Amy: Tonight, why the most admired companies in the world may not make you the money you've always dreamed of and why that's okay. You're listening to Simply Money presented by Allworth Financial. I'm Amy Wagner along with Steve Hruby. If you've listened to us for any amount of time, we advise investing in index funds. We say, hey, there's a lot of great individual companies that make up the U.S. economy, but investing in any one of them overtaking the risk or spreading out the risk amongst all of them, anything can go wrong. And I think today we have another great example of that.

Steve: Yeah, we sure do. So "Fortune" puts out a list of the most admired companies. And this recently came out and it's no surprise at this point in time anyways, that at the top of the list are Apple, Microsoft, Amazon, it's the top three most admired companies in the entire world. You've also got Nvidia, Berkshire Hathaway, Netflix, Home Depot, Nike. This list, it's determined by a lot of different factors. It's a group of senior executives, directors, analysts. They rate over 660 companies, 29 countries across the globe, 52 different sectors.

Amy: It's the best of the best. I mean, these are big name companies. And I was reading a little more about how they did it. They actually started with 1,500 companies and looked at just solely revenue. Then once they got that down to the 600 plus that you mentioned, then they asked executives in each specific sector to rate the companies that they admire most on a number of things: investment value, the quality of the management on the team, how socially responsible that company is, their ability to attract top talent. So it's like asking us, what are other financial advisory firms that we look at and that we admire?

Well, that's great. We can admire other firms that are fiduciaries, people that put clients' best interests first. We can look at the business models. We can look at the management, all of those things. It doesn't mean that that company is going to be around in 10 years or that it's the best investment. And so you can look at lists like this and this list is no joke. "Fortune" does a lot, a lot of research to come up with this list. This is a heavy lift to get here. And I think you've got these heavyweight companies on here for a great reason. They have built very solid companies and very solid reputations. It does not mean that tomorrow something couldn't come in completely out of the blue and knock any of these individual companies off of their foundation.

Steve: Exactly. Are the most popular companies the best investments?

Amy: That's the question.

Steve: That is the question. And there's been a couple of research studies that we're going to talk about today that shine light on that. And unfortunately, the findings may be a little bit surprising. It showed that most admired company often failed to beat the market and they oftentimes underperform the average company that's at the bottom of this list that "Fortune" put together.

Amy: I think about it through the eyes of my teenage children who have influencers in their lives, right, that they follow on social media. They admire those people because they're successful, they're beautiful, they play basketball well, right, all the things that are important to my teenage kids. It doesn't mean that they're the best people. It doesn't mean that over time their values are going to shine through somewhat differently and you realize maybe this wasn't someone I should be looking up to. So I think when you look at companies individually, you can admire the story behind them, right, the Apples, the Microsofts, you know, coming from a basement, Amazon, the garage, you know.

Steve: It's always a garage.

Amy: It's always a garage. You know it's going to be a hit. The company's going to be ahead if it started in a garage. We can love these stories. We can love the American way about them. But to look at them as investments may not turn out so well. And yeah, to your point, there's a couple of studies that actually looked at these companies and said, interestingly, those that fall at the top of the list of what's considered most admired are actually worse investments than a lot of the companies at the bottom of the list.

Steve: Yeah, it's very surprising. So the first study that we're going to look at here, they looked at the list from a 25-year time period. This was from 1983 all the way through 2007. And they found that the average least admired company stock at the bottom of the Fortune's list that we're talking about here outperformed the average most admired company stock by 2.1% on an annualized basis.

