Amy: Finally an inflation report that Wall Street loves. You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby. If you check the markets at some point today and you are wondering, "What the heck's going on here?" Well, what's going on is a May inflation report that is exactly what the Federal Reserve, our nation's central bank, has been hoping for.

Steve: Finally, the cost of consumer goods and services were unchanged in May for the first time in almost two years.

Amy: It's working.

Steve: It's working, yeah. So obviously there was fears of inflation picking back up earlier this year, and at this point, that seems to be squashed. So inflation rose at a 3.3% pace in the 12 months ending in May down from 3.4% in April.

May: Yeah, and part of the reason why we're seeing inflation sort of moving in the other direction, at least last month, was because of a decline in gas prices. So the Federal Reserve knows that the price of food and the price of gas is all over the place. It's just very, very volatile. So they actually look at core inflation. And that also rose just a modest two-tenths of a percent, smallest gain we've seen in seven months, numbers better than economists were predicting, numbers showing that things are moving in the right direction. It's exactly what the Federal Reserve is looking for.

Steve: Yeah, it's taken quite some time. We all know that. And the expectation has been set that it's going to take a while to get across the finish line. The last little push to get to that target rate that they're aiming for is going to be more challenging than getting it from 9% to where we are now.

Amy: And it's interesting too, because I have have read stuff where economists have questioned is 2% even doable moving forward, you know, and I think it's really interesting because we came out of this place where for several years we didn't have inflation anywhere close to 2%. I mean, it was barely even noticeable. You had to look back several years to even notice, "Okay, maybe five years ago, I was paying this much less for milk or for gas, or whatever it is." And then obviously over the past couple of years when you had an inflation close to 10%, you were noticing. It absolutely hurts. And I think the question that the Federal Reserve has said, "Well, listen, we're gonna stick with this 2% goal rate. Please be patient with us, you know, Steve Hruby, Amy Wagner, be patient, it's going to take a while," yet the 2% goal is still on the table.

Steve: I am thrilled that we are past the days of $9 egg cartons.

Amy: Yes, we all are.

Steve: I mean, that was...

Amy: It hurts.

Steve: As prices go up, we know that they're typically gonna stay. That's the new norm.

Amy: Right, they're not going back to what they were before we started seeing inflation at those levels. That's history.

Steve: With some exceptions like egg prices, that's something that Steve and I spoke a lot about last year because I eat eggs for breakfast most days and, oh my God, was that a kick in the teeth as far as my pocketbook was concerned. Eating eggs every day and having to pay $9 for 'em. So the rate of inflation slowing is good news and obviously the markets are going to enjoy that greatly.

Amy: And I think it's also worth the reminder that some inflation is actually part of a very healthy economy.

Steve: It is.

Amy: You don't want no inflation, you don't want any growth. And one of the things, just on a personal level, we talk about the fact that inflation in your retirement planning, if you don't have it in there, this is going broke safely, right? It's a silent killer of retirement plans. So as an individual, you have to plan for inflation. I know lots of DIYers who have their spreadsheets, right, that they're trying to figure out, you know, what does retirement look like? And I always throw inflation out there and it's always like, "Ugh, I didn't think of that."

Steve: It's why you can't sit on the sidelines with your investments in retirement. So as we're saving, as we're working towards retirement, you're in the accumulation phase of retirement planning. The timeframes between now and when you need to access the money can lead to a situation where it's okay to take more risk with your investments, but as you transition into retirement and you start generating your paycheck from your portfolio assets, you have a responsibility to pull back on that risk sum, but not to the point where inflation is gonna eat your portfolio alive because it is a safe way to lose money if you're not actually investing.

Amy: And at Allworth, right, we build inflation into these financial plans for people who are looking at moving into retirement. At the same time, nobody's looking at 9% inflation, you know? So that's I think why, you know, years like that, that was inflation that we hadn't seen for 40-plus years, right? I mean, you and I don't remember the days...well, you weren't even alive the last time we saw...Okay. Here we go. You weren't even alive the last time we saw...

Steve: Were you in...

Amy: ...inflation...

Steve: ...high school at that point?

Amy: ...at that level. No.

Steve: In the early '80s?

Amy: I was not. But it felt new, it felt scary, it felt different. You know, the dual mandate of the Federal Reserve is full employment and stable inflation. And it got outta control there for a while. So yes, the reason why your 401(k), the reason why Wall Street is celebrating today is because we're finally seeing movement. It was like we were stuck and we were wondering, is 2% ever gonna be doable again? And I think we saw some green shoots or some hope today that maybe it is. You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby as we talk about the fact that new and inflation numbers are out. And if you wanna pop some champagne tonight, you know, certainly the Federal Reserve is celebrating. And, interestingly, the Federal Reserve also met today.

