Amy: Tonight, could we be so lucky to avoid a recession? And is January maybe foreshadowing the rest of the year? You're talking to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. Mid-January. And I gotta say at the end of 2022, when people would ask me what I expected from markets and inflation and everything in 2023, I would say, "I don't know. Probably more of the same." But nobody wants to hear what I think because the man who analyzes all of this is, of course, Allworth's Chief Investment Officer, Andy Stout. You know, he manages billions of dollars from right here in Cincinnati. And Andy, it kind of looks like I was wrong, and I'm happy to admit when I was wrong, but I said that we could expect more of the same in the beginning of 2023, but it feels different.

Andy: Well, keep in mind, Amy, we had a lot of rallies last year, too. Just the declines were greater than the rallies.

Amy: We just forgot all about the rallies, right?

Andy: Yeah. Quickly. You're right. But whether or not this rally sticks or the bottom was officially put in, time will tell. There's still a lot of uncertainty out there, and that's the sort of risk, and that's the sort of issues that can result in market volatility should that uncertainty not resolve itself in a timely manner.

Steve: Well, you know, we expect volatility to stick around, but I've seen, you know, over 40 years, Andy, that when the market is at its bottom, there is no clear perspective that, okay, that's the end of it, the worst is over, and we should see things take off. I mean, there's always gonna be questions about are we out of it yet? And I think that's what people are struggling with right now. We saw some, you know, movement upward in November, December. I think the standard emboss is up 4% year-to-date.

I still have some major concerns, which doesn't mean the market's not going to keep going up, but we haven't really seen a big earnings hit yet. And with interest rates having hiked as much as they have over the past year, that's a cost. I mean, if companies are paying more for interest on their debt, that's less available for the profit. And I just seem to believe that there should be some sort of break in earnings, some slowdown in earnings. What do you see coming up?

Andy: No. I think you're absolutely right. What Wall Street is looking at right now for earnings that... We're in the midst of earnings season right now, like Procter & Gamble, they're actually reporting this week. But when we're looking at these fourth-quarter earnings, because that's what they're reporting for, the period from, essentially, 10/01 to 12/31, Wall Street's expecting the first decline since 2020 on a year-over-year basis. So, you wanna compare it to the same time in the prior year to get rid of seasonality issues. And the expectation is currently around a 3% to 4% decline on a year-over-year basis.

Now, what we've seen from a historical perspective is that usually, companies beat those estimates because during the year and during the quarter, they lower their estimates and the bar gets lower, then about on average 75% of the companies beat their earnings. Even if that all happens, that does not really counteract what you were saying before, the higher interest rates, the higher interest cuts as a direct hit to the bottom line. So, not only is that a higher cost for these companies, but you're also seeing the higher cost just from the inflationary environment where not all companies are able to completely pass on higher costs to their consumers. What that results in, Steve, is a pinching of profit margins, and that's not something that Wall Street likes to see.

Steve: Well, it's not, but I read over the weekend and, you know, these are reputable analysts, that they're talking about large increases in profits and earnings in the first quarter of this year. I mean, it just doesn't make a lot of sense to me that with the inflationary environment that we're in and higher interest rates have not dropped, I mean, can we see an increase in earnings in the first quarter, in your view?

Andy: Well, yeah, we can. I mean, the consumers turned out to be pretty resilient if you just look at everything that's been going on. I mean, we're facing these higher prices day after day, and then we are starting to see some inflationary reprieves. That's certainly a good sign. But really in spite of all of that, what we've been going through, all of this uncertainty out there, the average consumer has been out there spending their money, and that's lifting these profits. And also, we have a pretty strong labor market. We haven't seen that crack too much. I mean, there're some cracks in there, but with a strong job market, that provides some negotiating power for employers and that helps to lift wages.

