that 402F special tax statement. Basically, it means if you do a rollover, it’s going into an IRA. You do it correctly. It’s not taxable. If you do a distribution, it’s all taxable and they’re going to withhold 20%. So, you want to make sure you’re reviewing your 402F. Make sure you get the uh paperwork to open. You need an account to put the funds in. So, you have to have a a home base for the account. We help with this as well, whether some funds are going to the credit union, savings account, IRA, CD, IRA, investment account. We’ll help coordinate and get those account numbers set up and uh ready for the rollover as well. just confirming what the custodian needs for the rollover. What this means, for example, uh at the credit union, if we receive rollover funds, we need something that’s called a rollover authorization form to document that. So again, we can walk you through that if you have any questions. But whether it’s credit union, whether it’s our investment services, you just want to make sure you know what the new custodian IRA account is going to need for that rollover. uh complete it, turn it in, and it is up to them as far as what their processing times are. Again, the major firms are usually pretty quick with processing. Smaller companies, smaller firms, it might take a while. So, you want to make sure you ask those questions and you know uh what the timetable is going to be for a rollover like this. Uh next, this is really important. This is uh two types of rollovers uh direct and indirect rollover. A direct rollover is really what we’ve been talking about today. The plan, the 401k, the uh retirement plan sends funds directly to your new IRA, your new IRA custodian. And the key there is custodian. The funds are not sent to you. So, they’re sent to the custodian. That’s a direct rollover that is not taxable. The other one is a indirect rollover. And really this concept applies to 401ks, qualified plans, and it also uh applies to IRA accounts. So if you’re moving IRA to IRA, you just always want to make sure that you’re doing these direct rollovers or direct IRA transfers. The indirect means that the check the funds are sent to you. You’ve taken constructive receipt immediately becomes all taxable. So, not a great situation. If you’re dealing with 401k plans, they’re going to withhold 20% right away. Send it to the government. So, you’re 20% in the hole to begin with. Now, you do have there is a 60-day rule. So, if you put all that money back within 60 days, then you’ve saved yourself and it’s not taxable. A few caveats to that. It’s 60 days, so you could not have done this the 12 months before the 60 days. you cannot do it again in the 12 months after otherwise the whole thing would be taxable. So that is the 60-day rule. Even if you fell in this situation, the plan, the 401k, the qualified plan is already withheld 20%. So you already have a 20% taxable distribution that’s gone to the IRS. So you have to be careful with these indirect rollovers. Basically, it looks like this, right? This is a check. These checks are never made out directly to you. However, they’re for your benefit. FBO. So, example of a check, right? Rollover check. This is what we want to see. Uh maybe the first part will say Alliant Credit Union FBO for benefit of and then your name. You’ve successfully completed a direct rollover or a direct IRA transfer. You’ll notice this check is not technically made out to you. It’s for your benefit. So, when you get this check, it’s made out to the credit union. Don’t need to sign it. It’s for your benefit. it goes into your account. But that’s uh that’s what a direct rollover check would look like as well. Just going to wrap up uh just quickly, right? Uh some common mistakes, missing deadlines, maybe the plan administrator only opens a certain window uh during the year to let you do these rollovers. That’s a little more prevalent in pension plans. So, if you have a pension plan that you’ve been thinking about doing a rollover, this is on the table as rollover, but watch out for some of those deadlines. Watch your 60-day rules. Watch your beneficiaries, right? rules have changed a couple years ago with the Secure Act and the Secure Act 2.0. If you have a couple different IAS, 401k accounts, you just want to make sure as you’re doing this process and consolidating accounts, you have the correct beneficiaries on there. [snorts] Rolling over company stock. If it’s highly appreciated company stock, we may have the ability to find you some tax savings in there. If you don’t pay off your loans before the rollover, it’s going to be a taxable distribution of the loan. So, it might be a little surprised when you do your taxes. And then again uh cashing out or taking an indirect rollover and [clears throat] u the proper beneficiaries or naming a beneficiary as well at all. So uh with all this we’re just shy of an hour. Um how can we help? Right. I talked about financial planning. So we can help you put this all together. Create a financial plan a retirement income plan. How much do I need? What accounts do I need? How can I tax efficiently do this for myself and for my beneficiaries? We could advise on the investment options, review your current options and your goals, look at some of the volatility that we’ve been facing in the markets, see if this is what the correct course of action is for you going forward. We could talk about consolidating