Steve: Yeah, so they did meet today. Actually, it's a rare event that the CPI report and the Fed's policy meetings have fallen on the same day.

Amy: What a day it is.

Steve: Yeah, it's been 13 times since 2008, according to Dow Jones market data. And leading up to today, there was a 0% chance that the Fed was going to do anything with interest rates. Obviously, that's what happened. Now, let's talk about the positive. I want to have a positive spin on what high interest rates mean for us, as long as we're taking advantage of certain areas. And we've been talking about this for a long time too. And that is getting your cash to work. Now, this is very different than moving your investments into CDs or money markets because they're paying higher interest rates right now. This is using cash that you have on the sidelines, maybe some of your emergency fund or cash set aside for some intermediate-term goals, like, I don't know, paying for college for children, saving for a wedding, saving for a new home. There are numerous ways that we can get our money working for us right now to capitalize on the fact that we still have higher interest rates.

Amy: I had someone in my office recently who is pretty far behind on saving for retirement, but there had been a sort of lump sum that they had come across in the past year and a half. And they parked it in a high-yield savings account. Now, that would've been soul-crushing to me a couple of years ago, right, because they would've gotten nothing from that money, and they would've taken, you know, zero...you know, they would've not been able to participate in the upswings of the market...

Steve: Exactly.

Amy: ...that we've seen. You know, it is far less soul-crushing to me now if people have money in places on the sidelines, as long as they are taking advantage of high-yield savings accounts because when you look at 4.75% or 5%, I mean, we've seen rates north of 5% over the past year or so. They're not everywhere. So if you have kind of a traditional, sort of, bricks-and-mortar bank where you have held that savings account for years and years and years and years, and you love the teller, you love friend in there, you love the lollipops that they give you or whatever it is, it is worth shopping around. And in where we are seeing kind of the highest interest rates offered is many times online banks.

Steve: Yeah, so online banks don't have the same costs...

Amy: Overhead.

Steve: Yeah, the same overhead associated with having a brick-and-mortar location. So they're able to offer higher interest rates in their high-yield savings accounts to try to lure away typical bank customers. Now, that doesn't mean that that's the only option. If you don't wanna put your money in an online bank, which still, by the way, is FDIC-insured, so there's a level of protection there that if something were to happen to the bank, your money is insured by the Federal Deposit Interest Corporation. How come that..?

Amy: FDIC, yes.

Steve: Yeah, thank you. And in this situation, you don't necessarily have to leverage the online bank because there's CDs, there's money markets, there's treasuries.

Amy: You have options.

Steve: You have several options that are paying upwards of 5% right now. Now, when you talk about this person that was in your office recently, I think that's important because the markets have been on a tear. Last year they closed up over 20%, this year, they're up over 10%. So having...

Amy: Far better than 5%.

Steve: Far better than 5%. That's why we can't let emotion cloud our judgment, we can't let fear of the markets cloud our judgment, because investing in the long term in stocks is the number one way to beat inflation. So making sure that you have that money working for you for the long term is, is key. However, if you have that intermediate cash, then you need to be taking advantage of these opportunities that exist right now due to the high interest rate environment that we're.

Amy: Here's the bummer in all of this though, right? Banks were late adopters when it came to, "Okay, interest rates are going up, we're gonna pay you more." It took awhile for consumers to see that benefit. And it's almost like, even though the Federal Reserve has said, "Okay, these inflation numbers are good, but we are still not gonna do anything about them right now," banks are almost anticipating. And I do know that several people who have high-yield accounts at different banks are starting to get notifications, "This is heading down half a percent, this is heading down..." You know, so if you have not taken advantage of this, please do, because we're kind of starting to potentially be on the other side of this.

Steve: Yeah, we are. And it's funny because it takes longer for the beneficial things to kick in, like...

Amy: Why is that?

Steve: ...CD rates, money markets than it does for the debt to get more expensive.

Amy: Credit cards went up immediately, the cost of new mortgages, up immediately.

Steve: Yeah, and then there was a lag effect on CDs. So if you're gonna take advantage of it, maybe do so sooner rather than later.