Amy: You're listening to "Simply Money" tonight here on 55KRC as we talk about 2023, what to expect, what the market's been doing so far, earning season as we're in the midst of that. And I wanna talk inflation because all the volatility that we've seen, of course, over the past year has to do with the Federal Reserve, our nation's central bank, trying to pull inflation down to get it back to a normal range of about 2%. Andy, what do you see in the cards for 2023 as far as the Federal Reserve, and what steps they take? As far as Fed members speaking out, they seem to be kind of all over the place about what we can expect.

Andy: Yeah, when we look at the inflationary environment, we look at the Federal Reserve's reaction to that. Let's just start by thinking about where we're at with inflation now and where we might go. So, last week, we just got the final CPI, which is consumer inflation report for 2022 in December. What it showed was that on a month-over-month basis, so December compared to November, prices fell by 0.1%. So, there was actually deflation in December, and a lot of that was due to falling energy prices and also goods prices.

Where we've seen some stickiness in inflation has been on what we call the services side, and services make up 57% of all of CPI. But more specifically, what's pushing that is household or shelter costs. Shelter costs, they jumped 0.8% in December compared to November. And that matters because shelter costs, they're basically a third of everything in CPI. So, that's the weighting that shelter costs get. So, housing costs, it's really a big impact there and we're still seeing that rise.

However, one thing of know is that these shelter costs historically lag behind what the Federal Reserve does in terms of rate increases, and it lags behind the broad economy. So, we're seeing some weakness out there in the broad economy, and we've seen the Fed raise rates really, really dramatically. And that suggests that, you know, we're seeing some other housing data starting the week, and I certainly think that we'll start to see these shelter costs come down. And what that means is when we look at inflation in 2023, it's gonna be a lot better than what it was in 2022. In June, it peaked up 9.1% on a year-over-year basis. By the end of the year, for all of 2022, we saw inflation of 6.5%. That's not a good number. That's obviously very, very high. When we look ahead to this year, we see that trend of 9.1% to 6.5%. We see that going even lower. Whether or not...

Amy: In the right direction.

Andy: Yeah. Yeah. In the right direction. May or may not get to 2%, which a lot of people think we might get to by the end of the year, but for a variety of reasons, wouldn't be surprised to see us at around a 3% inflation reading for all of 2023.

Steve: Well, I think the writing's on the wall for shelter costs. I mean, really what we're talking about are rents. And, you know, if you've got one-year leases, there's up to a one-year lag on, "Okay, I just bought a new rental property and had to pay through the nose for it, so I'm gonna have to ask more for rent when I rent that property out." But I mean, we kinda saw just a complete standstill in real estate once mortgage rates went up. So, I think it's kind of a gimme that we're gonna see shelter costs drop substantially. Do you agree, or is it gonna continue?

Andy: No, I agree 100%. That's gonna move lower in the coming months. That's going to help reduce the overall inflation. And I think that's one of the five main reasons I'm looking at right now as to why the year-over-year numbers should continue to fall. Another reason is the high inflation, the high monthly changes in the first half of 2022, they're going to drop out of those year-over-year calculations as the year goes on, so that'll bring down the number. Additionally, supply chain dislocations, they're pretty much resolved.

Steve: That's good news.

Amy: Yeah.

Andy: Yeah, that's really good news. A third reason is we had a very strong U.S. dollar. I know it's weakened this year a bit, but still, it's strong relative to other countries, and that lowers the cost of imports. So, that's a deflationary impact. And the fourth is that commodity prices are still relatively low. They've come down a lot. And that is a direct input into these raw materials, if you will, a direct input into the manufacturing of products. So, those four things plus higher interest rates bringing down shelter costs should contribute to inflation coming down and down and down.

Now, as Amy asked a second ago, what does that mean for the Federal Reserve? The Federal Reserve was very aggressive last year, raising interest rates from 0% to a range of 4.25% to 4.5%. So, they raised 4.25% last year. I mean, that's the most aggressive...

Steve: That's a ton.