Amy: Well, and then you can look at this study from year to year and say, oh, sometimes there's years where these companies fall a lot on this list. You know, they're one of the top companies and they fall toward the bottom. And actually, stocks of companies that fell the most actually outperform the stocks whose rankings increased the most. So you can look at a company on this list like a Nvidia. Oh, okay, they're coming on this year or Moderna because, you know, they've got the COVID vaccines and say, "Okay, these are these are companies that are coming up in the world. They're doing really well. They're ending up on the top of this list." Doesn't mean that from an investment standpoint, though, they're the best investments because research shows...and I think, you know, a 25-year study is pretty...I don't know how far back this this list goes, but, you know, looking at it over 25 years and saying, okay, the companies that are doing really well or that are, you know, going up on the list really don't have any correlation between that and how good of an investments they are.

Steve: Yeah, exactly. There was another study against the list that looked at a time period from 1992 through 2012, and they found that an increase in the company's "Fortune" ranking led to reduced stock performance over time. So the exact opposite of that. It's very surprising how quickly fortunes can turn when we're investing in individual stocks, because that's what we're really talking about here. If you look at the companies that are on this list and you invest in them individually, there could be very quick turnarounds. An example of that would be Boeing being at the top of the list.

Amy: Was at the top of the list, right? It's kind of the butt of all the jokes now because of course that plane took off, had that crazy emergency door literally fly off. And now they're looking at the fact that there were loose bolts on some of these planes. And as we saw as the result of that, Boeing stock plummeted. In fact, other companies in the aviation industry, at least initially, that had anything to do with those parts.

Steve: Sent shockwaves.

Amy: Yeah, exactly. And you never see things like this coming. You're listening to Simply Money, presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby. As we look at this huge list that "Fortune" puts out annually, looking at the most admired companies. Now, if your company is on this list, do you have every reason to be proud? Because this is great research that's done. It's what's admired by top executives in those industries. It looks at revenue. It looks at a number of things. But from the standpoint of if you look at this list as a whole and put it up against the S&P 500 and how that performs, those 500 companies perform as an index, these individual companies at the top of this list never, at least according to research, outperform the 500 companies that make up the American economy.

Steve: This is why as a firm we're advocates for using index-based exchange-traded funds. So you can cast a large net. There are ways to be diversified so that if one company on this list that you put a lot of trust in, something happens like it did with Boeing, it's not going to derail your financial future. That's another reason why most financial planners are going to talk about the importance of not being oversaturated in one company's stock. We've had entire segments on this, no more than 5%, maybe 10% of one individual security making up your entire portfolio. That can be very difficult. If you work for one of these companies at the top of the list and they've provided you a wonderful career to support your family and now they've given you stock in your 401(k) or in a stock purchase plan and you have faith in it, you put trust in it, it can be difficult to walk away from that, but there are unfortunate situations right here in Cincinnati with people working for GE, for example, that got absolutely rocked and their retirement accounts got flipped over upside their heads.

Amy: You can look at lists like this and there's also analysts and so-called experts that put lists and articles out saying this is why this company is going to be the next big thing, this is why you can't go wrong if you invest in this company this year. Right now there's people out there talking about Amazon and saying, "Listen, we don't think Amazon is, you know, Amazon which is toward the top of this list is saying their valuation is stretched They're looking at metrics and saying they're terrible low margins They're saying that they're pushing everything back to build an empire, that they're way too leveraged So you can have one headline on one financial website saying, "Yes, Amazon, all in on Amazon." And then other strategists and other analysts saying, "No, not Amazon," and I think it can be so confusing and just a lot to take in if you are an investor looking through all of these different places to say, "Where should I invest?" you're going to see conflicting information about the same company on two different websites.

Steve: Yeah, and if it's a company that you really like, you're just going to find the information that proves you're right.

Amy: The bias, yes, confirmation bias.

Steve: Exactly, there's a name for that and that's what it is. So, I mean, be careful when you're investing in individual securities, especially if we're using a list that a trusted resource like "Fortune" puts out with the top best companies worldwide because other research shows that that doesn't necessarily mean that that's what's going to net you the best return over the long term. I mean, it's akin to day trading. Again, that's why we talk about leveraging exchange traded index funds that cast a very large net.

