Man: Would you like an opinion on a financial matter you're dealing with, whether it's about retirement, investments, taxes, or 401(k)s? Scott Hanson and Pat McClain would like to help you by answering your call. To join Allworth's "Money Matters," call now at 833-99-WORTH, that's 833-99-W-O-R-T-H.

Scott: Welcome to Allworth's "Money Matters," Scott Hanson.

Pat: And Pat McClain. Thanks for being part of our show today. It's myself and my co-host, financial advisors in the daytime and part-time podcaster radio guys.

Scott: Part-time, yes.

Pat: Very much part-time.

Scott: Exactly, part-time.

Pat: Which almost everyone is a podcaster now.

Scott: Almost everyone is a podcaster now. I wanted to talk about something that we...

Pat: We got a good show, by the way. We got some calls.

Scott: And then we're also gonna talk about net unrealized appreciation.

Pat: And if that doesn't cause you to wanna stay...

Scott: No, no, no, because it's...

Pat: If that doesn't wanna cause you to stay tuned in, I don't know what will, net unrealized NUA. And the idea behind this is that in those cases that you own individual stocks in your 401(k), there are some great alternatives...

Scott: Yes.

Pat: ...when you retire.

Scott: I think a couple weeks ago I said how the problem with 401(k)s, you don't get the capital gain treatment mostly. But there's an exception to that, which we'll talk about. And one of our partner advisors is going to be...

Pat: Yes. But I wanted to talk about this article that I saw a couple of weeks ago in "The Wall Street Journal," and I thought this article... As a financial advisor, I have seen this a number of times in my lifetime. And it is devastating to the heirs. The person that made the mistake has left this earth and there's no way you could repair this once it's done. And it's the naming a beneficiary. And...

Scott: I think most of us understand how a will works, right. Your final will, last testament, I want these assets to go to these people. You have it notarized, witnessed, whatever the state requires.

Pat: And a trust, very similar.

Scott: And then some judge says, "Yeah, sorry. This is how it goes. This is what the last final will." But you may have assets that are excluded from that will, even if you list in the will that asset. And that's something that you name as a beneficiary, a named beneficiary. So what are named beneficiaries?

Pat: Life insurance policies, 401(k)s, IRAs, annuities.

Scott: So you've got a primary, right?

Pat: And you might even have a bank account that's set up as a transfer at death, or it may be even real estate that's set up as a transfer at death.

Scott: Or titled incorrectly with an ex-spouse.

Pat: Never retitled...

Scott: Right.

Pat: ...as a joint and survivor.

Scott: So here is the title of this article, "His ex is getting his million-dollar retirement account. They broke up in 1989."

Pat: Oh, my. No, I'm not laughing at...

Scott: Jeffrey Roliason and Margaret Sjostedt, it's a name, dated in 1980s. Almost 40 years after they broke up, she stands to inherit his million-dollar retirement account.

Pat: That's because he had listed her as the beneficiary in the 401(k)...

Scott: 40 years ago.

Pat: ...and never changed it. And they're trying to sue their employer, but they're not winning because...

Scott: It's not the employer's responsibility. How does the employer know that he broke up with her? [crosstalk 00:04:06]

Pat: They're trying to blame it on the employer.

Scott: It was him. It was Jeffrey...

Pat: Of course.

Scott: ...Roliason that passed away.

Pat: I mean, at some point, you do need to take responsibility for your own dollars?

Scott: And it's not your employer's fault to monitor your... It wouldn't be a bad idea to send an email once a year saying, "Hey, can we confirm your beneficiary," as we do often when we meet with our clients,...

Pat: Confirm beneficiaries.

Scott: ...confirm beneficiaries. We don't necessarily do it every year, but we every few years we're like, "Okay. Let's confirm your beneficiaries. Has anything changed? Has anyone passed away? Have you changed your mind about who you want these dollars to go to? Have you been unhappy with your children's decisions on how they're living their lives and would you like to change the beneficiary?" Well, there's that.

Pat: There is that.

Scott: Someone's got a drug problem or whatever, or the... Pat, I remember seeing I think the worst... Not that, I shouldn't say the worst. I remember seeing one, it was... Was it a mom passed away? I forget the whole story. It left money should have went to a child. The child was now of age. Instead, it went to the biological parent that the child had no relationship with. And the biological parent didn't give the kid any of the dollars. A parent had died. I forget the whole story, but I just remember thinking this happens a lot.