Andy: ...they've ever been when you look at the rate of change. Yeah, it's a ton. It was a big shock to the economy. No surprise you saw, you know, how assets performed last year, but obviously we're off to a good start this year when we look at what the market's pricing in right now. What's expected right now is when the Fed next meets on February 1st that they will hike interest rates by a quarter of a point. So, there's basically a 90% chance of that. And then when you look at the rest of the year, there's about another quarter-point rate hike in there in the first half of the year. So, basically, you're looking around at least what's priced into the market is a half point in rate hikes in the first half of the year. Then what the market's pricing in is a half point of rate cuts in the second half of the year, because they're a little worried about the Fed's aggressive monetary policy and what that means for the economy, and then the Fed essentially starting to pivot and pull rates down.

Amy: It's funny, after that series of three-quarter point kind of jumbo rate hikes, that just a quarter of a point, it sounds like mere child's play. Not that it's not, but it's just funny considering kind of where we come from. And Andy...

Steve: Did you hear what Andy said, though? Andy said maybe a rate cut later this year, a cut.

Amy: Which is actually, yeah, which just a couple of months ago seemed to be in the cards.

Steve: No.

Amy: But Andy, as we talk about kind of how aggressive the Federal Reserve has been, and it's historically aggressive, of course, the fear here for a lot of people is hiking us into a recession. Do you see that risk still being incredibly high? Do you think maybe there's a greater chance of a soft landing? What do you think?

Andy: There is a chance we can avoid a recession. There's no question about that. But, you know, recession risks are high. So, you know, where we're at with the Fed in terms of the rate cuts, I don't know if I completely buy what the market's selling on the rate cuts. Chair Powell, Federal Reserve Chairman, Jerome Powell, he has consistently said that the Fed does not want to repeat their biggest mistake ever, which was essentially easing monetary policy too soon in the 1970s, which resulted in the super high inflationary environment of the early 1980s. That is by far the Fed's biggest mistake ever. Chair Powell does not want to essentially have the legacy as the worst Fed Chair ever and repeat that same mistake.

So, I don't know if I'm 100% on board with a half-point rate cut. A lot will depend on how the economy and obviously how the inflationary environment evolves this year. Certainly, if the Fed stays very aggressive, you know, that does raise the risk of a recession. And then when we look at leading economic indicators out there, which are data points that move before the broad economy, we see a decent amount of them signaling a slowdown ahead. So, right now, recession risk is high. I mean, some of the things we're looking at, we're looking at the yield curve, which is a difference in interest rates like a 10-year treasury and a 2-year treasury bond, or a 10-year treasury and a 3-month treasury bond, both are signaling a slowdown. Building permits. They've dropped so much now on a year-over-year basis and they're signaling a slowdown. Consumer confidence has fallen as well when we look at that data, and it's signaling a slowdown. So, right now, when we look at the weight of the evidence, it certainly suggests reasons to be cautious.

Amy: Great perspective as always, Andy. Here's the Allworth advice, "New year, fresh start to the markets." Well, that remains to be seen as the Fed continues to focus, of course, on bringing down inflation. And we suggest you focus on your long-term plan. Don't get caught up in the daily turbulence. Coming up next, the new dangers investors are finding with robo-advisors. You're listening to "Simply Money" here on 55KRC, THE Talk Station.

You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. If you can't listen to our show every night, subscribe and you can get our daily podcasts. Listen to it anytime on your way to work the next morning, at the gym, and you've probably got that one friend that could use a little extra money, help share it with them as well. Just search Simply Money. It's on the iHeart app or wherever you get your podcasts. Straight ahead at 6:43, steps you can take now to keep taxes from sucking away not only your savings year-round but also your retirement savings. So, for the first time, Congress thinks they're going to do something really smart with digital currency. We're talking about crypto assets. They have come up with this amazing sub-committee, the sub-committee on digital assets, financial technology, and inclusion. Okay.