Amy: You can look at companies and you can admire them. But when it comes to investing, you need a long-term plan. And once you've got that long-term plan, you sort of set it and forget it, right? You go back and revisit it and am I kind of staying along the lines of that path? But at the same time, you're not switching up your investments every year based on where they fall on Fortune's most admired list or what some headline is saying. You realize, okay, there's a reason why I bought into this exchange traded fund or this index fund because it helps me reach some financial goals that we've set. You set it, you forget it.

Here's the Allworth advice, invest in indexes. We feel very strongly about that. The average rate of return over the long term is going to get you where you need to go if you have a proper financial plan. I think lists like this are really interesting. You can be really proud of them if a company that you love is on it. But don't make investment decisions based on that. Coming up next, we've got a stunning stat that helps explain why homes are not selling. Plus, the group that crypto marketers are trying to reach right now, and it might surprise you. You're listening to Simply Money presented by Allworth Financial here on 55KRC, the talk station.

Listening to Simply Money presented by Allworth Financial. I'm Amy Wagner along with Steve Hruby. If you can't listen to our show every night, you don't have to miss any of our money advice. We've got a daily podcast for you. Just search Simply Money. It's right there on the iHeart app or wherever you get your podcasts. Coming up at 6:43, we've got some IRA tax rules that you need to know about. They can make a big difference. Okay. So if there was one stat that looked at what the heck is going on with the housing market right now, I think it would be the current mortgage rates, right? We got spoiled.

Steve: Oh yeah, for a long time.

Amy: Yes.

Steve: This is the situation here.

Amy. Yeah. Historically low mortgage rates.

Steve: Historically low mortgage rates. If you're one of the fortunate people that are locked into it, but you're looking to purchase a new property, it can be very challenging to walk away from your existing mortgage rate, to lock in a new one for 30 years that's double what you're used to paying, maybe even more than double.

Amy: Yeah. I think, what we lose sight of is the fact that these rates below, say, 3% were historically low. And there's new research out from Redfin that shows 9 out of 10 borrowers have an interest rate right now below 6%. Of that, 8 in 10 are below 5%, 2 in 10 below 3%. To your point, Steve, when you've locked in 30-year mortgage rate below 3% and you're looking at your house and you're saying, "This is not such a great fit for whatever reason anymore. We need to move across town for a different school district or we need an extra bedroom," it's really, really difficult to think about walking away from that sub 3% interest rate. And so I think so many people just took advantage and refinanced and refinanced again and got down to such low rates that now we're looking, and I was just looking at the 30-year fixed rate right now is a little bit south of 7%. Well, historically, 7% isn't terrible.

Steve: Yeah, I mean people are coming to terms with the fact that it's probably not going to go back to the levels that spoiled us for many years. And as interest rates continue to drop and the mortgage rates follow, I think we're going to see more sellers willing to sell considering that they're going to need to buy a new home with a mortgage rate somewhere that is not as low as what they'd like it to be, but no longer going to be 8%.

Amy: It's all a psychological thing, right? Like if the new norm becomes 5% and over time people realize, well, we're probably not going to get back to those sub 3% rates, 5%, if we really want to move and we're highly motivated...

Steve: That's what we got to do.

Amy: That's what we got to do. And so I think it's just going to take a few years for us to wrap our heads around the fact that we may not get back down. And as we look at, you know, the fact that the Fed funds rates, the Federal Reserve, our nation's central bank might pivot this year to lowering rates, I don't think that mortgage rates will follow along as quickly because you still don't have a ton of inventory out there. So I think that that 5% in most people that you talk to, Michelle Sloan, a real estate expert, is like, you know, hey, 5%, if you look at it historically, is actually pretty low. We've just been really spoiled in recent years and we may not ever get back to that.

Steve: Hopefully not. I mean that was a bad thing that they were at that level for so long. That's why the Fed had to kick interest rates back up so quickly.

