A major change to Social Security, misleading financial headlines, and you ask the advisor.
On this week’s Best of Simply Money podcast, Amy, Steve and Allworth advisor Bob Sponseller discuss the repeal of the Windfall Elimination Provision and Government Pension Offset. These changes will greatly benefit those with public pensions such as teachers, firefighters, and police officers, allowing them to receive full Social Security benefits alongside their pensions.
They also tackle concerns about potentially misleading financial headlines that can lead investors to make hasty decisions. Plus, the episode provides valuable advice on how to maximize your 401(k) contributions without missing out on employer matching, highlighting the importance of understanding your plan's features, including true-up provisions.
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Amy: Tonight, a big change to Social Security that will impact millions of people. Well, you might not want to max out your 401(k) right away this year, and you're asking the advisor a lot of good questions.
You're listening to Simply Money presented by Allworth Financial. I'm Amy Wagner along with Steve Hruby and Bob Sponseller. I just want to say I'd like to dedicate at least this part of the show to my friend Kate. She is a speech pathologist in Boone County Schools, and she has been to Washington to Capitol Hill many times through the years to lobby for something or against something called the Windfall Elimination Provision. I think for people who don't have public pensions, you might be saying, what? But this essentially is something that went into place a couple of decades ago that said, hey, if you're getting a public pension, right, you're a firefighter, a police officer, a teacher, and you've also paid into the Social Security system, you're going to get a minuscule Social Security benefit in addition to your pension. And they were calling it double dipping. And big news is over the weekend, the Windfall Elimination Provision was overturned.
Steve: Yeah. Didn't you hear about this from Kate before you even saw it on the news or read about it?
Amy: Yeah, I did. I did. She was posting about it. So excited. And she's been a huge advocate for this for years. And I get it. She's talked to so many groups of teachers through the years who maybe worked 20 years, right, a regular job. So paying into the Social Security system. And then they went back to work or went back to school, became teachers or whatever, firefighters, you name the public pension role. And it was like those 20 years didn't matter of paying into the system. And now it does. Now they'll get full benefits from both jobs if they've got them.
Steve: Yeah, Biden signed into law changes in specifically Social Security and how it works for people like you're talking about. Employees that were teachers, firefighters, police officers. This is called the Windfall... What you were explaining was the Windfall Elimination Period and the Government Pension Offset, both of which reduce Social Security benefits for those receiving that government pension, because they called it double dipping. Hardly seems fair. But this law that has people pretty excited that are in those types of positions, repeals those two rules. So those folks will be getting Social Security benefits that they earned, even if they're receiving that government pension.
Bob: Yeah. And it also eliminates the need for financial planners and advisors like ourselves to sit down and do these, what can be very complex calculations.
Amy: Yes.
Bob: When we're sitting down with people to help them plan for retirement to actually help them figure out what their retirement income is going to be.
Steve: That's a good point.
Bob: That'll make things a lot simpler for everybody.
Steve: Yeah, it makes our jobs easier too. And this is around three million people that will be impacted by this change in the rule. These people will see their Social Security payments go up.
Amy: It's so funny the timing of this, but I talked to a client yesterday. She's in her 80s. Her husband passed away several years ago. He was a Cincinnati police officer and then also had a second job. Right. They had a bunch of kids. He needed two jobs to make ends meet. He was a security person for McAlpens downtown years ago when McAlpens was still open. So he had two jobs at the same time, both for decades, and paid into Social Security during that time. When he passed away a few years ago, she was mentioning that her retirement income then went down substantially. And so she cannot wait to hear the impact of this. She's scraping by every month to be able to pay the bills. And maybe now she'll get at least part of the spousal benefit from that Social Security that she never could have gotten before. So this I think is going to be a game changer.
And you mentioned this is going to impact people who are already retired. Very rarely can we ever tell someone that the money that's coming in during retirement is actually going to go up unless it's just your investments, right, have gained over the past years. But this, I think is a win for so many of these public employees.
Bob: Well, Amy, great news for your client, you know, in particular, and for many surviving spouses. According to the Congressional Budget Office, this law change is going to increase spousal benefits that fall into this category by as much as $1,190 a month for upwards of 390,000 surviving spouses as of December 2025. And that's according to data from the Congressional Budget Office.
Steve: I was wondering who was going to have to share the bad news. And it seems like it seems like I'm up.
Amy: We've left that to you.
Steve: Yeah. Impact on the Social Security system. Obviously, more money going out does add stress to the trust funds that is already set to be depleted in 2035. You know, we've touted that number before. Apparently, there's an 80% probability that this will happen sometime between 2033 and 2039. That's actually a new figure. I hadn't seen that before.
Now, once the trust fund is depleted, that doesn't mean the money is gone. It just means that there is a reduction in benefits for folks that are already collecting or yet to collect at that point. So when we're eliminating things like the windfall elimination period and the government pension offset, it does reduce the amount of time that we have before some kind of changes need to occur that ensures that Social Security will be what we all expect it to be.
Amy: You know, it's interesting because I kept saying, as this has been talked about through the years, I wonder what the impact of this will be. You know, I mean, quite honestly, moving the needle maybe up six months doesn't sound terrible to me. I would hope, really hope that by the time we get to this point, the Congress, that Washington does something about it, I think it could be catastrophic for people to only get 80% of their promised benefits. We know that Social Security is only supposed to replace 40% of your paycheck when you were working. But time and time again, for a lot of people, it's 80%, 100% for some people. Right? And so this reduction benefits could be a huge deal. There's lots of options for how they could fix this. It just remains to be seen how they'll do it. And we've said this many times here on the show, they're going to kick the can down the curb as long as they possibly can. We'll still be talking about this in 2029.
Steve: It's an easy way to lose votes, increasing taxes. And that's kind of what some of the easier solutions are going to be.
Amy: Or increasing full retirement age. Yeah.
Steve: Yeah. Things like that. You know, means testing, removing the wage cap once you earn about $169,000 you're now paying into Social Security. But I do want to highlight quickly, you mentioned six months. The numbers show that getting rid of the windfall elimination period and the government pension offset reduces Social Security's timeframes before changes need to happen by six months. That is what the numbers show. In my opinion, worth it.
Amy: I agree.
You're listening to Simply Money presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby and Bob Sponseller. Major news for those of you who have public pensions, teachers, firefighters, police officers, over the weekend, President Biden signed into effect essentially rolling back, repealing the windfall elimination provision. So you should be able to take advantage of that full Social Security benefit. No idea how long it's going to take to rule this out. But, you know, the conversation I was having with a client yesterday is when you think about how quickly they got stimulus money out during the pandemic, maybe it won't be too long.
I want to switch gears now. One of my favorite things that we do on the show is just rip apart headlines. And this is one that the second I saw this, I thought, oh, here we go again. New year, but nothing has changed. Here's a ridiculous headline that we saw in Market Watch. Here's what the first two trading days of January predict for stocks in 2025. Let's make sweeping predictions about the entire year based on two days.
Bob: Yeah, Market Watch contributor Mark Holbert, who does occasionally put out some worthwhile information, wrote an article saying that the period from Christmas through the second trading day of January marks the traditional definition of the "Santa Claus rally" that I think we all hear about in the media ad nauseam over the holidays. And according to the article, over the last century, the U.S. stock market during this period of time has risen more frequently than over other periods of comparable length. However, this year, you know, between Christmas and the first two days, trading days of 2025, the Dow has gone down by 1.3% and the S&P has gone down by 1.6%. So, Steve, does this mean that we're headed for another Great Depression? Are the wheels coming off of the U.S. economy?