Steve: Yeah. Under the category of too little too late. You know, it takes people...

Amy: Yeah. Where have you been, Washington?

Steve: It takes you losing billions of dollars before they're gonna do anything. And, you know, it's a nice clear-cut, you know, mission statement that they've got because they call themselves the Subcommittee on Digital Assets Finance. How can you make that any more complicated? You know, just leave it to Congress to screw this stuff up.

Amy: Clear as mud. Clear as mud as to what the directive of this...

Steve: But you know, it's good that they're at least doing something, Amy, don't you think? I mean, this is really something they should have been doing a year or two years ago.

Amy: Yes. And then they're tasked with providing clear rules of the road among federal regulators for the digital asset ecosystem. This came so new onto the market so quickly, and, you know, we would always ask people, "Sure, invest in crypto if you can explain it to us, if you have money that you don't mind losing," but it's like another day another headline about something going wrong in the crypto world. You know, and Washington, I think has had a couple of task forces thrown together here and there, but nothing major has come out of them, nothing that has provided any measurable protections for people who are choosing to invest this way. And I don't know, I guess it remains to be seen what this subcommittee, what this particular subcommittee will come up with, and whether it holds any water here.

Steve: Well, and let's see how long it takes them to turn this political because Sam Bankman-Fried, he's the 30-year-old that ran FTX. He just can't find a couple of billion dollars, and, you know, his defense is, "I screwed up. I should have paid more attention." You know, but we'll see how long it takes to get politicized because Sammy boy, he made a lot of political donations, mostly to one party. So, you know, you've got a major change going on in Congress now where Republicans are now the majority in Congress. And not that we're gonna take one side or the other, but, you know, I'd give the over/under at about 30 seconds before they start saying, "Hey, what about all this money that was donated to the other party?" And, you know, start tuning in on that instead of, "Let's get clients whole. Let's find these billions of dollars."

Amy: Let's solve problems.

Steve: Yeah. Let's solve problems. Exactly. So, please, Congress, keep the politics as much out of it as you can and just fix this thing. That would be nice. You know, something else going on is clients at Charles Schwab, their robo-advisor platform just started getting checks. And, you know, a lot of people are saying, "Why am I getting this money? Well, the company reached a huge settlement with the Securities and Exchange Commission in 2022 for certain things that they don't admit or deny guilt, but they're gonna pay lots of money because they didn't do anything wrong, in their view, you know. This is interesting.

Amy: We're talking about the tune of close to $200 million to clients, and the charges here are that they misled them about how their cash was going to be invested. You know, and then, ultimately, they said, "We're going to invest this money, you know, in ways, you know, that would be beneficial to you." But ultimately, the way that they invested it was, "We're going to use this cash that we have, that you have given us of your money to invest in ways that actually furthers us and makes more money for us than you." It is the exact opposite of what a fiduciary is supposed to do. But I don't know, I mean, are robo-advisors fiduciaries? I never thought about that.

Steve: Can a robot be a fiduciary? You know what I mean?

Amy: Yeah, exactly.

Steve: Depends on how you write the algorithm, I guess. You know, I've never been a fan of robo-advisors. And, of course, you know, people, you know, and I would have the same viewpoint outside of my industry, are gonna say, "Well, of course, Sprovach, you charge money, and you charge more than a robo-advisor. Of course, you don't like them." Yeah, but, you know, what are you actually getting? I mean, is this an example of you get what you pay for? Here's the problem I have with this whole deal, Amy, is... And I had somebody come into my office saying they weren't happy with their allocations, and I think it might have been at Schwab, it was at least a year ago, but what they told me was most of their money was in cash at one point.

Amy: Oh, wow.