Amy: Exactly. Exactly. All right. Well, something that is on a bounce back right now, crypto and there's new offerings out there, Bitcoin ETFs, right? So earlier in January, a couple months ago, ETFs became allowed. And so Bitcoin ETFs, so you can, and I think it's sort of for many people, legitimizes Bitcoin. It legitimizes cryptocurrency because we talk about exchange traded funds. You're going to pay lower fees. You're going to get a basket of assets there. So you're going to spread the risk out. Well, so now these companies that are kind of marketing these ETFs are marketing them to an entirely new group of people trying to convince them that crypto is the way to go.

Steve: Yeah, they're trying to break through to boomers, to the boomer generation.

Amy: Interesting.

Steve: You know, we did have a segment on this when these ETFs were approved by the SEC, I was honestly kind of surprised that it went through. I didn't see this happening yet because there's so little regulation that has led to terrible things like, like FTX and people losing a ton of money on these investments. So right now we have some, we have one of the largest investment managers in the world, BlackRock has an ETF, smaller ones like Bitwise. And at this point, obviously the boomer generation, they're wealthier, they may be more risk-averse, which is the opposite of what Bitcoin is. At the end of the day, it's an extremely aggressive, speculative investment. But what's happened here is several firms recently that they're starting to push marketing onto the boomer generation. Squawkbox, Kabuto, that, you know, these are shows that there's all of a sudden commercials that are showing up saying, "Buy Bitcoin, here's how you can do it with ETFs."

Amy: Yeah, these companies are going to where the money is, right? If you look at Arts graphs about where the disbursement of you know, American money is boomers, right? Have spent years amassing wealth, now they have it, and I think what they're trying to do with these ETFs is legitimize it. And to your point, Steve, this is a population that's more risk-averse. They have spent years trying to build this money and now they want to protect the money. And so now they're trying to convince this older population that the best place to invest their money is ETFs and they're going where the people are right there. They're running ads where they would be watching.

And you know what we saw were, you know Super Bowl ads over the past few years was you had your Tom Bradys and your Matt Damons and these kind of everyday people. You Have the Kardashians.

Steve: Larry David.

Amy: Yes, exactly, who has since said I regret actually repping this crypto brand but you had these you know, very kind of athletes and models and actors that were really kind of going to the mainstream 30, 40, 50-year-olds and now they're trying to say, hey, actually this is for the older generations. And I think it's interesting who they've tapped as kind of the spokesperson to kind of pitch to boomers.

Steve: The most interesting man in the world from the Dos Equis commercial. Well, the reason being, so what happened here is FINRA, that's the Financial Industry Regulatory Authority, oversees broker-dealer firms like BlackRock selling these ETFs for Bitcoin. And there are regulations against testimonials, which is exactly what the issue was. I mean, Larry David is actually part of a class action lawsuit right now that he needs to defend himself against because he was not an expert in Bitcoin. And what FINRA is asking for at this point is rather than having these celebrities be the spokespeople, they want somebody that has some baseline knowledge, a reasonable degree of expertise, as they called it. And somehow, I guess the most interesting man in the world falls under that umbrella.

Amy: I have no idea. I don't know if he's a crypto investor. But yeah, and I think it's interesting because where is the bar? You know, how do you say someone knows a lot about this or someone doesn't know a lot about it? I mean, one of the issues that we have kind of as a firm, when you look at how we feel about crypto is there's just not enough historical data for us to say, hey, this is good or, hey, this is bad. We can look at market cycles and we can say, oh, this is what you can usually expect in the equity market. This is what usually expect with fixed instruments like bonds. There's no historical analysis here to say, "Oh, okay, well, crypto is really down right now. But here's what you can expect over time." We just don't have that. And so I think it's interesting. And I like that FINRA's pushing in this direction toward regulation. But I don't know how you're going to say we need someone who knows X amount about this because it's just such a new kind of asset class.