Steve: I hate these articles. Oh, my God, I hate these articles. I can't even make jokes about that because it upsets me. People see this type of headline and they don't necessarily dig into the details and they think, oh, my God, I need to run for the hills. I need to put my 401(k) in cash. Things are going to tank because blah, blah, blah. You know, the people that write these articles have no fiduciary responsibility to make sure that you're making good decisions with their money, with your money. They have a responsibility to their employer to make sure that people click the article, share the article, look at the article so they get kicked back from marketing. It's very frustrating to me. So a short answer. No.
Bob: And fear sells advertising. Right, Steve?
Steve: Yeah, if it bleeds, it reads. And this is a nice example of that.
Amy: To your point, right, there's these headlines. You know, what do the first two days tell us? And I think if you read the first maybe paragraph or so, it kind of sets it up. Right? The Santa Claus rally. Santa Claus didn't rally this year, maybe slept in, however you want to look at it. When you get further down the article for those who are still hanging in there, then he says, Okay, is there any sort of historical correlation between kind of the lack of this rally that maybe we've traditionally seen and what the market does throughout the year? And then his answer is no. So essentially, you know, the headline could have read no reason to panic on the rest of the year based on the first two days of trading. But hey, that would not have sold, you know, I mean, that would not have been the clickbait that they're looking for here.
Steve: Well, that's part of the issue is that people don't always actually read the article. They just headline and they need to react based on that. You know, that's enough for many folks in this day and age or maybe they stumble across this on social media to share it. And then that spreads like wildfire. And then they're calling their 401(k) provider to say, hey, move me to cash.
Amy: Here's the Allworth advice. Listen, headlines like this don't let these trick you into thinking the worst is coming. They're trying to get clicks here. They're not fiduciaries. The point that Steve made. Stick with your long-term plan.
Coming up next, if you're thinking about just maxing out that 401(k) right away, sounds like a great idea. Maybe not. We've got a word to the wise, 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 and Bob Sponseller. If you can't listen to our show every night, you don't have to miss a thing we're talking about. We've got a daily podcast for you. Just search Simply Money. It's right there on the iHeart app or wherever you turn to to get your podcast. Coming up at 6:43, so many questions going into the new year about 529 plans, Roth IRAs and much more. We'll get to those in just a few minutes.
resident Biden been busy in the last few days of his administration here. He's also announcing an initiative to remove an estimated 50 billion dollars in medical debt from the credit reports of about 15 million Americans. Let's get into why this is and what we think.
Steve: Yeah, so the thought process behind this is that it bans lenders from using medical information when they make lending decisions. You know, previous research by a watchdog agency that looks into these types of things found that medical debt factors into thousands of denied mortgage applications annually. You know, this agency contends that medical debt on the consumer credit report is a poor predictor of whether or not folks will be able to pay back their loans.
Bob: Yeah, and I understand and I certainly empathize with people that have high medical debts and are trying to make ends meet, especially with all the inflation that we've been enduring ever since the pandemic. I can't help but think back to the housing crisis when I read this headline. And what I mean by that is the easier we make it for people to borrow money that they cannot afford to borrow, you eventually have to pay the piper and there's usually negative consequences that come. And again, I don't take away whatsoever for people that are struggling with medical debt and need to buy a home and all that. My practical advice just remains on that. Never let anybody else, a mortgage broker, anyone, tell you what you can afford to borrow because, you know, I go back to the biblical verse, the borrower is servant to the lender. Our economy is designed to get people to borrow money and usually borrow a little more than they can afford to borrow because that's what keeps the wheels turning and the economy spinning. And you got to pay the bill at some point. So yeah.
Amy: On the flip side of this, however, this to me is not like you went out and bought a car and now you're trying to get a loan that maybe you can't afford or you took on too much credit card debt. This medical debt for all of these people, I would be venturing to say, is because it was many times a catastrophic diagnosis that was not expected. And for anyone who's been through a major surgery, any kind of major treatment, and those bills start to rack up and to pile up on the kitchen table or in your inbox, it can be overwhelming. And I can see where many people go into debt because of diagnoses or issues like this. And I don't think their credit report should be dinged for something they can't control. Yes, you can control credit card debt. You can control taking on other kinds of debt. So I actually think this is a move in the right direction as far as what's fair to consumers. We'll certainly see how this played out.
Okay, if one of your financial resolutions for this year was to max out your 401(k), maybe for the first time, good for you. This is an excellent step in the right direction. But let's get into how this could blow up in your face if you try to put the dollars in there too quickly.
Steve: Yeah, I've had folks ask me, hey, you know, I can afford to cash flow money very quickly into my 401(k). I can max it out in April. Should I do that? And the answer is usually no. But let's do a little bit of research and dig into the details behind the rules of your 401(k) first, because many of us receive a company match. Now, remember, you need to be contributing to your 401(k) in order to receive that match. What happens if you hit the limit early in your 401(k)? Your contributions shut off. So if you're not contributing, do you get a company match? The answer is maybe. And that depends on whether or not your 401(k) plan has what's called a true-up feature. This means your employer will come back and make you whole even if you weren't contributing because you hit the limit early in your 401(k) plan.
Bob: Yeah, and roughly seven in ten 401(k) plans across the country do have that true-up feature already baked into the plan. So that means three in ten don't. So if you're one of those people that really want to and people talk about getting your money into the market early as possible in the year and front-loading your contributions, all that, like a lot of things we talked about, you need to look at your summary plan description for your plan to see if the plan has a true-up feature and if it doesn't and you're one of those people that's going to be "over contributing," you should know that on the front end instead of the back end so you don't get a negative surprise at the end of the year.
Steve: Yeah, the solution...
Amy: I'm gonna label this a good problem to have, however.
Bob: Oh, absolutely.
Steve: Yeah. You know, unfortunately, though, I have seen folks in that three out of ten category. They're so pumped. You know, they had some changes to their income situation. They made really good decisions. They got their debt under control. Now they're saving so much that they're maxing their 401(k) early. They're so excited. And then I ask them, do you get a true-up? And they say, what are you talking about? And then we look and they've missed out on free money for two or three years because their custodian of their 401(k) didn't explain that to them, that their employer didn't explain that to them. So they missed out on free money. So if you're in a situation where you are fortunate enough to be able to max out your 401(k) plan, then you do need to take the extra steps to be diligent to make sure that you're not going to miss out on that free money. The easy solution is to spread your contributions out throughout the year. That's an easy solution for this one.
Bob: Yeah, this is a great topic because, you know, not everybody has a Steve out there looking after them and looking after their 401...
Steve: Or a Bob. Or an Amy.
Bob: Well, but I'll give you credit...
Steve: But especially a Steve.
Bob: ...where credit is due. You do a great job on this with your clients and whether you have an advisor or don't have an advisor, this is an important thing to take a look at in January and February. Get out that summary plan description. Find out if your plan does have that true-up and plan accordingly.