Steve: Yeah. And, you know, when most brokerage firms, and this is kind of a dirty little secret, most brokerage firms only pay, you know, 1/100 of a percent in interest. You know, that's probably in the midst of changing with interest rates going up. But if they can go and lend that money out at 1% or 2% and only pay 1/100 of a percent, that's a huge difference. I mean, when you're talking about tens of millions of dollars, that's a big float. You can make a big chunk of change by having money in cash accounts inside brokerage accounts. And that's the allegation is that Schwab maybe put too much money in cash, and they made quite a bit as a result. So, yeah, they settled, and people are getting their checks, and apparently, that's the major reason for the checks.

Amy: Here's the Allworth advice, "When the markets are down and you're about to make a huge financial mistake, while a robot can't explain the consequences." As we talked about this lawsuit, things can go wrong. A qualified financial professional, though, they can help. Coming up next, a heads up to you charitable listeners, a warning about new scams targeting you in 2023. What you need to know to protect yourself, next.

You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner. A new year, and, of course, that means a new batch of scams. Joining us as she does every month with what you and your family and friends need to know about in order to protect yourselves, Jocile Ehrlich, President and CEO of the Better Business Bureau. I mean, you'd like to say maybe these scammers are gonna take 2023 off, but we all know better.

Jocile: Oh, for goodness... From your mouth to God's ears. That's all I can say.

Amy: Yes.

Jocile: Oh, that would be our New Year's resolution. Please put us outta business...

Amy: Yes, but that's not happening.

Jocile: ...so we don't have to report on scams. That is not happening.

Amy: You're gonna have plenty of work this year. So, since they are still very much targeting all of us, what do we need to keep an eye out for?

Jocile: Okay. Well, first off, we have a PayPal scam that's going on, and it's been going on for a long time, but, you know, as these things ebb and flow, this is flowing again. If you've got a PayPal account, be on the alert. People are getting emails that appear to be from PayPal, and the subject line says, "You've got a money request." Now, for those not familiar, a money request is exactly that. Somebody is taking money out of your PayPal account. Usually, it's for very legitimate reasons. You have agreed to pay somebody something, but not at this point. This email is allegedly from a PayPal representative saying that you're gonna be getting a refund because of a fraudulent charge on your account. The bottom of this email, though, has some buttons on it as they often do, a Send Payment button and a PayPal transaction id, which makes everything look very legitimate like it's really from PayPal.

Now here's where it's getting interesting. People who actually took the time to log into their PayPal accounts directly, instead of clicking on any of these links in the email, do see a pending transaction. Now, this is all part of a larger phishing scheme where millions of emails are sent out to hundreds of millions of people hoping somebody will click on the Send Payment option without digging any deeper. You know, and not all of these scams are for big amounts. You know, it could be for hundreds of dollars, but it could be for $5 or $10. And if enough, $5 or $10 requests are responded positively to, scammers are going to still get lots and lots of money. They're counting on you.

Amy: I wanna ask you something about what you just said, Jocile, just to make sure that I'm understanding it clearly. So, you get this email, and even if you don't click on the buttons to follow it, even if you get out of the email and go to your account, you will see information in that account that makes it look like that email is legit. Is that right?

Jocile: That is correct. There is a pending transfer that is going to occur, and you have to stop that transfer. So, somehow they are getting into your account and making this request.

Amy: So, it's not just you need to ignore the email, you need to proactively check your PayPal account and make sure there's nothing in there. And if you see it, what do you do?

Jocile: You stop it, you cancel it. Hopefully, you can get to a customer service representative who can cancel it on the spot. They are very aware of this problem. But you need to. Most importantly, before you click on anything, and we've said this time and time again, people just need to slow down. We're all on autopilot because of all the demands on our time, but we've gotta turn autopilot off and think about what we're doing before we do it, because if you don't, it's gonna cost money, it's gonna cost data, or it's going to cost your identity, and you can't afford to lose any of those.

Amy: That's a great point. Okay. So, we're keeping an eye on our PayPal accounts. What else do we need to be watching out for?