Steve: I could see the commercials turning into something kind of like a healthcare ad or a prescription.

Amy: With 8 million disclosures?

Steve: Yeah, here's all the risks associated with investing in Bitcoin and then it's 40 seconds of...

Amy: Yeah. So you've got a eight-minute long commercial. The first 10 seconds are telling you how great Bitcoin ETFs are. And the next 50 seconds are the disclosures about all the money that you could lose.

Steve: Yeah.

Amy: Here's the Allworth advice. Just because it's easier to invest in crypto right now doesn't make it any less dangerous or better suited for your long-term financial plan. Coming up, is it worth taking a pay cut for a better work-life balance? We've got Julie on the job weighing in next. You're listening to Simply Money presented by Allworth Financial here on 55KRC, the talk station.

You're listening to Simply Money presented by Allworth Financial. I'm Amy Wagner along with Steve Hruby. There is a study that caught our attention, 50% of us, so one out of every two of us, say I would take a 20% pay cut if it meant better work-life balance. We've talked about this on the show tonight though. We're pulling in Julie Bauke, Julie on the job with her expertise on this subject. Julie, I'm wondering, does this research surprise you or is it in line with what you would have thought?

Julie: It's very much in line what I would have thought. In fact, I think if this question would have been asked, you know, 5,10, 20 years ago, we would have gotten the same answer. People have always valued flexibility but it wasn't an option and whether it's freedom to take time off, whether it's freedom to work different hours, work from anywhere, work from home, work flexibly, that has always been really people may desire but because it was never an option, no one really brought it up. Well, now all the sudden that it's an option and will continue to be going forward in fact as we move forward it's only going to become more common, people are saying, "Yeah, you know, when I look at what I value, pay's great," but some people have a situation in which they would be able to take a pay cut to continue to work flexibly because they value that more. Now, not everybody is in that position, but I think it says a lot about how people really are valuing all the sectors of their lives now, not just putting work over everything.

Steve: My concern comes from that of the financial planner's perspective. How might this affect one's ability to retire?

Julie: Yeah, I mean, it's definitely is something to consider. And so that's why I say it's really not for everybody. If you have a situation where, let's say, you know, you make, you already have some savec your retirement, you're maxing out within the 401(k), you're saving as much as you can, and you're still able to do this, you've got to look at the big picture. And go ahead, there are other people who have maybe dual income, and they make great money, but their lives as a unit are chaotic because everybody is on the eight to five hamster wheel. And the opportunity for one of those two people to step back while still considering the long term is definitely an option. So I think it's not it's not a decision that should ever be made in a vacuum. Although on some days, it may feel like, my gosh, you know, I'd almost give up 50% of my salary in order to be able to manage my life. And so people are looking at their whole lives versus work and then everything else. So yeah, I think you've got to take a look at that as well.

Amy: Julie, you talk about the fact that you think if this study had been done 5 or 10 years ago, people would have had the same response. I do think though the difference is, and I think about when I first started working in my 20s, yes, I might have valued work-life balance, but I never would have said that because I feel like the culture at the time and the workforce was you work your butt off, you show up, you are married to that job. That is the only way that you get ahead and to express anything otherwise would have been career suicide, I would have felt like, you know, and so it just seems like the shift has been in the fact that now you have people graduating from college who are saying, actually, even more than a high salary, I actually value a work-life balance. I don't feel like I could have talked about it back in the day.

Julie: No, no, no. You know, it was very much for especially, I mean, I'm a boomer, you know, boomers, GenXers for sure, we're always very much we were told you work hard for 40 years, you have to deserve or earn that time off or that time to relax or that vacation time. And, you know, that's all great. And I think there's there are certainly some people in older generations who believe that that was the way to go. But without a doubt, survey after survey is that people are two-thirds or more people are miserable at work. So I'm saying maybe that wasn't the right way to go. Maybe that wasn't correct. And younger people also saw their parents and grandparents complain about work, have to miss other activities or have to miss family vacations because of work. And so they've seen this and said, "Maybe there's a way to do this differently." And what I love is that a lot of Gen X and boomers are watching what millennials and Gen Z, how they look at work and they're saying, "Huh, wow," there's some envy there.