Pat: It happens.

Scott: I mean, I could think of several times in my career where I've seen these things happen.

Pat: And oftentimes where it happens is on employer life insurance, right, where...

Scott: [crosstalk 00:06:03]

Pat: ...you get a policy from your employer and you name a beneficiary and sometimes you forget. And you think about this, my guess is this guy had the same job for 40 years.

Scott: He did. And it was before that was even computerized. So it was a handwritten thing that he had submitted, but he had never updated it.

Pat: So what's the moral of the story? Check your beneficiaries.

Scott: Or don't break up.

Pat: Okay. Well...

Scott: There's that. Had he still been with her, it wouldn't have been a problem. I'm just stating.

Pat: He would've been miserable.

Scott: Miserable? [crosstalk 00:06:37]...

Pat: They hated each other.

Scott: ...his whole life.

Pat: But financially, it would've been good for him.

Scott: Yeah. Let's take a couple calls and then we've got a special guest here. So let's start off in Arizona and talk with Mike. Mike, you're with Allworth's "Money Matters."

Mike: Hello, Scott and Pat, this is Mike.

Pat: Hi, Mike.

Scott: Hi, Mike.

Mike: Got a question for you concerning conventional or traditional IRA converting to a possible Roth down the road.

Pat: All righty.

Mike: Okay. Can I give you some numbers here?

Pat: Please.

Mike: I'm 70, my wife is 63. Our income right now is about $62k a year. That comes from Social Security, pensions. We can live pretty well on that $62k a year. The taxes on that are very minimal...

Scott: Negligible.

Mike: ...because the majority of that income is from Social Security and so the taxes are very low in general. We have about $1 million in a traditional IRA. We have a little bit in a Roth IRA. So looking down the road...

Pat: Mike, one second. How much money do you have in brokerage or cash?

Scott: Or savings?

Mike: Okay. The brokerage account is... Well, almost everything is in a brokerage account. Between the Roth and the traditional, we have about a million in the two sums together. Of that, about $950,000 is in a traditional and about $30,000 is in a Roth IRA.

Pat: And do you have any money outside of IRAs, like individual stocks, bonds, mutual funds...

Scott: Cash, savings...

Pat: ...or cash, savings accounts? That's what we're...

Mike: Not really at this point. We're living life pretty close to that $62k a year. But we haven't had to hit the IRA yet. We've been able to make it this far without hitting it. So, I'm looking down the road at 73 and trying to determine with our tax base, we think we can stay within the 12% income. Even if we take $40,000 a year from the IRA in 3 years or more, we think we can stay within that 12% tax base without being penalized much. What would you say to that?

Pat: Is your wife on Social Security now as well?

Mike: Yes. She gets a spousal and she has a pension. So that $62k a year is our total income.

Pat: You can't really do a Roth conversion.

Scott: What do you mean?

Pat: Well, you could do a Roth conversion, you'd use the money from the IRA to pay the tax on it.

Scott: I get what, Mike, you're looking it like, "I ran the numbers...

Pat: [crosstalk 00:09:35]

Scott: ...several years down the road, I'm still in the lower tax bracket."

Pat: Yeah, it doesn't matter.

Mike: Yes.

Pat: Yeah, that's right, it doesn't matter.

Scott: I mean [crosstalk 00:09:42]...

Mike: So it doesn't matter?

Scott: Well, unless you...

Mike: There's no need to worry about converting?

Pat: It could be that 15 years down the road, but that's a long time from now.

Mike: Tax laws change or...

Pat: Yeah, that's right.

Scott: I wouldn't do a thing.

Pat: No, I don't think I would either.

Scott: I wouldn't.

Mike: Just keep it as it is?

Scott: Yeah. Look we could...

Mike: You're prepaying a tax liability.

Pat: Yeah, we're close enough. We don't know exactly what's gonna happen, right? I mean it's, you know...

Mike: So just keep it as it is?

Pat: I could argue both sides if you want.

Scott: I mean, if it was $2 million, we would say do some conversion.

Pat: A hundred percent.

Scott: If it was $500,000, we'd say absolutely don't do anything.

Pat: Where you're at today, I could argue both sides. And the chances are I'm right 50% of the time. Depends on what the account balance does, right, depends on what the tax tables do. I think it would be just an exercise. Would it move you ahead? Maybe. Would it put you behind? Probably not. I wouldn't worry about it.