Amy: There are, you know, a number of questions you need to be asking yourself, right, as the Fed tries to get down this inflation rate to this goal of 2%. One of them is, am I taking full advantage of this? Another one, just on the flip side, please, please, please, while these rates are higher, make sure that credit card debt is getting paid off. Here's the Allworth advice. Today's inflation report good for your 401(k). Just don't get greedy with your investments because of it. Next, we are breaking down sources of income that the IRS actually can't get their hands on. Steve Hruby loves ways that you can poke a stick in Uncle Sam's eyes. We'll tell you what they are. You're listening to "Simply Money" presented by Allworth Financial here on 55KRC THE Talk Station.

...along with Steve Hruby. If you can't listen to our show every night, we do have a daily podcast for you. Just search "Simply Money" on the iHeart app or wherever you get your podcast. Coming up at 6:43, a possible side effect of maxing out your 401(k) too early, what you need to look for and make sure it doesn't happen to you. Okay. So Ohio has been doing this for several years. A sales tax holiday it's usually been for three days over the first weekend in August as kind of some relief for parents and families that are having to deal with back to school expenses, which are usually high, right? The kids need new clothes, they need backpacks, they need all the things, and so no sales tax during those three days. Well, now they are extending that this year to 10 days, so starting on July 30th through August 8th. And another good thing about this, Steve, is in the past there were so many exceptions to it. It was difficult to keep up with, like, what you really could buy. There were certain things teachers could buy, certain things other people could buy. It was very limited. Now they've removed most of those exceptions. So pretty much anything you buy in the State of Ohio between that eight-day window, it's going to be tax-free.

Steve: Yeah, I mean, this is for nearly all items up to about $500 in value with some limited exceptions. And this is either online or in-store locations. Now keep in mind, this is a bummer, you do not skirt the taxes on watercraft, outboard motors, motor vehicles, alcoholic beverages, tobacco, vapor products, or any items that contain marijuana.

Amy: Well, what a bummer.

Steve: So in other words, you can't get wasted and buy a boat without paying taxes.

Amy: Well, that is a very good point to make. I've done the numbers on this in the past. It is helpful that you don't have to pay a sales tax. It is not a game changer, right? It's couple pennies, a few dollars difference, depending on how expensive that item is. It helps certainly at a time of year when people are paying a lot for back-to-school stuff. I would just remind you that if you're gonna buy something that you wouldn't buy otherwise, you are not gonna save a ton of money. So don't...

Steve: You're not saving anything in that situation.

Amy: Well, yes. And, I mean, sales tax is gonna be very, very minimal. It's not like they're offering something at 75% off, and maybe you use it, maybe you don't. Please use this, take advantage of it. If there's certain things you're gonna buy, wait until that window. It does make sense to do that. But beyond that, don't look for major savings because it doesn't make that huge of a difference. Staying on the taxes theme here, moving to one of Steve Hruby's favorite topics. He loves to talk about ways we can poke Uncle Sam in the eye with a stick. There are rare but certain types of accounts and instances where you don't have to pay taxes on money.

Steve: Yeah, so, financial planning looks at several different key areas. It looks at investment management, retirement planning, risk management, estate planning, tax planning. So tax planning isn't just your filing. That's what a CPA is gonna do and sign off on for you. Tax planning is several different strategies, again, where we can just pick up that stick and jam it right into Uncle Sam's eye. And some of these topics, in no particular order, Roth account income, it's a way to diversify the future tax liability because remember, when you do Roth contributions, that's with after-tax money, the dollars in that account will grow tax-free for you for the rest of your life. This is not typical when you're making your pre-tax contributions into a 401(k), for example. All the earnings that you ever experience, you're gonna have to pay taxes on the money you put in and the growth taxes. But with Roth money, there are no taxes owed as long as you wait until you're 59-and-a-half to take the distribution and the money's been cooking in there for at least 5 years.

Amy: I love Roth accounts. And I think they certainly make sense, especially in your, you know, early working years when you're not making as much, you're sort of locking in the tax right now. But we're also in a place where the current tax brackets, which for most of us are way lower than they had been in the past, could expire next year depending on what Congress does. So this is locking in today's tax rates now. And I love your point too, all that growth comes out...I mean, it's tax-free and there are very few circumstances when Uncle Sam isn't taking full advantage of anything that you've invested and that has grown and saying, "Hey," hands outstretched, "you owe me money on this." So Roth can make a lot of sense. That's why maybe Roth conversions are smart tax strategies for certain people in certain situations, especially as you get close to retirement.

Steve: That's a big one, especially as you enter retirement and your income falls you may find yourself in a position where you have certain tax buckets that you can fill up. For example, the 12% tax rate if you're married, filing jointly, $80,000, $90,000, and then it's all the way up to $200,000-plus. So you can take the pre-tax money you've accumulated and shift that over to Roth and pay the taxes now before tax rates go up in 2026. So that's a great strategy because you're thinking ahead not only for right now, but 10, 20, 30 years out, and sometimes even generationally.