Steve: Maybe we could have done that differently.

Julie: Yeah, yeah. So there's a lot of stuff going on around that, but it's not going back to the way it was where work becomes a 40-year slog doing one thing. Then you're allowed to have fun. That is literally never coming back.

Steve: So you see that there's been a cultural pivot almost where employers now have to offer more flexibility in order to attract talent, is that what you're saying?

Julie: Yeah, yeah, the smart ones are figuring that out. Unfortunately, there are still a lot of them out there who aren't getting it. They still believe that they pound their desk, their fist and order people back, they'll come because boomers live. But the younger generation is like, "No, thanks." And they're moving on to find something else.

Steve: Realistically, do we even need to take a 20% pay cut to find a job with more flexibility in this day and age then?

Julie: Sometimes we don't. You know, frankly, a lot of this comes down to Econ 101. Is there demand for what you do? The more demand there is for what you do and the better at it you are, the more leverage you have in negotiating your situation. The smart companies out there are saying, "Well, we won't make you take a pay cut, come work for us, and we will give you all that as long as you perform." And I think that's the key. This is not a, I'm going to get all of this and I'm going to sit at home in my bed in my pajamas and do the bare minimum and that's not gonna work.

Amy: So Julie, when you're in the point of looking for a new job, first of all, how do you say that you value work-life balance? Because I guess there's part of me that still is a little nervous about kind of putting that out there during the interview process. At the same time, you don't want to sign up for something and then all of a sudden, and I've heard people complain about this, saying it was advertised as hybrid and then all of a sudden they expect me to be back. So how do you communicate that that's the expectation but still also make sure that what you're getting is what you thought and that you're still an attractive candidate even though it is something that you value?

Julie: The first thing I would do is, first of all, there is no way to guarantee that what you've been told in the interview process is always going to exist. There's no way. But what I would do is start with those companies, go on FlexJobs and there's a few other sites where they have really great with all remote jobs, are all flexible jobs. So if you are a company and you are posting your openings on sites like FlexJobs, you are putting it out there and saying we provide flexibility of some sort to our people and so start with those types of companies and see what they have to offer. Be super clear that here's my situation. A client recently took a high-profile job and she said to the person hiring her, "I have small children. I can only do..." It's a job that requires a lot of evening stuff. She said, "Two nights a week," and he said, "That's fine." And she put it, she had it in email confirmation and so far it's worked beautifully. So being very clear.

Once you determine there's mutual interest, that they really want you and you're very interested, then you can talk about, "Here are the things that, look, I'm going to come in and I'm going to do a great job for you and all the references and all of my LinkedIn recommendations will attest to that. Here's some of the things that because of where my life is right now I need to be clear with you before I say yes because I don't want either of us to get in a bait-and-switch situation." So being super clear upfront but not like demanding right out of the chute. Again, you have to wait until you've got some mutual interest and then get everything in writing and sometimes you can't get some of that stuff in writing but because it's like it's a deal between you and your manager but you can create an email trail that says, "You know, as discussed on every Tuesday and Thursday during the school year my start time cannot be until nine o'clock but I will of course work till six and I will make sure that the ball doesn't drop anywhere." So flexibility without some sort of commitment to strong performance and then following it up with strong performance is never going to get you what you want.

Amy: So the key is clear communication going both ways. But if this is your expectation, right, work-life balance, you certainly have to put it out there. Julie, I love your point about the fact that just the culture around this has changed. It will continue to change. And you see it staying this way for the foreseeable future. It means that our children will grow up probably with better work-life balance than many of us ever did. Great insights as always from Julie Bauke, Julie on the job. You're listening to Simply Money presented by Allworth Financial here on 55KRC, the talk station.