of different accounts. If you’ve collected a few of these retirement accounts over the years, we could coordinate these conversations with starting social security. We could run examples either starting late or starting early and uh Medicare guidance, right? We could talk about Medicare and how Roth conversions or required distributions may increase or may give you a search charge on the Medicare uh part B premiums. And right, we put it all together in a uh concise form for you. This is uh again our uh output from a financial plan. So I’m just uh starting a poll here. I’m going to get to your uh questions, but we’ve gone over this a few times, but this just answers all the questions really. Do I have enough? Where am I going to draw it from? What the kids what the kids are going to receive? When do I start a social security? And why am I doing all this? Right? Where where is it all leading to? So happy to help uh answer any of those questions you may have on your individual situation or the topic today. Um this is my contact information. I always say call, click, or visit. Call [snorts] or the phone. we could have a conversation, answer some of those questions for you if they’re a little more uh personal than today’s uh chat can handle. Um, click right if you scan that QR code. Uh, that’s going to take you to my calendar link. It sets up a Zoom meeting for us just like this to talk about some of these important topics and visit. I’m in the credit union headquarters in Chicago, right outside of O’Hare. If you find yourself in the general greater Chicagoland area and you’d like to meet in person, credit union is still open for investment meetings and financial planning so we can meet in person as well. Uh when we wrap up here, the credit union sends an email out on my behalf, gives you my contact information, my link to my calendar, you can send me an email, questions, we we could talk through all those important topics for you. But with that said, I’m going to look at some of those questions. If there’s anything else that’s coming to mind, feel free again go into that chat feature or Q&A feature. We’ll get all these answered and we’ll get you on with your uh Wednesday afternoon. So, a question came in here. Can I take my required distribution at age 73 from a pre-tax IRA to a Roth IRA? Okay, great question. So [snorts] when you are at the required distribution age, you have to take your required distribution first before you’d be eligible for any Roth conversion. So when you take your required distribution, you can’t simply just take that and put that into a Roth IRA. Got to take the money out, you got to pay the taxes on it, and then you could do a Roth conversion. Now, one caveat, right? All my answers are usually it depends. if you are still working, if you have a spouse that is still working, you are still going to be eligible for a Roth IRA contribution. So, you could take out your required distribution, you could pay the taxes on it, and then you could put that back into a Roth IRA because you still have eligibility, right? Somebody is still working because you need earned income on those Roth IAS. Uh, a question came in, um, I missed the required distribution ages, right? 7375. If I was born in 1955, am I able to convert from a company plan to a Roth? Uh, so good question. So, number one, born in 1955, your required distribution age is 73. So, regardless of the required distribution age, a Roth conversion is available to anyone at any time for any dollar amount. You still have to take your required distribution, but anybody can do a Roth conversion, any amount. The government would love if you do all of it at once and you pay a huge tax bill on it, but you are able to convert. Now, the only thing I would say is in your question, am I able to convert from a company plan to a Roth? I would hope so. Company plans, maybe they’ve adopted the conversions. Some have, some haven’t. So, you might not be able to do it at the company plan. If you do a company plan rollover, right, our topic today, if you do the rollover to the traditional IRA, then you can do a conversion for whatever you want, whenever you want. Another question came in, right, there was a thank you uh thank you for joining. And another question, uh when can I have an appointment with you? Again, uh scanning the QR code that will take you right to the uh calendar link. Uh there’ll be an email that comes out and email will have a link to my calendar as well. Get to know you if you’d like to learn more about our services and my background. That’s a 30inut conversation. We’ll kind of lay the the ground the framework for future conversations and some planning just to make sure we’re a good fit for for doing some of this. But that would be the 30 minute meeting option. And then we have longer time slots available if we want to go into bigger cons uh conversations or financial planning. Uh, let me see. Is the meeting free? So, we don’t charge for these conversations. We’re not going to charge you to answer some of your questions. We’re not going to charge you to put these financial plans together. Uh, the question was, I don’t have an investment at Alliant, and I only have CDs. Well, you are a member of Alliant Credit Union, so we are big on members helping members. So, we’re going to help you out with uh some of these uh issues and questions, get you on the right path. I always say, you