Amy: You guys know this is my pet peeve, right? So many people spend so much time on things like planning your summer vacation or planning your spring break. You probably know every attraction and great restaurant within 10 miles of wherever you're going. But you don't know the features of your 401(k), which, by the way, is the number one vehicle most of us have between getting from now working every single day and to retirement. So it's important to understand how much are you contributing. What are your options? Are you getting the full company match? Do you have a risk tolerance? Do you have the proper allocation that matches your needs? Do you have something like this true-up feature in there where if you are kind of front-loading your 401(k), you're not going to miss out on some of that company match?
I mean, you know, one example of this is, you know, say you're under 50, you're making $200,000 a year, your company offers a 5% match. With 26 pay periods and a 20% contribution rate, you're going to reach the deferral rate after 16 paychecks. So you could maybe miss out on about $4,000 worth of that 401(k) match by maxing out without a true-up. So it is so important when you look at the dollars of cents and cents of this to figure out what you could be missing out on to get this right.
Here's the Allworth advice. Get to know the ins and outs of your 401(k) plan to make sure you're not leaving any free money on the table. Coming up next, a new year means scammers are refreshed, ready to pounce. We're going to help you protect your money 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 Bob Sponseler. New year, new ways that scammers are going to try to get their hands on your money. And so we want to make sure that we are doing everything to inform you about how you can protect yourself, your family, your loved ones.
Joining us tonight is our good friend, Jocile Ehrlich from the Cincinnati Better Business Bureau. You know, Jocile, we're just into January now. A lot of us still have maybe a gift or two lying around that needs to be returned. It didn't fit. It wasn't exactly what we wanted. What do we need to keep in mind with those?
Jocile: Okay, well, hurry up. You don't have a lot of time. Take those items that you don't want that don't fit in their original packaging and the receipt to the store. If you don't have the receipt, expect that you're going to get a store credit and it's usually going to be for the lowest sale price. So expect that you're going to lose some money on that deal if you have to return things. Return them as soon as you can, because many stores are not going to take items back beyond 30 to 90 days. So for those stores that have a 30-day limit, you better get moving on that this weekend. You can usually find a store's return policy either on the back of the receipt or on the company's website. If somebody bought you a gift online, check the website to see who pays for shipping. And if you have to pay, you might be able to avoid some of those shipping charges if you can return it to the store instead. And my constant reminder, if you got gift cards, use them before you lose them.
Bob: So, Jocile, let me get this straight now. If somebody, you know, say bought Amy a gift and they bought it on sale and it doesn't fit right and she has to go to the store to return it and get something else, is she going to have to pay full price to replace that gift with something that she actually likes and that fits? Or will she get the same item at the same price?
Jocile: If she's exchanging an item for one that fits, it's the same item. It will be an even exchange generally. But if she's asking for the money back, it would be at the lowest sale price usually.
Bob: Got it.
Amy: Good advice there, Jocile.
Okay, many of us as we look at 2025 and I was actually just thinking about this the other day, like what percentage of us actually make this resolution? Because I know I do every year. Like this is the year I'm going to really get in shape. So for those who are joining a gym, what do we need to keep in mind?
Jocile: Well, we've seen lots of these gym promotions right now, those low introductory offers. They may draw you in, but joining a gym is sometimes more about the contract than the gym itself. Make sure you understand what you're signing and ask a lot of questions. One important thing that you should be asking about is are there hidden costs like cancellation fees? Check the contract for that. Ask them what happens if you move? Is your membership transferable to another location? What happens if you move out of the city where they might not have a location? Are you still obligated to continue your membership for the entire term?
In Ohio, just so that your listeners know, if you or the gym moves more than 25 miles away, you're entitled to a pro-rated refund. You also want to find out if you can freeze your membership if you go on a long vacation or you can't use the facility for a while. And ask if the gym offers a free trial. Many do. Then go to the gym at the time that you would normally go to the gym to exercise, so you can see how busy is it at 6:00 in the evening and can I access the equipment that I need to access readily or do I have to wait in line? If you're not getting good answers or they're pressuring you to sign up before you get a chance to do a workout or take a class, you might want to check out another gym. And if you do join a gym and then change your mind, make sure you follow the cancellation process outlined in the contract so that you get your money back if that's an option.
Bob: Wow, Jocile, I am already completely overwhelmed here. Amy, I think I'm just going to stay on the couch and watch football.
Amy: Just an excuse for Bob to not work out. And I think these are just excellent points.
Jocile: I do what I can to help you out, Bob.
Amy: Yeah. Okay, another thing I think that we want to warn people about, Jocile, are social media scams. Gosh, I mean, since we started with social media, there have been scams of all kinds. Is this something new or an old scam we need to warn people about again?
Jocile: Well, it's all an old scam. It's just a different version of it. Right now, personalization is really hot. So you're scrolling through your social media feed. You see an ad for a really nice personalized product, maybe a sweatshirt with your name on it, maybe a keychain with your cat's face on it or a paint-by-numbers kit made from a picture you sent of your trip to Hawaii last summer. So you click on the ad, you go to the website that looks legitimate to make your purchase. Then when the product arrives, if it arrives at all, it's not what you were expecting. It was poor quality or it's completely different than what you expected to get. When you try to contact customer service, same story, different day, they don't respond or if you do reach somebody, they promise to fix the issue, but they don't. You're left with a product you don't want and no way to get your money back.
So a couple of things to prevent this from happening. Double-check the URL and confirm that you're on a company's official website, not an imposter site. Do your research. Check out the company on bbb.org or other review sites to see what they have to say about the consumer interactions. And if you can, pay with a credit card when making online purchases. There's a better chance that you can get your money back if things don't go well.
Bob: Yeah. So Jocile, am I correct in assuming that all this personalization, and it's very sophisticated at that, is designed to get us excited in the moment about seeing our vacation or family photo on a sweatshirt. So we click that thing as soon as possible, you know, getting caught up in the emotion and the excitement without even thinking about what we're doing?
Jocile: Exactly. Exactly. Scammers know what's hot and that's where they focus their energies. And as I mentioned earlier, these personalized items are really big. You'll see them on social media. You'll see them on television advertising. Scammers are going to be wherever things are hot.
Amy: I'm totally guilty of this. I'm just going to tell you right now, if you put my dog, his face, on something on social media, I am just about to click before I hear Jocile in the back of my head warning me, which is why I really appreciate these segments. Jocile, I want to pivot really quickly because I know a lot of people are maybe thinking about new jobs in the new year. We just have about a minute here left, but what do they need to look out for as far as scams?
Jocile: There's a new thing out there called a tax.. task scam. Excuse me. Starts with a text or a WhatsApp message, a WhatsApp message. Excuse me. Advertising online work that involves completing various tasks related to things like app optimization or product boosting, which is essentially liking things online. If you accept the job, you'll be paid a small amount, sometimes in cryptocurrency. Then the next go round, they're going to ask you to put up some of your money. If anybody asks you to put up your money to get paid, walk away, absolutely walk away, and obviously ignore unexpected texts or WhatsApp messages about jobs. I guarantee you it's a scam. I got one myself. It was unbelievable. I could make a ton of money for working 20 to 50 minutes a day.