You're listening to Simply Money presented by Allworth Financial. I'm Amy Wagner along with Steve Hruby. If you've got a financial question you want our help and weighing in on, there's a red button you can click on while you're listening to our show. It's right there on the iHeart app. Record your question. It's coming straight to us. We'll help you figure it out. And straight ahead, we'll help you figure out how to save some bucks on car repairs, because maybe you've noticed this recently, but the price of getting a car repaired is falling on the astronomical side. So we'll get into that.

Okay, so this is something actually that happens all the time to the clients that we work with, the investors that we work with. And I was actually just talking to one last week whose mom had recently passed away. And you're dealing with the emotional side of these things, but there's also a lot to deal with with these estates. And one of the things that you have to think through is the tax consequences of inheriting this money.

Steve: Yeah, part of financial planning, it's not just the investment management side of things, it's tax planning, tax management. And this is kind of what that topic surrounds because what people don't oftentimes realize is if you inherit an IRA, it goes into an inherited IRA, as long as it's not your spouse, then you have to open your inherited IRA. And with that, you inherit the tax liability of those dollars based on your own income tax bracket. Now there have been changes, SECURE Act 2.0, SECURE Act that passed a few years ago. What it did is it removed what was called the stretch IRA, which would enable you as the person that inherited that account to stretch the RMDs out over the course of your entire life. Now it's a 10-year window.

Amy: It changed things. And here's why it changed things, because Uncle Sam was like, "Wait a second, we're waiting too long to get our fingers on this money." You know, and so from the perspective of someone who's inherited the money, it gave you all kinds of flexibility. Maybe you don't need that money for years, so you didn't have to tap it for years. SECURE Act 2.0 said, "Okay, hold on, not so long anymore. You don't get to deal with this over the course of your lifetime. You have 10 years to spend this money." And so you really have to look at the tax consequences of that. You take it all out at once, you're likely going to be bumped into a higher tax bracket. So I think this is where I say, you know, you want that team of people working with you, and you need a good tax professional. As these laws continue to evolve, SECURE Act 2.0, things change, and you're dealing with the emotional repercussions of losing someone that you care about, but you also have to figure out a strategy for taking out this money over the course of the next decade that's going to be the most tax advantage to you.

Steve: Yeah, essentially the reality of the situation here is with Uncle Sam wanting to squeeze tax money out of you because whoever you inherited the money from has deferred those taxes for their entire life, it can create a situation where there can be a bit of a tax bomb if you don't manage expectations around distributions accordingly, spreading it out over the 10 years, for example, and unfortunately, oftentimes, people that receive inherited IRAs, they're smack dab in the middle of the highest earning years that they've ever gone through in their entire life. And now Uncle Sam steps in and says, "Hey, send us that money while you're in the highest tax bracket you may ever be in." What do we do?

Amy: And it's interesting because the investor that I was talking to last week was toward the end of his working career, so peak earning years. At the same time, he was starting to think about retiring. And then this sort of bomb on top of it is this inherited money and how to deal with it and the strategy around that and what decisions that you make. And so we talk about that financial plan all the time as kind of your roadmap, but this is sometimes the detour where you go back to that roadmap and you say, okay, this was the original plan. Now you have this extra money. How do we weave this into the strategy that we have for pulling this money, using this money at the same time, not having terrible tax consequences with it?

Steve: Yeah. So if you know that you're going to be retiring in the near future, then you can defer taking those RMDs. There's a couple of schools of thought here, depending on how the IRS might look at it. It's, you can wait until year 10 to take the full distribution. If it's a small account, maybe that's not a big deal. But if it's a large account, if you're fortunate enough to inherit a million-dollar IRA, for example, then waiting until year 10 is just going to rock that thing with taxes. So spreading it out accordingly, but maybe waiting until you're no longer earning income. So taking distributions starting the year that you retire and then using those required minimum distributions from your inherited IRA to supplement your paycheck. For example, if you're still working and you're not yet maxing out different retirement vehicles that you have access to, you can increase your contributions for the deduction while taking out distributions from the IRA to kind of create a wash situation. So there's ways that you can help manage this, but it's important to understand that when you have an inherited IRA from a non-spouse that you, you only have 10 years to drain that account.