Scott: No, I wouldn't either.

Mike: Okay. Good. [crosstalk 00:10:52]

Scott: And by the way, if you were gonna do anything, you could say, let's take $10 grand a year out of it...

Pat: That's actually...

Scott: ...or $15 grand out of it.

Pat: Let's talk, Scott, let's talk about this.

Scott: I mean, unless the plan is to leave these, you're trying to have as much money in your account when you die.

Pat: This is the conversation we should be having, which is, this is what you said, we're living on the edge with what our income is now, is that not what you said?

Mike: That's correct. In other words, you know, we can be over a couple thousand, under a few thousand every year. But for the last four years, staying within that $60k to $62k a year is pretty much where we are.

Pat: No. Understand that I would start a distribution out of this account for $1,200 a month, withholding 20% in taxes and call it a day. Yeah. I mean, you could...

Mike: Okay. [crosstalk 00:11:43]

Pat: ...easily take $20, $25, $30, $35 grand a year out of this.

Scott: Yeah, but I'm...

Mike: Before you get to RMDs, just go ahead and hit it now.

Pat: And just spend it.

Scott: Well, let's spend it. So Pat and I had lunch today just before we came in the studio here and had a discussion about a friend that we've both known for 25 years, longer. And his wife has a pretty significant health issue. He's of retirement age, and he actually kinda retired for a while, went back to work because she can't travel anywhere. Their quality of life is...the retirement dream was... Right. So it's just as we're having lunch, it's, like, you kinda never know what tomorrow brings. You're 70, your wife's 63, presuming that you're still in decent health...

Pat: And Scott said $25,000 a year, you could start the distribution. I cut that number in half and said $1,200 a month. But I'd be comfortable going up to $25,000 a year.

Scott: Or more. I mean, even if you took 4%, I could be comfortable with that.

Pat: I'm 100% comfortable with it. But let's start with a number and see how he does, Scott. So let's do this, $2 grand a month.

Scott: Two grand a month.

Pat: It's either you spend it in your lifetime...

Scott: Or someone else will.

Pat: And I assume that it's being responsibly managed in a portfolio that's hopefully well diversified.

Mike: Yes, it is for a long time. And so, you know, the goal was to make it to 68, 69 without touching it. And now I'm beyond that. But the RMDs, our tax bracket, the way the tax professionals net it down, we pay virtually no taxes...

Scott: That's right.

Pat: Understand.

Scott: You'll pay a little taxes on this, but...

Pat: You'll pay a little taxes on it, but go ahead and start a distribution of, you know, $3,300 a month. Withhold the taxes, spend it, go to dinner.

Scott: Yeah, have a nice date once a month.

Pat: Hit the Red Lobster before they close them all down.

Mike: Yeah. We can't eat any more lobster. Okay.

Scott: All righty. Enjoy.

Mike: Okay. Thank you, guys.

Scott: All right. Thank you, Mike. You know what I appreciate about Mike's call? Just look at their income. My guess is they've, probably his entire life, pretty moderate means and saves 1 million bucks.

Pat: That's right, yeah. You know, for many people in America, your retirement is stored labor. That's what your income represents. It is stored labor. People think it's the markets that make money. For some people it is, right. People that start their own companies, people that are lucky enough to end up at a company that does well, that run into some wealth, sometimes it's inherited. But for the vast portion of retirees in the United States that are living middle-class or above lifestyles, it is stored labor. And how do you store your labor? Well, 100 years ago, you'd have a bunch of kids and hopefully some land, and it would stay in the family generation after generation, right? But people didn't live that long. You know, you look at my great-grandfather, he lived with my grandparents. They lived there, right? Now what do you do? You put money in your 401(k), your IRA, you know, you invest it in different places and hopefully, you do it responsibly in a diversified portfolio. And it's how you store your labor. And at some point in time, it is okay for you to actually spend that stored labor.

Scott: And oftentimes the people that are good savers are the ones that have the most difficult time.

Pat: Most difficult time.

Scott: We're talking now with Kevin. Kevin, you're with Allworth's "Money Matters."

Kevin: Thank you Scott and Pat. I would like to find out with the assets that I have can I retire in 8.5 years?

Pat: Eight and-a-half years?

Kevin: Yes. Which is 59 and-a-half at that time for me.

Pat: All right. Are you married?