know, we’ll have these conversations. Hopefully, we’ll put you in a better position than we found you in either tax- wise or uh income distribution wise, but um you know, I kind of wear two hats here. So, certified financial planner, so we could have these planning conversations, but you mentioned you don’t have investments at Alliant. We do offer investment services as well. So happy to do a uh a review for you, analyze current portfolios, see if we could do anything on um any investments that would help you with your goals, reduce fees, reduce volatility. So yeah, we do quite a bit here as well. So happy to help you with the investment side of everything as well. Uh another question came in. Is it advisable to do the Roth rollover to uh to do the 401k rollover to a Roth IRA earlier rather than later? [snorts] So you are talking about a conversion. You’re going to convert your money hopefully systematically over time to a Roth. Now two-part question there earlier rather than later. I could take that as calendar year. Some clients in January will say I completely know my tax situation for the year. There’s going to be no surprises. I am positive on the markets. I believe we’re going to have a good year in 2026 or 2027. I want to convert the money earlier in the year rather than later to get the appreciation in the market in the taxfree Roth. So that’s calendar year. The other way I kind of look at your question is agewise. Um that’s a uh kind of a function of these conversions. The younger you are, the longer you have to compound taxfree in the Roth IRA. So everyone’s going to be a little bit different. love to run the scenarios for you but uh really in your question earlier rather than later gives you more taxfree timing taxfree growth in there. Another question here if I convert small amounts from traditional to Roth annually do I need separate Roth accounts or can I consolidate into one? So you do not need separate Roths. You do it all into one. We just kind of do it as he said systematically over time year after year. put it into the Roth whenever you please for what’sever best for your situation. Uh it depends on your age to answer this because if you are over 59 and a half and if you’ve own any Roth account for 5 years that’s all going to be tax-free to you. So you don’t have to track the conversions if you’re over 59 12 you just have to have any Roth for 5 years and if usually if people are doing the Roth conversions going to hold on to it for 5 years uh anyhow. So, uh, you don’t have to worry about any of that. You can use the same Roth account and you don’t have to, uh, track those conversions. Let me see. I think, um, see if anybody came in on the Q&A.
Yeah, there was a question. Uh, we did a whole presentation on this last week, two weeks ago. Uh, somebody brought up the please discuss eligible beneficiaries, eligible designated beneficiaries in the context of the 10-year distribution for inherited IRA. I did an hour long hourlong presentation on beneficiaries and eligible beneficiaries. So, I’m going to try to recap this as quick as I can. You have a good question, so you may want to talk to me individually just to make sure you’re doing the right thing. I run into situations where people are not doing the right thing and there is a tax penalty for not doing this the right way. But now there’s two different categories. Uh eligible designated beneficiary retain the lifetime stretch of the IRA little bit of tax every year for a long long period of time. Eligible uh designated beneficiaries are going to be spouse uh beneficiary not more than 10 years younger uh disabled individuals, chronically ill individuals, minor children up until the time they’re 21, but those would be eligible. They get the stretch option. Everybody else is not an eligible designated beneficiary. Everybody else has to take the money out within 10 years. So, a lot of rules that kind of swirl around that, but happy to uh discuss that with you. And final one here. I have a 401k at a previous employer. Can I do a Roth conversion without HR involved? I’m over 59 and a half. Uh I would say it depends. It depends on the uh plan administrator. So, a lot of times HR is not involved in these conversations. Sometimes they are. Uh it depends who your plan administrator are. I would call them and say, “Hey, I want to do the Roth conversion.” Uh, it’s a previous employer, so you are eligible to do our presentation today, the rollover. So, you can roll over into an IRA, have it invested, and you can do the conversion whenever you want to for whatever dollar amount you want to hopefully with the help of a adviser that walks you through the taxation implica implications of that. But that would put you in control of the Roth conversation without worrying about plan administrators, HR representatives, or anything like that. I think with that said, uh, just over an hour. I hate to do that, but we got all the questions answered. Shared some good information on rollover IAS all in the comfort of your home today. Any questions that I can answer, please feel free to reach out or respond back to the email that the credit union sends. If you did uh answer in the poll that we put out, we’ll reach out to you as well and try to set up a time to uh talk a little bit more and help you out. Appreciate everyone’s time today. Hope you have a great afternoon and hopefully we can talk soon. Take care everyone.