Amy: It's funny you say that I actually just got one this week too. And it's, I can't remember, but it was something to do with social media. You could do it from the comfort of your own home, make big money. And you know what I actually thought? My teenagers, I need to warn them about this because I could see them, right? They're broke all the time anyway, kind of jump. Oh, this is easy. I can do this from home. I don't even have to leave my bedroom. So this is a great kind of reminder. Not only keep these things in mind as you go about your life, but spread the word to your loved ones, because these are always good reminders on how to protect yourselves. These scammers are smart. They're switching up the ways that they try to get to you. And that's why Jocile Ehrlich from the Cincinnati Better Business Bureau, her advice is just so impactful because it can save you in some cases, hundreds, thousands of dollars.
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 and Bob Sponseller. Do you have a financial question that you would love to get answered in 2025? There's a red button you can click on while you're listening to the show. It's right there on the iHeart app. Record your question. It's coming straight to us.
And straight ahead, a look at what your home insurance may not cover. I know I was standing in my window this week, looking at all the snow piled up, thinking hope the roof holds out on this one. We'll get to that in just a few minutes. You know, one of the things I love now that Bob has joined the show is we've got another advisor voice behind the microphone here and I love fresh perspectives. Our first question tonight comes from Sean in Ludlow. Let's see what he has.
Sean: Over the years, I've saved some money in my 529 plan for my son, but he's now decided not to go to college. What can I do with the money now?
Bob: Sean, this is a great question and it's actually one that comes across our desk daily with our clients here. So as you might imagine with clients that have two, three, four kids and do a great job of planning for college, you know, when they're born or they're two or three years old and we start these 529 plans, we don't know what's going to happen. And sometimes the kids get athletic or academic scholarship. Sometimes they decide to go a different direction than college altogether. So there are a myriad of options. The one that some people default to as the account owner is, hey, can I just take that money and spend it because I still own the account? The answer is yes, but you're going to pay a 10% penalty tax just like you would on a premature, you know, IRA distribution and you'll pay all the taxes on the growth in the account. So that's not the best option.
What a lot of people do and what we help people do all the time is if one or two of your other kids are going to go to college, you can very easily transfer the account from the one son that's not going to go to college to the account for the kids that are going to go to college. And that's a non-taxable event. And it keeps the tax deferral and growth and tax-free withdrawals for qualified education expenses in place.
Another option is and there are some strings attached to this as well. You can now get into using that money for the kid that's not going to go to college and open a Roth IRA for them. Now, some of the strings attached are the money must have been in that 529 account for at least 15 years. And the amount that you roll over to the Roth each year you roll it over must have been there for at least five years. And Steve, I know you have a couple of other things to add.
Steve: Yeah, I mean, this is just Secure Act 2.0 in action. These are some new rules that were implemented that were 529s are now more flexible than ever before because you're essentially being able to... you're able to use that 529 as a vehicle to kickstart retirement savings for kids that aren't going to use it for college. And I think that's a fantastic change.
Amy: I'm going to throw this out here, too, with a disclaimer. This might be urban legend at this point, but years ago we were talking on this show about the fact that, yeah, these 529s are incredibly flexible, much more so than they used to be. If your child does not need this money, they're not going to college or, you know, they've got the scholarship. You can use it for educational purposes. And again, this is back to the kind of urban legend or folklore part of this. But I have even heard, don't take my word for this. Do your research. That you can do something like golf lessons, culinary lessons, things like that. And a 529 may cover that.
Steve: I'll kick it up a notch, Amy. The same urban legend I heard is that somebody found a way to do golf lessons on a cruise and they use the 529 tax-free to reimburse themselves. Again, not advice, hardly recommended at all. But part of the urban legend that I think is quite funny about these things.
Amy: Let's get to Molly's question. She's in Loveland.
Molly: How many Roth IRAs can I have? And if I convert money to one, can I just put it in one of the accounts I already have?
Steve: Yeah, you don't need to open a new Roth IRA when you're doing a conversion. You know, typically I would recommend having one Roth IRA because you have an easier time tracking your overall investment strategy. But the short answer is, is you can have a whole bunch of them. There's really no point in doing so, but you're allowed to have multiple Roth IRAs. I get the easy question.
Amy: Yeah, I know you did. Let's get to Judy. She's in Westchester.
Judy: I have some charities listed as my beneficiaries on my 401(k) and IRA. Is this a good idea for when I pass away?
Bob: Yeah, Judy, I think this is a wonderful idea and it's an idea that we share with clients all the time. And this gets into the tax planning aspect of what we do, you know, when it comes to leaving assets to chosen heirs, whether that be family members or charities. So, you know, just to summarize here, anything that you leave from an IRA or qualified plan to charity, goes completely tax-free to the charity. So it's an extremely tax-efficient way to transfer assets to charitable causes. The flip side of that is, well, what happens to the money that's supposed to go to my kids? Well, this is where with good planning, using non-IRA, non-qualified plan, you know, to our assets to leave money to your kids, a reminder that you get a stepped-up cost basis at death on those assets. So leaving qualified or IRA money to charity and then non-qualified money to your kids is in fact the most tax-efficient way to go here with transferring assets to the next generation.
Amy: Yeah, a lot to think through from a tax standpoint here, but a great option for a lot of people.
Coming up next, we're looking at what your home insurance may not cover. Let's not get any surprises that we don't want.
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 and Bob Sponseller. Maybe you, like me, at some point over the past few days as the snow was just coming down in bucket fulls was like, oh gosh, like hope the roof is good. Hope there's not going to be any damage from this. And I think it begs the question, do you know what your homeowner's insurance policy does, in fact, cover? The good news is if you do have some kind of damage from something like a snowstorm, you're probably going to get that covered.
Steve: Yeah. So things that your homeowners insurance typically cover, includes damage from snowstorms, tornadoes, lightning, fires, damage to not only your home, but the tax detached structures on your property, such as a shed, garage, fence, gazebo, these are all covered by the same thing. You know, most policies also reimburse you for your possessions, including furniture, electronics, appliances, clothing. So there's a lot that is covered, but there's also some things that might catch us off guard that aren't covered.
Bob: Yeah. The big thing that is not covered, and this is why you're seeing all the, you know, hearing all the weeping and gnashing of teeth from our friends down in Florida and North Carolina is floods. Typical home insurance does not cover damage that results from land movements, such as an earthquake, landslide, sinkhole, floods, you know, that's a big problem. And that's why you have to buy separate flood insurance if you can even get it anymore.
Amy: You know, in my former life as a TV news reporter, I covered even here locally, a lot of just, you know, major rains that we would have where people's basements would get incredibly flooded. And I can recall even seeing like board games floating down the hallway of people's basements, right? Like terrible damage. And then, then they figure out, right, that there's no coverage for this in their insurance plan. And this is a terrible discovery. Now, listen, if there is an impact from water resulting in something that's sudden or accidental, like if a pipe burst in the wall, something like that, that can in some cases get covered. But flooding from things like rain, not covered. We're huge proponents of having an umbrella policy, which can give you, you know, for a lot of people, an additional maybe million dollars worth of coverage. It's usually not a super expensive policy, but it kind of covers the gaps in what you have in your normal insurance coverage. And that can be a great option as well.