Kevin: Yes. The wife is also 51. So at that time, I will have a pension of $4,800, Social Security at 62 will be $2,700, combined income right now is $100k.

Pat: What other assets? How much in IRAs or 401(k)s?

Kevin: Ira Roth is $231k, traditional is $11k.

Pat: Wait, your regular IRA is $11k?

Scott: Yes?

Kevin: Yes.

Pat: Okay. And $231 [crosstalk 00:17:03]...

Scott: And do you have a 401(k)?

Kevin: I have a 457, which value at $100k right now and also $100k in apartment investment.

Scott: And is your home paid for?

Kevin: Yes.

Scott: How long has your home been paid for?

Kevin: A long time.

Scott: And do you have kids?

Kevin: Yes. In fact, starting this year, I will need to pay around $49k for college tuition for [inaudible 00:17:50].

Scott: And where's that coming from?

Kevin: My income.

Scott: You can't retire in 8.5 years.

Pat: You've got $100,000 of income and $49,000 gonna go to... How you gonna live?

Kevin: I spend around $3,000 a month.

Scott: Well, if you spend $3,000 a month, then what you told me between pension and Social Security, that's about $7,000 a month. So if that's in fact accurate, then yes, you could retire.

Pat: Yes, at age 59.5. But it doesn't appear that you live on $3,000 a month or you'd have more money in your accounts.

Scott: I would agree with that.

Pat: You think you live on $3,000 a month, but you don't because what you have saved up... Do you have money in the bank as well, big savings?

Kevin: $50k.

Pat: Yeah. You don't live on $3,000 a month. You budget $3,000 a month, or you actually counted $3,000 a month. But right now your take home pay is much higher than that and you don't have money in accounts that would reflect that.

Kevin: The credit card statement is around $2,000 something.

Pat: How much do you owe on credit cards?

Scott: I think it's his monthly.

Kevin: I don't have a...

Scott: Carrying a balance?

Kevin: I don't carry a balance.

Pat: Well, listen, if what you said, if you live on $3,000, if you can live on $3,000 a month, then yes, you can retire at 59.5. And I would normally tell you that you should be putting more money into your 457 plan.

Scott: You can't afford to do it right now...

Pat: But you can't afford to.

Scott: ...$49,000 a year college tuition.

Pat: How many kids do you have?

Kevin: Two, [inaudible 00:19:58] at seven years.

Pat: And is this the oldest that's going off to college?

Kevin: Yeah.

Pat: Where's the second one gonna go if the first one costs $49,000 a year?

Kevin: The second one is probably around $43,000. So at the fourth year, my expenses will be around close to $100k or...

Scott: And where are you gonna fund that?

Kevin: The brokerage account.

Pat: All right. So what you...

Scott: You didn't mention, how much do you have in your brokerage?

Kevin: Four-hundred fifty-seven.

Scott: That one is okay. Well, that one is good. You didn't give us that piece of information.

Pat: Yeah. Is there anything [crosstalk 00:20:51]?

Scott: We're both looking, like, "You got $100 grand a year in college expenses."

Pat: Yeah, you could probably retire at 59.

Scott: All right. So you've got the money saved.

Pat: Yeah, you're okay.

Scott: You've got the money saved for education.

Pat: I'm thinking, what the heck? No, you're okay. You're all right. You could retire at 59.5. Appreciate the call.

Kevin: Okay. One more question, though.

Scott: Sure.

Kevin: Should I do more traditional IRA now so my retirement taxes will be lower.

Scott: If you're at $100,000, I would look to see where you actually are after your... Because I think by the time you do your standard deduction, you're in the 12% tax bracket. And if that's the case, I wouldn't bother. I would look, though, at your last year's tax return, your adjusted gross income...I'm sorry, your taxable income and see where that is and look how it compares to the tax tables and if you are below where the 22% level starts, then absolutely don't do it before preferred tax.

Pat: Yeah. And I don't actually understand how you could do any savings at all.

Scott: What do you mean?

Pat: With an expense of $49,000?

Scott: Yeah. But he's got the $400,000 in the brokerage account.

Pat: Is he gonna use all that?

Scott: I don't know. It's certainly an option to pay for your kids' education.

Pat: Okay. I'm with you. Maximize the 457. So I appreciate the call.

Scott: And we're in Nevada or Nevada depending on where you live, in Nevada talking with Terry. Terry, you're with Allworth's "Money Matters."