Amy: I like the word strategy here because I think that's what you have to have. This can't be like, I'm going to deal with this in a few years. It is from the get go figuring out what the best strategy is for you. Just pulling back the curtain a little bit on the IRS, this is an agency who comes up with their new rules, SECURE Act 2.0, and then they wait a couple years and they say, "We're going to give you some guidelines about this as we decide how this is really going to shake out." As you're making decisions in real time, then you've got the IRS sort of changing the rules on you. So this is why it's important to work with a tax professional.

Here's the Allworth advice. Inheritance tax laws can be incredibly confusing. Consult a fiduciary financial planner and of course a tax pro before you make any moves. Coming up next, how to save on car repairs. You're listening to Simply Money presented by Allworth Financial here on 55KRC, the Talk Station. You're listening to Simply Money presented by All Worth Financial. I'm Amy Wagner along with Steve Hruby. Okay, if you've had an issue with your car recently and taking it in to get repaired and you thought, what the heck? Why did that cost so much? You are not alone. Car repairs are actually more expensive right now than ever before.

Steve: Yeah, they've moved up faster than inflation.

Amy: Go figure.

Steve: Yeah, I know, right? Motor vehicle maintenance repair costs, they increased 4.1% per year from November of 2013 to November of 2023, so that 10-year period, compared to just 2.8% for the overall consumer price index. It's getting more expensive more quickly than everything else.

Amy: Yeah, and so I think if you are looking at, okay, how do I save money? If you can find a trusted car repair person that you know that you can trust that are gonna give you a good deal, they're worth their weight in gold, right? Doing your research, talking to other people can go a huge way. A lot of those dealerships sort of incentivize you to come back to them when you try to resell that car, which can be great for the resale value of the car, but not so great over the years that you own it because oftentimes the dealerships are more expensive.

Steve: Yeah, depending on the type of vehicle you have and how much money you have in the bank, it can be beneficial to use the dealership because technically they're going to have more expertise attached to your particular vehicle than most mechanics out there. But that doesn't mean that you can't figure out what's wrong, understand the price behind it, and just take that over to another mechanic, a trusted one that can say, "Yeah, I could do that for $200 less."

Amy: One of our producers, and I think this is a brilliant idea, he prints out the list that the actual maker of the car has, you know, at the 50,000-mile mark, "This is all the things that you need to have done." And then he takes it to someone else that he trusts and they say, yeah, we can do all these things that they would be doing at the dealership and we can do it for $200 less or $500 less, right? And so he knows it's getting done, all the things are getting done, but he's going to be able to do it cheaper. This is where doing your research comes in handy. You have to think about cars nowadays. All of the chips that are in them, all the electronic and computer components, they're heavier, they go faster. You know, so collisions create a lot more damage. My husband was on a side road and was rear-ended a couple years ago. It was a Tesla and so all the computer chips and all the things, it was like nine months before we got that car back. It was crazy. It took forever. And the cost, I mean, luckily our insurance company covered it, but it was astronomical.

Steve: By the way, I saw something "Popular Mechanics" Q&A with an anonymous dealership service manager that says your bill is likely to be padded with extra charges when you take it through the dealership.

Amy: Been there, done that when I was just getting out of college took a car in it was a $500 charge. I said, "You need to call my dad." They explained all the charges they got off the phone. They said it'll be $120 because my dad she didn't need those things. They take advantage when you don't do your research. Thanks for listening tonight. You've been listening to simply money presented by Allworth Financial here on 55KRC, the talk station.