Jocile: Wire transfer schemes. They are coming after your money, folks. They are targeting peer-to-peer wallet users like Zelle and Venmo. They're targeting the traditional online banking customers with wire transfer schemes. Now, according to the FBI, about $2 billion is lost annually to wire transfer fraud. You're gonna get either a phone call, a text, or an email that is going to tell you that you have to call the scammers back immediately. Of course, it's not gonna be scammers, it's gonna be your bank because there's suspicious activity on your account. Now, once you contact the scammers and confirm the account information that they already have, and they do have some pieces of information, you're going to be asked for other information that's sort of gonna fill in the blanks for them, like account numbers, specific account numbers or passwords to those accounts. Now, once they have all of that information, it is very easy for them to initiate a wire transfer from your account to theirs, and all of the money in that account could be gone tomorrow.

Amy: You're feeding them exactly what they need to take advantage of you.

Jocile: Exactly. Again, slow down. Your bank is not going to call you with those kinds of requests. There is not going to be an urgent communication from them where they are asking you information that they should already have.

Amy: Absolutely. Okay. Let's talk about insurance fraud. There're some scams in that area, too?

Jocile: Right. Now, insurance fraud is any type of deception used to get any insurance payout, and it can be committed by policyholders, third-party providers, or scam artists. Now, another study conducted by the Coalition Against Insurance Fraud found that insurance fraud costs us $309 billion every year.

Amy: Yikes.

Jocile: So, how can you tell if you might be a victim? Here's a few situations, scenarios that you might find yourself in. If you're in an accident and the other driver seems really eager to settle out of court or pushes you to a certain repair shop, or they may even have staged an accident where they say they were injured, they may be trying to commit insurance fraud. Another example, if you receive an unsolicited call from somebody claiming to be from your insurance company or from the State Workers' Comp department, you need to be careful. That could be a scammer trying to get your personal information so they can turn that information around and commit fraud under your name. Insurance bills or phone calls from bill collectors with unrelated health expenses are a clear sign that someone has your information and has used it fraudulently. So, if you suspect somebody is trying to commit insurance fraud, you should be reporting it to the state's Department of Insurance.

Amy: Good advice there. And Jocile, I wanna quickly get to one other point that I think we wanna warn listeners about, and this is donations to charities on your credit card. And I was thinking, you know, as Cincinnati, of course, rallied around Damar Hamlin right over the past couple of weeks, you know, there's things about supporting his charity and some other charities that are popping up. And I think there's always just kind of a good blanket reminder of do your homework and make sure... And, you know, Damar Hamlin's charity, of course, is very legitimate, but there could have been others popping up during that time that weren't so much.

Jocile: Absolutely. Scammers create charities that have very similar names to those that you are familiar with. Do not assume that the charity that you are giving to is the one that you think you are giving to. Always go and do your homework. An excellent resource for confirming whether a charity is legitimate or not is bbb.org or give.org. We have reports on charities and can confirm whether or not they meet our standards for charitable solicitation.

In this particular situation, thieves are stealing credit card numbers, especially over the holidays. People get really, really busy and they are using those credit cards. And in order to determine whether or not they are usable, they make a donation to a charity, a $50 donation, a $100 donation. If that goes through, they say, "Hey, I've got a good credit card here," and then they go out and have a shopping spree, and all of that ends up on your credit card statement.

So, you need to be checking your credit card statements regularly for false charges, charges that you did not make, because you have a very short window to challenge that with your credit card company. So, I'm asking people, 2023, every month, check your credit card statements, check your bank statements, make sure everything on those statements are transactions that you initiated. And if not, address it with the credit card company or the bank.

Amy: Great reminders as always from Jocile Ehrlich. Of course, she's the President and CEO of the Better Business Bureau. Go to bbb.org if you are getting a call, an email, a text message, something doesn't make sense, check to see if maybe others in our area aren't seeing that same scam. You're listening to "Simply Money" here on 55KRC, THE Talk Station.