Terry: Hi, thanks for taking my call. So the basis of my question, you gave some advice about somebody with a pension and whether they should consider that pension as, like, bond investments.

Pat: Yeah, fixed income with a portion of the portfolio?

Terry: Right. And I agreed with your answer to a point. And my question is, I have a similar situation where I'm already retired. I have a pension, and the pension, plus my Social Security is going to cover my expenses. And so what I've been doing is increasing my bond-holding ratio to about 10%. By the time I turn 73, so when I start taking RMDs, I have a little bit of cushion in case I'm in a bear market and I don't have to take out money and lose money on my investments. I can hopefully just use the bond money.

Pat: So what percentage of your portfolio is...

Scott: Almost all.

Pat: Right now is it all equities?

Terry: All, but about 9% right now.

Pat: Okay. All right. So you said you...

Scott: I like it thus far. What's your question?

Pat: Yeah. You said you agreed with us up to a point, but then you said after some point you didn't agree with us. Where didn't you agree with us?

Terry: Last time I listened to you, your point was you should just be 100% equity.

Pat: Okay. Here we go. We're nitpicking here. So I get the required minimum distribution. At age 75 your required minimum distribution should be less than 4% on the portfolio, right? Where do you live, what state?

Terry: Nevada.

Pat: All right. So we're not gonna pay any money in taxes to the state of Nevada [crosstalk 00:24:19]...

Scott: As federal.

Pat: ...but just federal taxes. So let's say your required minimum distribution is $40 grand and you do the distribution, $10,000 actually goes to the federal government. Where's the other $30,000 go?

Scott: Reinvest it.

Pat: You reinvest it. You buy back exactly what you just sold.

Terry: Right.

Pat: So I don't need that much as a percentage of the portfolio. If we're gonna nitpick over this, I don't need that much of a percentage of the portfolio. Just because I do the required minimum distribution doesn't mean I have to spend the money. The only money that is actually gonna get lost in that little...

Scott: Is the tax.

Pat: ...transaction is the tax. So on...

Terry: Correct.

Pat: ...that, I could keep 99% of my portfolio in equities.

Scott: And have the dividends that they produce pay the tax liability.

Pat: But in saying that, your 91% equities, you're fine.

Terry: Yes. Okay.

Pat: That makes sense.

Terry: Well, thanks for answering my question then.

Pat: Sure. But look, you get the general concept, I mean, which is the most important part, whether it's 85%, or 90%, or 100% equities, you know?

Scott: Yeah. I mean the reality is whether he has a pension or not, we're talking about a sum of money that he doesn't need for his living expenses today, wants to let it continue to grow. One can make the argument regardless of the rest of your financial situation, if you've got a portfolio that you're not gonna touch for 10-plus years, or even if you are, it's just a very nominal amount, having a 90% equities is a much higher probability of a good return.

Pat: And by the way, he mentioned IRAs. If you have the brokerage account, right, you want your equities actually in the brokerage account outside the IRAs and bonds in the IRA.

Scott: For sure.

Pat: Right? For tax efficiencies. There we go.

Scott: There we go. Appreciate the call, Terry. Well now we've got... We've asked one of our advisors to join us. Laurie Ingwersen is, an advisor, certified financial planner in our Boston region office. She's been helping individuals and families for 20-some odd years. A good financial advisor, it's an interesting mix because typically, they not only need to be pretty sharp when it comes to finance and math, but they need to have really good interpersonal skills. Because if you don't have those interpersonal skills, you're not gonna be able to navigate the client well. Because sometimes there's a bit of convincing you need to do, explaining, educating to get a client to move from here to there with their finances. And so, I think the best advisors are the ones that really have that kinda mix between an engaging personality, one that can connect well with people as well as being highly analytic. And Laurie is that. And she's joining us today to talk about a client that she worked with and using net unrealized appreciation. So Laurie, thanks for taking some time to join us on "Money Matters."

Laurie: Thanks for having me. Excited to be here.

Pat: Well, good. So Laurie, just before we dig into the subject, will you tell us a little bit about your family, your father, and how you got into the business?