Amy: And as we talk about the rare situations where you don't have to pay tax on money, and you're mentioning, you know, this tax planning and tax strategies, one of those is called tax loss harvesting. And that means if you have certain investments that did really well this year, but also certain investments that did not so great this year, you can kind of subtract those losses from those gains so that you don't owe all of the money on the gains. And another thing that you can do if the losses kind of come out ahead, carry that over to future years when you're gonna have to pay higher taxes.

Steve: And there's $3,000 that you can deduct from your ordinary income each and every year so that carry forward can have that long-lasting effect. Keeping in mind that the capital gains and losses only applies to your taxable non-retirement accounts, that is, so an after-tax brokerage account. Other areas to avoid capital gains taxes, or if you're married, filing jointly, then it's up to $500,000 on a home sale as long as you've lived in it for a couple of years out of the last 5.

Amy: You know I cannot do a segment talking about not paying taxes and not mention health savings accounts.

Steve: Yeah, I wasn't gonna steal your thunder. I was gonna...

Amy: Thank you for teeing me up for this one.

Steve: You're welcome.

Amy: I love it so much, health savings accounts. If a high deductible healthcare plan makes sense for you, you will never pay taxes on this money. The money goes in tax-free, it grows tax-free. And if you take it out for qualified medical expenses, and let's face it, you could be the healthiest person in the world, but when you get to retirement, there might be medications, specialists, surgeries, all kinds of things that are incredibly expensive. So one of the best ways that I like to use HSA is to build up a pretty nice emergency fund. You pay those expenses out-of-pocket as you go, that HSA money is invested, it just grows and grows and grows year after year, and then that's a nice pile for you that you're never gonna have to pay taxes on. And honestly, if you're the healthiest person in the world, and you are just so lucky and you get to retirement, you never have healthcare expenses, well then you do pay taxes on it, but it becomes like a de facto 401(k). But it really makes sense to use [crosstalk 00:18:58]...

Steve: You still get a deduction when you made that contribution though, because it's triple tax advantage. There's nothing like an HSA out there, which is why...

Amy: It's a beautiful thing.

Steve: ...I too am very excited about health savings accounts. So you gotta make sure you're investing with the assets in the HSA in order to capitalize on the tax-free gains like it would be for a Roth IRA.

Amy: Inheritances in the State of Ohio, actually not taxed, although in Kentucky, some states do tax inheritance and that's Kentucky. So understand that, proceeds on life insurance products, financial gifts, all of these things could be options if done the correct way that don't need to be taxed. Here's the Allworth advice. A qualified tax and financial pro can help you structure your financial situation in a way that can truly save you a lot of money in taxes. Coming up next, we're looking at the signs of when it might be time to hand over control of your money. You're listening to "Simply Money" presented by Allworth Financial here on 55KRC THE Talk Station.

You are listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby. Most of us would agree that, at some point in our lives, if we are slipping when it comes to our money that someone else should take over. The problem is when you are really in those shoes, how do you know, how do you give up control, how do you come to the stage of recognizing and have these conversations with family members? This is a really, really difficult issue for so many families. So joining us tonight with his insights and advice on this very topic is Mark Reckman, our estate planning expert from the law firm of Wood & Lamping. This is just really tricky.

Mark: It is tricky. You know, there was a study that was published a few years ago by "The American Economic Review" that found that most seniors have a person in mind or an agent in mind to take over for their finances and their healthcare. Eighty-one percent think of a family member for that job, 19% plan to use an institution or a professional. But as you said, the problem is knowing when to make the transition.

Steve: Folks I work with, I always encourage the conversation before something happens, making sure that they have an estate plan written out that spells out who is their medical power of attorney, who is their financial power of attorney. Oftentimes, it's an adult child locally, but there's still challenges for when you give up control. It's an uncomfortable thought for many and rightfully so.

Mark: Well, that's right, Steve. You know, there are several reasons why it's so challenging. One is there's an old expression, you don't know what you don't know. And what I mean by that is that we are not all aware of our own decline, because as we decline and as we become forgetful, we are not aware of what we forget. We simply have lost the concept. Another problem is that many of us, and I'm probably guilty of this, don't want to give up control of their affairs. If I do when the time comes, I have two sons who I can trust and who are excellent managers, but they live out of town. They're not really aware if I'm in significant decline. It's sort of hard for them to keep track of me. The agent that I want to pick is not always available when the time comes. And the older person, and this is a big one, we don't want to impose on our children or our family members. We don't want to impose on anybody. We're used to doing things ourselves and it's really hard to ask for help.