Bob: Yeah, another thing, Amy, and this is more applicable, I think, to our friends here in the greater Cincinnati area that is not covered by standard homeowners insurance is mold. And this one hits close to home for me. My, you know, my wife and I's oldest son and his wife are literally in the middle of buying their first home right now. And they had their home inspection yesterday and some mold was found, you know, up in the attic and, you know, that's going to need to be addressed. I'm sure the people selling the home were not aware of it, but, you know, if you don't have a good home inspection and you go in there and there's mold that's been undiscovered and you have to deal with it later, that is not going to be covered by your homeowners insurance policy. So that's another reason to get a real good, thorough home inspection before you buy a home.
Amy: Excellent point. Thanks for listening tonight. You've been 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 and Bob Sponseller. I just want to say I'd like to dedicate at least this part of the show to my friend Kate. She is a speech pathologist in Boone County Schools, and she has been to Washington to Capitol Hill many times through the years to lobby for something or against something called the Windfall Elimination Provision. I think for people who don't have public pensions, you might be saying, what? But this essentially is something that went into place a couple of decades ago that said, hey, if you're getting a public pension, right, you're a firefighter, a police officer, a teacher, and you've also paid into the Social Security system, you're going to get a minuscule Social Security benefit in addition to your pension. And they were calling it double dipping. And big news is over the weekend, the Windfall Elimination Provision was overturned.
Steve: Yeah. Didn't you hear about this from Kate before you even saw it on the news or read about it?
Amy: Yeah, I did. I did. She was posting about it. So excited. And she's been a huge advocate for this for years. And I get it. She's talked to so many groups of teachers through the years who maybe worked 20 years, right, a regular job. So paying into the Social Security system. And then they went back to work or went back to school, became teachers or whatever, firefighters, you name the public pension role. And it was like those 20 years didn't matter of paying into the system. And now it does. Now they'll get full benefits from both jobs if they've got them.
Steve: Yeah, Biden signed into law changes in specifically Social Security and how it works for people like you're talking about. Employees that were teachers, firefighters, police officers. This is called the Windfall... What you were explaining was the Windfall Elimination Period and the Government Pension Offset, both of which reduce Social Security benefits for those receiving that government pension, because they called it double dipping. Hardly seems fair. But this law that has people pretty excited that are in those types of positions, repeals those two rules. So those folks will be getting Social Security benefits that they earned, even if they're receiving that government pension.
Bob: Yeah. And it also eliminates the need for financial planners and advisors like ourselves to sit down and do these, what can be very complex calculations.
Amy: Yes.
Bob: When we're sitting down with people to help them plan for retirement to actually help them figure out what their retirement income is going to be.
Steve: That's a good point.
Bob: That'll make things a lot simpler for everybody.
Steve: Yeah, it makes our jobs easier too. And this is around three million people that will be impacted by this change in the rule. These people will see their Social Security payments go up.
Amy: It's so funny the timing of this, but I talked to a client yesterday. She's in her 80s. Her husband passed away several years ago. He was a Cincinnati police officer and then also had a second job. Right. They had a bunch of kids. He needed two jobs to make ends meet. He was a security person for McAlpens downtown years ago when McAlpens was still open. So he had two jobs at the same time, both for decades, and paid into Social Security during that time. When he passed away a few years ago, she was mentioning that her retirement income then went down substantially. And so she cannot wait to hear the impact of this. She's scraping by every month to be able to pay the bills. And maybe now she'll get at least part of the spousal benefit from that Social Security that she never could have gotten before. So this I think is going to be a game changer.
And you mentioned this is going to impact people who are already retired. Very rarely can we ever tell someone that the money that's coming in during retirement is actually going to go up unless it's just your investments, right, have gained over the past years. But this, I think is a win for so many of these public employees.
Bob: Well, Amy, great news for your client, you know, in particular, and for many surviving spouses. According to the Congressional Budget Office, this law change is going to increase spousal benefits that fall into this category by as much as $1,190 a month for upwards of 390,000 surviving spouses as of December 2025. And that's according to data from the Congressional Budget Office.
Steve: I was wondering who was going to have to share the bad news. And it seems like it seems like I'm up.
Amy: We've left that to you.
Steve: Yeah. Impact on the Social Security system. Obviously, more money going out does add stress to the trust funds that is already set to be depleted in 2035. You know, we've touted that number before. Apparently, there's an 80% probability that this will happen sometime between 2033 and 2039. That's actually a new figure. I hadn't seen that before.
Now, once the trust fund is depleted, that doesn't mean the money is gone. It just means that there is a reduction in benefits for folks that are already collecting or yet to collect at that point. So when we're eliminating things like the windfall elimination period and the government pension offset, it does reduce the amount of time that we have before some kind of changes need to occur that ensures that Social Security will be what we all expect it to be.
Amy: You know, it's interesting because I kept saying, as this has been talked about through the years, I wonder what the impact of this will be. You know, I mean, quite honestly, moving the needle maybe up six months doesn't sound terrible to me. I would hope, really hope that by the time we get to this point, the Congress, that Washington does something about it, I think it could be catastrophic for people to only get 80% of their promised benefits. We know that Social Security is only supposed to replace 40% of your paycheck when you were working. But time and time again, for a lot of people, it's 80%, 100% for some people. Right? And so this reduction benefits could be a huge deal. There's lots of options for how they could fix this. It just remains to be seen how they'll do it. And we've said this many times here on the show, they're going to kick the can down the curb as long as they possibly can. We'll still be talking about this in 2029.
Steve: It's an easy way to lose votes, increasing taxes. And that's kind of what some of the easier solutions are going to be.
Amy: Or increasing full retirement age. Yeah.
Steve: Yeah. Things like that. You know, means testing, removing the wage cap once you earn about $169,000 you're now paying into Social Security. But I do want to highlight quickly, you mentioned six months. The numbers show that getting rid of the windfall elimination period and the government pension offset reduces Social Security's timeframes before changes need to happen by six months. That is what the numbers show. In my opinion, worth it.
Amy: I agree.
You're listening to Simply Money presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby and Bob Sponseller. Major news for those of you who have public pensions, teachers, firefighters, police officers, over the weekend, President Biden signed into effect essentially rolling back, repealing the windfall elimination provision. So you should be able to take advantage of that full Social Security benefit. No idea how long it's going to take to rule this out. But, you know, the conversation I was having with a client yesterday is when you think about how quickly they got stimulus money out during the pandemic, maybe it won't be too long.
I want to switch gears now. One of my favorite things that we do on the show is just rip apart headlines. And this is one that the second I saw this, I thought, oh, here we go again. New year, but nothing has changed. Here's a ridiculous headline that we saw in Market Watch. Here's what the first two trading days of January predict for stocks in 2025. Let's make sweeping predictions about the entire year based on two days.
Bob: Yeah, Market Watch contributor Mark Holbert, who does occasionally put out some worthwhile information, wrote an article saying that the period from Christmas through the second trading day of January marks the traditional definition of the "Santa Claus rally" that I think we all hear about in the media ad nauseam over the holidays. And according to the article, over the last century, the U.S. stock market during this period of time has risen more frequently than over other periods of comparable length. However, this year, you know, between Christmas and the first two days, trading days of 2025, the Dow has gone down by 1.3% and the S&P has gone down by 1.6%. So, Steve, does this mean that we're headed for another Great Depression? Are the wheels coming off of the U.S. economy?