Laurie: Absolutely. So my father, Roger Ingwersen, he started in the industry in the early-'70s, I believe it was with Bashenko. And he formed our team called The Harvest Group. And he built the business by working with various companies in the Boston area, Gillette was a big one, and educating the pre-retirees on their rollover options. And I joined the team in '99. And fortunately, he's a great mentor and always talked about investing and what he did with his clients over the years. And so I was very interested and passionate about it. And I actually filled in as an assistant for him one summer when his assistant went on maternity leave when I was 14 and I knew from then that's...

Pat: Really?

Laurie: ...what I wanted to do. Yeah.

Scott: At 14?

Pat: [crosstalk 00:28:50]

Scott: You've been...

Laurie: Fourteen.

Scott: ...in the financial advice business since you were 14?

Laurie: Since I was 14 years old.

Pat: And how old is Roger?

Laurie: Roger is now 82.

Pat: And Roger is still a practicing advisor?

Laurie: He is, absolutely.

Pat: And the Harvest Group, you joined...

Scott: [crosstalk 00:29:05] a few months ago at annual conference.

Pat: Your firm joined the Allworth team, what, two years ago?

Laurie: Well, no. Actually, it will be a year on the 30th of this month. So we are coming up on the anniversary.

Scott: There we go.

Pat: Good.

Scott: Well, thank you. I remember having many conversations and meeting with you in our Dallas office and...

Laurie: That's right.

Scott: ...like, these guys gotta join us. Just love the passion. All right. So enough of that. Not age 14, but when did you get into the industry?

Laurie: So in '99, that's when I joined. So right after school I joined. I joined actually administratively and then I worked to get my industry licenses. And then I went through the certified financial planning program and the financial advisor training program through [inaudible 00:29:55].

Pat: Very nice. Well, thank you for joining our team. You guys are great to work with.

Laurie: So a quarter of a century ago, now.

Pat: Let's dig right into the story. Tell us about this particular client and what net unrealized appreciation is and how do you use it?

Laurie: People approaching retirement, they often have sizable 401(k)s and other employer-sponsored plans. And if they work at companies that have the ability to add company stock into those plans, some of them have appreciated greatly over the years. And so, if they have a low-cost basis in that company stock that's depreciated, there is actually an opportunity at retirement when they roll over the plan to take that stock out of the plan and put it in a taxable account. So, the benefit of that is that they will pay income tax on that lower cost basis and then they'll be taxed at a lower bracket at a capital gains tax rate when they sell that stock. And they don't have to sell the stock immediately.

Pat: And if they...

Laurie: A lot of people...

Pat: ...hold the stock till death, do they receive a...

Scott: No.

Pat: They don't receive a full step-up [crosstalk 00:31:15].

Scott: Unless the law has changed.

Pat: Yes. And by the way, because this is podcast, if you're listening to this, and this is 2 years old, if you're listening to this in the year 2026,...

Scott: Hopefully.

Pat: ...check with your tax advisor. So give us the story of how you use this in the real world. And by the way, we should point out that it has to be held in stock, it can't be held in units.

Laurie: That's right.

Scott: Because some employers, you own the employer stock, but you don't own the stock directly, you own units that mimic the stock versus...

Laurie: That's right.

Scott: ...some individual stock.

Laurie: Yes.

Pat: So, give us the story about how you actually use this in real life.

Laurie: Yeah. So the client brought in their statements. In this case, they had an ESOP plan that had been continued from Gillette. They had a profit sharing plan with Procter & Gamble, and then they had a 401(k) plan with Procter & Gamble. So we were able to look at all of the plans individually. And in the 401(k), for example, their cost basis was approximately $450,000, but the value of the stock was $1.25 million. So we were able to request a lump-sum distribution from that plan, and we moved the stock into a taxable account. And at that time, they had to, in that tax year, they have to pay income tax on the $440,000. But then that gain up to that $1.25 million would then be taxed at capital gains and we have the ability to spread that gain out...

Scott: Exactly.

Laurie: ...over a period of years. So that worked really well with the 401(k) and it worked very well with ESOP. So both of those plans had very low cost basis. With the profit sharing plan, it didn't make sense because the cost basis was higher and so we were able to look at each plan separately. And along with the tax advisor, we had several meetings on the strategy for that. As I mentioned, the wife actually works for Procter & Gamble as well. She's got sizable retirement accounts with the same situation, low-cost basis. Fortunately, she's not gonna retire for a year. So we were able to implement this strategy. We're only one plan over in the tax year for 2023, utilizing the NUA strategy. And then we moved the second plan in 2024. So now we spread out that income over two years. And then with the wife's rollover, that won't happen. She's not gonna retire till the end of this year. So we can implement that strategy in 2025. And then spreading the capital gains, and we'll spread that out over a period of years so that the tax liabilities don't have to be paid of course, you know, immediately.