You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. If you've got a financial question, we'd love to talk about it here on the show. Easier way to do it, there's a red button you can click on while you're listening to the show. It's on the iHeart app. Record that question, and it's coming straight to us. And straight ahead, what federal regulators want to do that could have a huge impact on your work life. This could be a game-changer for a lot of you. I don't love January. I mean, here in the Cincinnati area it is gray.

Steve: Cold and gray.

Amy: I feel like it's just, like, rainy, cold, gray the entire month, not my favorite time of year. And then you pile on top of that, oh, supposed to be talking about taxes now and planning for taxes, and it's, like, a total one-two punch.

Steve: It is. And people, when they get their 1099s are gonna be surprised that, "Oh, my investment account was down, yet I have all this taxable income. How did that happen?" That'll be a fun conversation with a lot of advisors. But, you know, this is a time of year where it's a good opportunity if you're drawing money out of investment accounts to take a fresh look. And, you know, just because, you know, taxes are usually towards the end of the year, you start worrying about 'em, it's not a bad idea at the beginning of the year to take a fresh look of how you're drawing money out, which accounts you're drawing it from, and how you're being taxed on that.

Amy: There's something called a taxable account, and I hate the name of it because we all, of course, cringe when we hear the word taxes, but this could actually be an account that is incredibly a huge advantage to you for using it, right? So, you've got your money in a 401(k), you likely don't have the pension anymore than maybe your parents or grandparents did. So, you're saving that money in your 401(k) for retirement. What happens when major expenses come up that you...? And I'm not talking about an emergency fund, but...

Steve: Or even just living expenses.

Amy: ...living expenses. You need a little extra money maybe to put in a down payment on a home or whatever it is. Where do you pull that money from?

Steve: Yeah, well, here's what we're talking about. If you're retired and you're not 72 or 73 where you're required to take money out, chances are the bulk of your money is in an IRA or a 401(k), but you know what? That's taxable income and it taxes ordinary income. So, in other words, you draw money out of an IRA, let's just say you need 10 grand for living expenses, whatever the case is, buy a new car, more than 10 grand, but that $10,000 that you took out of your IRA, that's taxed as ordinary income just like you earned it on a job. I mean, you're gonna pay the highest rate of your income tax bracket on that $10,000 distribution. You may have other accounts where you don't pay as much in tax, and that's really what we're talking about.

Amy: Yeah. The taxable account, right? So, you take money out, and as long as it's been invested for at least a year, you are then taxed at the capital gains rate whenever you need to access that money. Capital gains rate for most people, and this is a huge generalization, but it's about half of that ordinary income tax rate. So, this can be just a great advantage. And so while we're talking about kind of tax preparation as we head into April, there's also tax planning, which happens year-round. And you get this right, especially in retirement, and it can mean the difference of tens of thousands of dollars more in your pocket versus Uncle Sam's over the course of your lifetime.

Steve: Yeah. Let me draw an example. I was talking about taking $10,000 out of an IRA. If you make more than... Well, let's say you even make less than $83,000 and you are married, filing jointly, you're probably gonna pay about 15% in income tax, okay? As ordinary income on the whole $10,000. That's 1,500 bucks. Well, after last year, if you instead took that $10,000 out of a joint investment account, not a 401(k), not an IRA, you may not have any profits. And when somebody says a gain, that means a profit. And if you didn't have a profit, guess what? There's no tax to pay at all. Even if you had a profit, let's say you made $1,000 out of that $10,000 was profit, okay, you only pay tax on that 1,000 at the lower capital gains tax rate, which may be 0%, maybe 15%, 20%, but it's gonna be a lot less than you're gonna pay on being taxed on the whole $10,000 that you took out of your IRA. So, a huge difference in the amount of tax you pay for having the same withdrawal.