Steve: I hate these articles. Oh, my God, I hate these articles. I can't even make jokes about that because it upsets me. People see this type of headline and they don't necessarily dig into the details and they think, oh, my God, I need to run for the hills. I need to put my 401(k) in cash. Things are going to tank because blah, blah, blah. You know, the people that write these articles have no fiduciary responsibility to make sure that you're making good decisions with their money, with your money. They have a responsibility to their employer to make sure that people click the article, share the article, look at the article so they get kicked back from marketing. It's very frustrating to me. So a short answer. No.
Bob: And fear sells advertising. Right, Steve?
Steve: Yeah, if it bleeds, it reads. And this is a nice example of that.
Amy: To your point, right, there's these headlines. You know, what do the first two days tell us? And I think if you read the first maybe paragraph or so, it kind of sets it up. Right? The Santa Claus rally. Santa Claus didn't rally this year, maybe slept in, however you want to look at it. When you get further down the article for those who are still hanging in there, then he says, Okay, is there any sort of historical correlation between kind of the lack of this rally that maybe we've traditionally seen and what the market does throughout the year? And then his answer is no. So essentially, you know, the headline could have read no reason to panic on the rest of the year based on the first two days of trading. But hey, that would not have sold, you know, I mean, that would not have been the clickbait that they're looking for here.
Steve: Well, that's part of the issue is that people don't always actually read the article. They just headline and they need to react based on that. You know, that's enough for many folks in this day and age or maybe they stumble across this on social media to share it. And then that spreads like wildfire. And then they're calling their 401(k) provider to say, hey, move me to cash.
Amy: Here's the Allworth advice. Listen, headlines like this don't let these trick you into thinking the worst is coming. They're trying to get clicks here. They're not fiduciaries. The point that Steve made. Stick with your long-term plan.
Coming up next, if you're thinking about just maxing out that 401(k) right away, sounds like a great idea. Maybe not. We've got a word to the wise, 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 and Bob Sponseller. If you can't listen to our show every night, you don't have to miss a thing we're talking about. We've got a daily podcast for you. Just search Simply Money. It's right there on the iHeart app or wherever you turn to to get your podcast. Coming up at 6:43, so many questions going into the new year about 529 plans, Roth IRAs and much more. We'll get to those in just a few minutes.
resident Biden been busy in the last few days of his administration here. He's also announcing an initiative to remove an estimated 50 billion dollars in medical debt from the credit reports of about 15 million Americans. Let's get into why this is and what we think.
Steve: Yeah, so the thought process behind this is that it bans lenders from using medical information when they make lending decisions. You know, previous research by a watchdog agency that looks into these types of things found that medical debt factors into thousands of denied mortgage applications annually. You know, this agency contends that medical debt on the consumer credit report is a poor predictor of whether or not folks will be able to pay back their loans.
Bob: Yeah, and I understand and I certainly empathize with people that have high medical debts and are trying to make ends meet, especially with all the inflation that we've been enduring ever since the pandemic. I can't help but think back to the housing crisis when I read this headline. And what I mean by that is the easier we make it for people to borrow money that they cannot afford to borrow, you eventually have to pay the piper and there's usually negative consequences that come. And again, I don't take away whatsoever for people that are struggling with medical debt and need to buy a home and all that. My practical advice just remains on that. Never let anybody else, a mortgage broker, anyone, tell you what you can afford to borrow because, you know, I go back to the biblical verse, the borrower is servant to the lender. Our economy is designed to get people to borrow money and usually borrow a little more than they can afford to borrow because that's what keeps the wheels turning and the economy spinning. And you got to pay the bill at some point. So yeah.
Amy: On the flip side of this, however, this to me is not like you went out and bought a car and now you're trying to get a loan that maybe you can't afford or you took on too much credit card debt. This medical debt for all of these people, I would be venturing to say, is because it was many times a catastrophic diagnosis that was not expected. And for anyone who's been through a major surgery, any kind of major treatment, and those bills start to rack up and to pile up on the kitchen table or in your inbox, it can be overwhelming. And I can see where many people go into debt because of diagnoses or issues like this. And I don't think their credit report should be dinged for something they can't control. Yes, you can control credit card debt. You can control taking on other kinds of debt. So I actually think this is a move in the right direction as far as what's fair to consumers. We'll certainly see how this played out.
Okay, if one of your financial resolutions for this year was to max out your 401(k), maybe for the first time, good for you. This is an excellent step in the right direction. But let's get into how this could blow up in your face if you try to put the dollars in there too quickly.
Steve: Yeah, I've had folks ask me, hey, you know, I can afford to cash flow money very quickly into my 401(k). I can max it out in April. Should I do that? And the answer is usually no. But let's do a little bit of research and dig into the details behind the rules of your 401(k) first, because many of us receive a company match. Now, remember, you need to be contributing to your 401(k) in order to receive that match. What happens if you hit the limit early in your 401(k)? Your contributions shut off. So if you're not contributing, do you get a company match? The answer is maybe. And that depends on whether or not your 401(k) plan has what's called a true-up feature. This means your employer will come back and make you whole even if you weren't contributing because you hit the limit early in your 401(k) plan.
Bob: Yeah, and roughly seven in ten 401(k) plans across the country do have that true-up feature already baked into the plan. So that means three in ten don't. So if you're one of those people that really want to and people talk about getting your money into the market early as possible in the year and front-loading your contributions, all that, like a lot of things we talked about, you need to look at your summary plan description for your plan to see if the plan has a true-up feature and if it doesn't and you're one of those people that's going to be "over contributing," you should know that on the front end instead of the back end so you don't get a negative surprise at the end of the year.
Steve: Yeah, the solution...
Amy: I'm gonna label this a good problem to have, however.
Bob: Oh, absolutely.
Steve: Yeah. You know, unfortunately, though, I have seen folks in that three out of ten category. They're so pumped. You know, they had some changes to their income situation. They made really good decisions. They got their debt under control. Now they're saving so much that they're maxing their 401(k) early. They're so excited. And then I ask them, do you get a true-up? And they say, what are you talking about? And then we look and they've missed out on free money for two or three years because their custodian of their 401(k) didn't explain that to them, that their employer didn't explain that to them. So they missed out on free money. So if you're in a situation where you are fortunate enough to be able to max out your 401(k) plan, then you do need to take the extra steps to be diligent to make sure that you're not going to miss out on that free money. The easy solution is to spread your contributions out throughout the year. That's an easy solution for this one.
Bob: Yeah, this is a great topic because, you know, not everybody has a Steve out there looking after them and looking after their 401...
Steve: Or a Bob. Or an Amy.
Bob: Well, but I'll give you credit...
Steve: But especially a Steve.
Bob: ...where credit is due. You do a great job on this with your clients and whether you have an advisor or don't have an advisor, this is an important thing to take a look at in January and February. Get out that summary plan description. Find out if your plan does have that true-up and plan accordingly.
Amy: You guys know this is my pet peeve, right? So many people spend so much time on things like planning your summer vacation or planning your spring break. You probably know every attraction and great restaurant within 10 miles of wherever you're going. But you don't know the features of your 401(k), which, by the way, is the number one vehicle most of us have between getting from now working every single day and to retirement. So it's important to understand how much are you contributing. What are your options? Are you getting the full company match? Do you have a risk tolerance? Do you have the proper allocation that matches your needs? Do you have something like this true-up feature in there where if you are kind of front-loading your 401(k), you're not going to miss out on some of that company match?