Pat: So Laurie, this tax strategy actually might take 10-plus years to implement completely?

Laurie: Absolutely, it could.

Pat: So you had mentioned that the...

Scott: And a quick question, can you cherry-pick which stocks to take direct and which to roll over?

Laurie: Whichever plan you decide you're doing this with, you have to take all of the stock at that point. So you can't just choose.

Pat: And culturally, you mentioned the name of the company, Procter & Gamble. Do most of the employees know that this is available to them?

Laurie: No, they do not.

Scott: Really?

Pat: That is a strange... How much conversation [crosstalk 00:35:10]?

Scott: Well, because Laurie, I mean you did a lot of analysis right, with the CPA as well?

Laurie: Correct.

Scott: And I imagine it took some time for your client to really come to grips with this...

Pat: Because they had never heard of it.

Scott: ...and they're gonna have to write a check to the IRS that they wouldn't have otherwise?

Laurie: That's right. It's, you know, kind of that short-term pain for long-term gain because...

Pat: Yeah. This is the best thing...

Laurie: ...you do have to help them understand. And, you know, once you have to write that check, you kinda forget about the strategizing that you did the six months, nine months before. And so, you do have to just kinda constantly reeducate, educate and have this dialogue going on so it's a continuous conversation.

Pat: This is the best thing for their overall wealth and long-term wellbeing.

Scott: And any gain from the stock this point forward, that gain could be a step-up basis upon death.

Laurie: Correct.

Pat: But internally in the company, this isn't a strategy that they really know about.

Laurie: So we used to go into, when it was Gillette, we were able to go in and we would have a couple-a-day workshop where we would meet with the pre-retirees and we would go over the various plans that they had and the options for those plans. And so that was something we did touch upon. But I mean, I would call this kind of financial planning 201, not 101. So you don't wanna overwhelm. You wanna make sure that they are aware that this is an option and this is something that we're looking at for any prospective client that comes in, or any client, of course, this is a strategy that we're talking about and that we've been implementing for years. Doesn't always work, right, but...

Scott: No, no, no.

Laurie: [crosstalk 00:37:06] that you wanna make sure that you're looking at and letting [crosstalk 00:37:10]...

Scott: And I've done analysis...

Laurie: ...and discussing what the options are.

Scott: I've done similar analysis and I've had clients say, "Well, I'm sorry. I don't want to pay that taxes today, so I'm gonna roll it over and take my chances."

Pat: And that is...

Scott: "Okay. That's fine."

Pat: Yeah, that's an alternative. Well, this is first of all, why they allow this stuff in the tax code to me is just crazy. It makes no sense.

Scott: Do you understand how tax codes [crosstalk 00:37:33]?

Pat: I understand, but I do this constantly.

Scott: It's all built on each other [crosstalk 00:37:36].

Pat: I do this constantly on this podcast, this show, to complain about how complicated things have become. But a good advisor actually recognizes that and walks the clients through the alternative. So Laurie, thank you, for you and your father and the rest of the staff for being part of the Allworth team.

Scott: Really appreciate it.

Laurie: Absolutely.

Pat: It's always...

Laurie: We're really excited to be here and can't believe a year has passed, but it's been fantastic. So thank you both for having me today.

Pat: I thank you.

Scott: Thank you, Laurie. Pat, you can also see these utilized and it's not just the large employers. So small companies have an ESOP plan.

Pat: Or not, even it may not be small.

Scott: [crosstalk 00:38:20] privately...

Pat: Not publicly traded, but maybe privately held companies.

Scott: That have ESOP plans.

Pat: Which is an absolute, right, alternative.

Scott: Yeah. And those can be quite beneficial as well. The ESOPs oftentimes, you have the same kind of strategy available to you, typically if your employer has an ESOP. But you gotta run the numbers.

Pat: It is hard writing that check.

Scott: But it's really no different than, let's say, doing a Roth conversion, doing analysis and look at where the tax rate's gonna be in the future, which is what you can do today and making an... It's all based on statistical probabilities, again. What's the chances of our tax rates going down? The tax cuts that were put into place in '17 are set to expire the end of '25, right? They are set to expire.