Amy: And as we talk about which accounts to take that money out of, also you have to pay attention to how much you are pulling out. You look at how much you've currently got coming in from income, whatever sources you've got, social security, wherever money is coming from, then you put that on top of it, wherever you're pulling out of that 401(k), that IRA, whatever account it is. Look at that, does it bump you up to the next higher tax bracket? Which is something, of course, you don't wanna do.

Steve: Yeah. And also if you're drawing social security, it may make your Social Security taxable because social security taxation is based on your overall income level and includes half of your social security. I don't wanna get too far in the weeds on that. You know, talk to your tax accountant before you make these big decisions. But, you know, the issue is, all right, well, if I'm not retired, how do I solve this problem? How do I not have this to worry about when I'm retired? If you've got 5 to 10 more years before retirement and you don't have a joint investment account with your spouse, open one up. I mean, start building up some money in there. That's number one. And Amy, you and I have always said Roth IRAs, Roth 401(k)s, they're a good tool also.

Amy: We talk about how important diversity is in diversifying, of course, your investments, but another of those is diversifying the tax treatment of the accounts that you have, right? Something that's tax-deferred, something that's taxed at capital gains, and then something where you've already paid the taxes on. Having the flexibility to pull from those different buckets, depending on what you need can be a huge asset in retirement. Here's the Allworth advice, "Understanding the impact that taxes can have on you and your retirement can help keep more money in your pocket."

Coming up, federal regulators want to ban something that impacts, well, you know, 30 million Americans, maybe even you. We'll tell you what it is, next. You're listening to "Simply Money" here on 55KRC, THE Talk Station.

You're listening to "Simply Money," presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. No secret about me. I come from a media background, and that is a world where non-competes are the absolute norm. Same in the financial services industry, right?

Steve: It is. It's something that I think every company I've ever worked for has asked me to sign. Ask as in, if you want the job, you've gotta sign it, a non-compete agreement.

Amy: Not like, "Hey, how about you just sign this?"

Steve: Exactly. And there may be some big changes coming up. The FTC, the Federal Trade Commission, released some proposed rules last week, Amy. And one of the things that they are talking about is putting an end to all non-compete clauses.

Amy: I see both sides of this. So, from an employer's perspective, they have invested resources in you. They've trained you. If you're in financial services or something where you work directly with clients, right, then they know you, you are kind of the relationship they have with that company. At the same time, as an employee, I've been on the other side of this, you know. I'm from Cincinnati, and I don't ever wanna necessarily leave here while I'm working in... I could go across the street, you know. When I was working, say, in TV, I could go to a different channel and maybe make more money or get a better title or a better schedule, yet at the same time, I can't leave because I'd have to sit out for a year, you know, and that becomes a huge burden on a lot of people.

And I know the specific circumstances might be different for you depending on how yours are set up, but the point here is there's 30 million Americans that their careers are in some way, shape, or form, like, affected deeply by these. And the FTC is saying, "Hey, this isn't fair. This is doing a huge disservice to so many people who could be making more money and have more flexibility."

Steve: Well, there's a good argument from the employee standpoint of, "Wait a second, you're not allowing me to earn a living. You know, this was not what I signed up for. I'm not happy at my current employer and there's another employer offering me maybe more money, maybe a better, less toxic work environment, but you're telling me I can't work there because they're in the same field?" You know, that's the problem I think people have with non-competes. And there are differences even in states. California is one of the most lenient of not allowing enforcement of these items. Ohio's one of the most stringent. And the question I've got is, if the FTC moves forward with this, do they even have the power? Do they have the authority to be able to just nix all the non-compete agreements across the country?

Amy: And I think that is the pushback here, right, is states decide this, not the federal government, and so we'll see how this one pans out. Thanks for listening. We hope you're gonna tune in tomorrow. We're talking about bonds, where they're headed, and why they're so critical for your portfolio. You've been listening to "Simply Money," presented by Allworth Financial here on 55KRC, THE Talk Station.