I mean, you know, one example of this is, you know, say you're under 50, you're making $200,000 a year, your company offers a 5% match. With 26 pay periods and a 20% contribution rate, you're going to reach the deferral rate after 16 paychecks. So you could maybe miss out on about $4,000 worth of that 401(k) match by maxing out without a true-up. So it is so important when you look at the dollars of cents and cents of this to figure out what you could be missing out on to get this right.
Here's the Allworth advice. Get to know the ins and outs of your 401(k) plan to make sure you're not leaving any free money on the table. Coming up next, a new year means scammers are refreshed, ready to pounce. We're going to help you protect your money 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 Bob Sponseler. New year, new ways that scammers are going to try to get their hands on your money. And so we want to make sure that we are doing everything to inform you about how you can protect yourself, your family, your loved ones.
Joining us tonight is our good friend, Jocile Ehrlich from the Cincinnati Better Business Bureau. You know, Jocile, we're just into January now. A lot of us still have maybe a gift or two lying around that needs to be returned. It didn't fit. It wasn't exactly what we wanted. What do we need to keep in mind with those?
Jocile: Okay, well, hurry up. You don't have a lot of time. Take those items that you don't want that don't fit in their original packaging and the receipt to the store. If you don't have the receipt, expect that you're going to get a store credit and it's usually going to be for the lowest sale price. So expect that you're going to lose some money on that deal if you have to return things. Return them as soon as you can, because many stores are not going to take items back beyond 30 to 90 days. So for those stores that have a 30-day limit, you better get moving on that this weekend. You can usually find a store's return policy either on the back of the receipt or on the company's website. If somebody bought you a gift online, check the website to see who pays for shipping. And if you have to pay, you might be able to avoid some of those shipping charges if you can return it to the store instead. And my constant reminder, if you got gift cards, use them before you lose them.
Bob: So, Jocile, let me get this straight now. If somebody, you know, say bought Amy a gift and they bought it on sale and it doesn't fit right and she has to go to the store to return it and get something else, is she going to have to pay full price to replace that gift with something that she actually likes and that fits? Or will she get the same item at the same price?
Jocile: If she's exchanging an item for one that fits, it's the same item. It will be an even exchange generally. But if she's asking for the money back, it would be at the lowest sale price usually.
Bob: Got it.
Amy: Good advice there, Jocile.
Okay, many of us as we look at 2025 and I was actually just thinking about this the other day, like what percentage of us actually make this resolution? Because I know I do every year. Like this is the year I'm going to really get in shape. So for those who are joining a gym, what do we need to keep in mind?
Jocile: Well, we've seen lots of these gym promotions right now, those low introductory offers. They may draw you in, but joining a gym is sometimes more about the contract than the gym itself. Make sure you understand what you're signing and ask a lot of questions. One important thing that you should be asking about is are there hidden costs like cancellation fees? Check the contract for that. Ask them what happens if you move? Is your membership transferable to another location? What happens if you move out of the city where they might not have a location? Are you still obligated to continue your membership for the entire term?
In Ohio, just so that your listeners know, if you or the gym moves more than 25 miles away, you're entitled to a pro-rated refund. You also want to find out if you can freeze your membership if you go on a long vacation or you can't use the facility for a while. And ask if the gym offers a free trial. Many do. Then go to the gym at the time that you would normally go to the gym to exercise, so you can see how busy is it at 6:00 in the evening and can I access the equipment that I need to access readily or do I have to wait in line? If you're not getting good answers or they're pressuring you to sign up before you get a chance to do a workout or take a class, you might want to check out another gym. And if you do join a gym and then change your mind, make sure you follow the cancellation process outlined in the contract so that you get your money back if that's an option.
Bob: Wow, Jocile, I am already completely overwhelmed here. Amy, I think I'm just going to stay on the couch and watch football.
Amy: Just an excuse for Bob to not work out. And I think these are just excellent points.
Jocile: I do what I can to help you out, Bob.
Amy: Yeah. Okay, another thing I think that we want to warn people about, Jocile, are social media scams. Gosh, I mean, since we started with social media, there have been scams of all kinds. Is this something new or an old scam we need to warn people about again?
Jocile: Well, it's all an old scam. It's just a different version of it. Right now, personalization is really hot. So you're scrolling through your social media feed. You see an ad for a really nice personalized product, maybe a sweatshirt with your name on it, maybe a keychain with your cat's face on it or a paint-by-numbers kit made from a picture you sent of your trip to Hawaii last summer. So you click on the ad, you go to the website that looks legitimate to make your purchase. Then when the product arrives, if it arrives at all, it's not what you were expecting. It was poor quality or it's completely different than what you expected to get. When you try to contact customer service, same story, different day, they don't respond or if you do reach somebody, they promise to fix the issue, but they don't. You're left with a product you don't want and no way to get your money back.
So a couple of things to prevent this from happening. Double-check the URL and confirm that you're on a company's official website, not an imposter site. Do your research. Check out the company on bbb.org or other review sites to see what they have to say about the consumer interactions. And if you can, pay with a credit card when making online purchases. There's a better chance that you can get your money back if things don't go well.
Bob: Yeah. So Jocile, am I correct in assuming that all this personalization, and it's very sophisticated at that, is designed to get us excited in the moment about seeing our vacation or family photo on a sweatshirt. So we click that thing as soon as possible, you know, getting caught up in the emotion and the excitement without even thinking about what we're doing?
Jocile: Exactly. Exactly. Scammers know what's hot and that's where they focus their energies. And as I mentioned earlier, these personalized items are really big. You'll see them on social media. You'll see them on television advertising. Scammers are going to be wherever things are hot.
Amy: I'm totally guilty of this. I'm just going to tell you right now, if you put my dog, his face, on something on social media, I am just about to click before I hear Jocile in the back of my head warning me, which is why I really appreciate these segments. Jocile, I want to pivot really quickly because I know a lot of people are maybe thinking about new jobs in the new year. We just have about a minute here left, but what do they need to look out for as far as scams?
Jocile: There's a new thing out there called a tax.. task scam. Excuse me. Starts with a text or a WhatsApp message, a WhatsApp message. Excuse me. Advertising online work that involves completing various tasks related to things like app optimization or product boosting, which is essentially liking things online. If you accept the job, you'll be paid a small amount, sometimes in cryptocurrency. Then the next go round, they're going to ask you to put up some of your money. If anybody asks you to put up your money to get paid, walk away, absolutely walk away, and obviously ignore unexpected texts or WhatsApp messages about jobs. I guarantee you it's a scam. I got one myself. It was unbelievable. I could make a ton of money for working 20 to 50 minutes a day.
Amy: It's funny you say that I actually just got one this week too. And it's, I can't remember, but it was something to do with social media. You could do it from the comfort of your own home, make big money. And you know what I actually thought? My teenagers, I need to warn them about this because I could see them, right? They're broke all the time anyway, kind of jump. Oh, this is easy. I can do this from home. I don't even have to leave my bedroom. So this is a great kind of reminder. Not only keep these things in mind as you go about your life, but spread the word to your loved ones, because these are always good reminders on how to protect yourselves. These scammers are smart. They're switching up the ways that they try to get to you. And that's why Jocile Ehrlich from the Cincinnati Better Business Bureau, her advice is just so impactful because it can save you in some cases, hundreds, thousands of dollars.