Pat: They are set to expire.

Scott: What's the probability of the tax rates going lower in 2026?

Pat: Are you asking me?

Scott: Yes.

Pat: Not high.

Scott: Not high, right? Okay. Given where we're sitting, yes.

Pat: Yeah, probably not high. And the taxes on tips, that's a whole different story.

Scott: Okay. We're not gonna go there.

Pat: No, don't go into politics.

Scott: Not gonna go there. All right. So Pat, you want to chat about something before we signed off? I believe you said you did.

Pat: I did. So it's...

Scott: You're all quiet.

Pat: I was thinking about what was it that I wanted to talk about? So this is a thing that... And I don't know if it actually applies so much to more seasoned investors, which is crowdfunding, right? I don't know anyone that's done crowdfunding, either brought it to Marketplace or, put money in a crowdfund. But I am a big fan of the "Shark Tank." I do watch the "Shark Tank."

Scott: Do you really?

Pat: I do.

Scott: I can't stomach it.

Pat: I do.

Scott: I liked it at first, but feels like it's the same thing over and over and over.

Pat: Well, when they come up with certain products, when the guy comes in there with ice cream, I fast forward because...

Scott: And they're all a little theatrical, they're...

Pat: Yes. But if you notice how much money is actually raised from crowdfunding from these people that come in and go, "I did my first...

Scott: And this was...

Pat: ...six months."

Scott: This was a law that changed six years ago, five, six...

Pat: Do you remember when this came out?

Scott: Yes. So people are gonna get...

Pat: We said...

Scott: Because...

Pat: ...that people are gonna...

Scott: ...there's all kinds of rules in this when it comes to raising money from investors, right?

Pat: Right.

Scott: So we all understand public companies. And the cost of compliance to be a public company is astronomical, which is one of the reasons why fewer companies are going public today. And there's this whole emergence of kind of the private equity and these unicorns companies that are worth over $1 billion and remain private because they don't wanna bother going public.

Pat: Because of the regulatory environment.

Scott: But there's still regulatory environment. If, let's say you've got some widget that you're creating and you want to raise money from 50 investors, there's still all kinds of things.

Pat: Which is they have to be qualified investors.

Scott: But this crowdfunding...

Pat: And this did start about six... And remember Scott, even then, if you were buying an individual stock, you're buying it through a brokerage firm that actually makes sure that there's some sort of suitability involved in it.

Scott: That's right.

Pat: Right? So that if you're buying initial public offering and you've got $1,000 to your name, and you're putting the $1,000 into that stock, that broker has to make sure that it's a suitable...

Scott: That's right.

Pat: ...investment for you. But that's no such thing in crowdfunding. So small investors in this one company alone called Aptera Motors, and, I'm sorry, two companies and Boxabl. Aptera Motors and Boxabl, under this crowdfunding, which is they use social media to hype this, like, "This thing is a..." They raised $170 million...

Scott: From little investors all over...

Pat: ...from little investors.

Scott: ...thousands of investments.

Pat: And they have no accountability to those investors as to they don't have to show them any finance reports, they don't have to... And so what happens is, as this, we talked about when this first came out, this is not good for the average investor. Everything these companies have turned into carnival barkers where they just stand out there and they have absolutely no intention of bringing in...

Scott: What about these two you just mentioned, were they...

Pat: Nothing [inaudible 00:43:28].

Scott: They're not real companies?

Pat: Three years, it would soon deliver its first solar-powered car, but it still hasn't shipped. Tiny house maker, Boxabl, needs 175,000 customers, but it sold 6 units this year.

Scott: Sounds like the federal government.

Pat: Right? It's garbage. It's absolute garbage. So these crowdfunding platforms... If you listen to this podcast, this doesn't probably apply to you, but it does apply to your children and your grandchildren.

Scott: Well, it might apply to you.

Pat: It might. I'm assuming that people listening to this podcast are smarter than that.

Scott: But I wouldn't invest anything through that kind of structure.

Pat: Not at all.

Scott: No. Anyway, we are out of time. It's been great having you with us. We'll see you again next week. This has been Scott Hanson and Pat McClain of Allworth's "Money Matters."

Man: This program has been brought to you by Allworth Financial, a registered investment advisory firm. Any ideas presented during this program are not intended to provide specific financial advice. You should consult your own financial advisor, tax consultant, or estate planning attorney to conduct your own due diligence.