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 and Bob Sponseller. Do you have a financial question that you would love to get answered in 2025? There's a red button you can click on while you're listening to the show. It's right there on the iHeart app. Record your question. It's coming straight to us.
And straight ahead, a look at what your home insurance may not cover. I know I was standing in my window this week, looking at all the snow piled up, thinking hope the roof holds out on this one. We'll get to that in just a few minutes. You know, one of the things I love now that Bob has joined the show is we've got another advisor voice behind the microphone here and I love fresh perspectives. Our first question tonight comes from Sean in Ludlow. Let's see what he has.
Sean: Over the years, I've saved some money in my 529 plan for my son, but he's now decided not to go to college. What can I do with the money now?
Bob: Sean, this is a great question and it's actually one that comes across our desk daily with our clients here. So as you might imagine with clients that have two, three, four kids and do a great job of planning for college, you know, when they're born or they're two or three years old and we start these 529 plans, we don't know what's going to happen. And sometimes the kids get athletic or academic scholarship. Sometimes they decide to go a different direction than college altogether. So there are a myriad of options. The one that some people default to as the account owner is, hey, can I just take that money and spend it because I still own the account? The answer is yes, but you're going to pay a 10% penalty tax just like you would on a premature, you know, IRA distribution and you'll pay all the taxes on the growth in the account. So that's not the best option.
What a lot of people do and what we help people do all the time is if one or two of your other kids are going to go to college, you can very easily transfer the account from the one son that's not going to go to college to the account for the kids that are going to go to college. And that's a non-taxable event. And it keeps the tax deferral and growth and tax-free withdrawals for qualified education expenses in place.
Another option is and there are some strings attached to this as well. You can now get into using that money for the kid that's not going to go to college and open a Roth IRA for them. Now, some of the strings attached are the money must have been in that 529 account for at least 15 years. And the amount that you roll over to the Roth each year you roll it over must have been there for at least five years. And Steve, I know you have a couple of other things to add.
Steve: Yeah, I mean, this is just Secure Act 2.0 in action. These are some new rules that were implemented that were 529s are now more flexible than ever before because you're essentially being able to... you're able to use that 529 as a vehicle to kickstart retirement savings for kids that aren't going to use it for college. And I think that's a fantastic change.
Amy: I'm going to throw this out here, too, with a disclaimer. This might be urban legend at this point, but years ago we were talking on this show about the fact that, yeah, these 529s are incredibly flexible, much more so than they used to be. If your child does not need this money, they're not going to college or, you know, they've got the scholarship. You can use it for educational purposes. And again, this is back to the kind of urban legend or folklore part of this. But I have even heard, don't take my word for this. Do your research. That you can do something like golf lessons, culinary lessons, things like that. And a 529 may cover that.
Steve: I'll kick it up a notch, Amy. The same urban legend I heard is that somebody found a way to do golf lessons on a cruise and they use the 529 tax-free to reimburse themselves. Again, not advice, hardly recommended at all. But part of the urban legend that I think is quite funny about these things.
Amy: Let's get to Molly's question. She's in Loveland.
Molly: How many Roth IRAs can I have? And if I convert money to one, can I just put it in one of the accounts I already have?
Steve: Yeah, you don't need to open a new Roth IRA when you're doing a conversion. You know, typically I would recommend having one Roth IRA because you have an easier time tracking your overall investment strategy. But the short answer is, is you can have a whole bunch of them. There's really no point in doing so, but you're allowed to have multiple Roth IRAs. I get the easy question.
Amy: Yeah, I know you did. Let's get to Judy. She's in Westchester.
Judy: I have some charities listed as my beneficiaries on my 401(k) and IRA. Is this a good idea for when I pass away?
Bob: Yeah, Judy, I think this is a wonderful idea and it's an idea that we share with clients all the time. And this gets into the tax planning aspect of what we do, you know, when it comes to leaving assets to chosen heirs, whether that be family members or charities. So, you know, just to summarize here, anything that you leave from an IRA or qualified plan to charity, goes completely tax-free to the charity. So it's an extremely tax-efficient way to transfer assets to charitable causes. The flip side of that is, well, what happens to the money that's supposed to go to my kids? Well, this is where with good planning, using non-IRA, non-qualified plan, you know, to our assets to leave money to your kids, a reminder that you get a stepped-up cost basis at death on those assets. So leaving qualified or IRA money to charity and then non-qualified money to your kids is in fact the most tax-efficient way to go here with transferring assets to the next generation.
Amy: Yeah, a lot to think through from a tax standpoint here, but a great option for a lot of people.
Coming up next, we're looking at what your home insurance may not cover. Let's not get any surprises that we don't want.
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 and Bob Sponseller. Maybe you, like me, at some point over the past few days as the snow was just coming down in bucket fulls was like, oh gosh, like hope the roof is good. Hope there's not going to be any damage from this. And I think it begs the question, do you know what your homeowner's insurance policy does, in fact, cover? The good news is if you do have some kind of damage from something like a snowstorm, you're probably going to get that covered.
Steve: Yeah. So things that your homeowners insurance typically cover, includes damage from snowstorms, tornadoes, lightning, fires, damage to not only your home, but the tax detached structures on your property, such as a shed, garage, fence, gazebo, these are all covered by the same thing. You know, most policies also reimburse you for your possessions, including furniture, electronics, appliances, clothing. So there's a lot that is covered, but there's also some things that might catch us off guard that aren't covered.
Bob: Yeah. The big thing that is not covered, and this is why you're seeing all the, you know, hearing all the weeping and gnashing of teeth from our friends down in Florida and North Carolina is floods. Typical home insurance does not cover damage that results from land movements, such as an earthquake, landslide, sinkhole, floods, you know, that's a big problem. And that's why you have to buy separate flood insurance if you can even get it anymore.
Amy: You know, in my former life as a TV news reporter, I covered even here locally, a lot of just, you know, major rains that we would have where people's basements would get incredibly flooded. And I can recall even seeing like board games floating down the hallway of people's basements, right? Like terrible damage. And then, then they figure out, right, that there's no coverage for this in their insurance plan. And this is a terrible discovery. Now, listen, if there is an impact from water resulting in something that's sudden or accidental, like if a pipe burst in the wall, something like that, that can in some cases get covered. But flooding from things like rain, not covered. We're huge proponents of having an umbrella policy, which can give you, you know, for a lot of people, an additional maybe million dollars worth of coverage. It's usually not a super expensive policy, but it kind of covers the gaps in what you have in your normal insurance coverage. And that can be a great option as well.
Bob: Yeah, another thing, Amy, and this is more applicable, I think, to our friends here in the greater Cincinnati area that is not covered by standard homeowners insurance is mold. And this one hits close to home for me. My, you know, my wife and I's oldest son and his wife are literally in the middle of buying their first home right now. And they had their home inspection yesterday and some mold was found, you know, up in the attic and, you know, that's going to need to be addressed. I'm sure the people selling the home were not aware of it, but, you know, if you don't have a good home inspection and you go in there and there's mold that's been undiscovered and you have to deal with it later, that is not going to be covered by your homeowners insurance policy. So that's another reason to get a real good, thorough home inspection before you buy a home.
Amy: Excellent point. Thanks for listening tonight. You've been listening to Simply Money presented by Allworth Financial here on 55KRC THE Talk Station.