Amy: And I think as a loved one, even if you start to see, "You know, we forgot about that," or...you wanna believe that they're still gonna be okay, you wanna believe that they can still handle these things. So I also think even if you're kind of witnessing some of the symptoms that things aren't great, it can be difficult to have that conversation. I'm a huge proponent of if you're having these conversations early and often...you know, Steve, you mentioned before it gets to this point, I like to bring those adult children into the office to establish kind of not only a rapport between myself and them, but also to make them a normal part of the conversation with their parents so that it doesn't feel like someone's taking something away from them.

Steve: And it's funny because...

Mark: Well absolutely right. I'm sorry, Steve.

Steve: Oh, you're fine. Just to add to what you said earlier, sometimes children, the agent that's serving his power of attorney, can feel like they're imposing as well. But it's important to make sure that they're prepared and understand what the responsibilities are in the event that the loved one that they're going to serve as an agent over can no longer handle their own affairs.

Mark: And I couldn't agree more. If you're the adult child and you love and respect your parents, you're not ready to step in and say, "Let me do this for you. You are screwing it up." You know, of course there are more tactful ways to approach that, but the concept is hard.

Amy: Okay. So when you're thinking about picking someone at some point to take over your financial affairs, when you figure out what that...What do you look for in that agent?

Mark: The first and foremost is trustworthiness. But you can't stop there. These people also need to be reliable, they need to be well-organized. In other words, they need to be on...they have the time and the capacity, the emotional and intellectual capacity to stay on top of things. They need to be available. Now, this is a term I use and have used for years. I don't mean available just in the sense that they have time. I mean, available in the sense that they have the emotional and intellectual capacity to assume this responsibility and to make it their own that your affairs are as important to me as my own. I'm not gonna do it at the end of the day when I'm tired, or I'm not gonna kick it off until tomorrow. I'm gonna make myself available to my loved ones to treat their affairs as importantly as my own. And last but not least, they've got to be younger than I am and healthier.

Steve: Yeah, you bring up a good point there, available, reliable, right temperament. It does take a little bit of commitment and effort to be somebody's power of attorney, whether it's financial or medical. And keep in mind, you know, we've talked so far about having, I don't know, adult children serve as the agent. That doesn't necessarily have to be the case. They don't have to be a family member. I have folks I work with at this point where they have friends, close, trustworthy, reliable friends that serve as the power of attorney over the folks that I work with.

Mark: And to add to that, Steve, is that there's lots of professional help available. Financial institutions, bank trust companies all offer these kinds of services. Many accountants and bill-paying services are available. Yes, they cost a fee, but they're very reliable and they're very good at making records and at the end of the year, that information slips nicely and neatly into your income tax return.

Amy: And Mark, after you figure out whether it's a person or an institution that you want to take over for you, what are the other steps you need to do to make sure that when the time comes it's a smooth transition?

Mark: Well, the first thing is to sign a financial power of attorney and a medical power of attorney. They are not the same. Here in Ohio they are separate documents. You have to have both. You wanna sign that power of attorney once every three to five years, especially the financial power of attorney. Many financial institutions in this area are a little reluctant to honor a power of attorney that is stale in their minds. And each financial institution has their own way of measuring whether or not a document is stale. Three to five years is a good, safe one. There are one or two banks in town that will not accept the power of attorney that's more than one year old. So the financial powers of attorneys should be executed and re-executed periodically.

But the other thing I would recommend is that you avoid using a springing power of attorney. A springing power of attorney is a power of attorney that says in the document, it says this, "My authority to handle my mother's affairs does not arise until she's unable to act for herself." In other words, the power of attorney doesn't spring into effect until it's needed. The problem with that is there's no easy way to prove to the bank or the insurance company or whatever institution you're dealing with, there's no easy way to prove that that event has occurred. So a springing power of attorney, it sounds like a great idea, actually, in practice it's a nightmare. So stay away from springing powers of attorney. A power of attorney should be effective the day it's signed. And if you're not happy about it, you can always revoke it very easily.

Steve: And keep in mind, just because you have this legal document, this financial or medical power of attorney, doesn't automatically mean that you serve as power of attorney for every company that you do business with or that the person that you're serving as power of attorney does business with. Each of their banks, their brokers, financial institutions, they're all gonna have their own process and paperwork in order for that POA to officially be established on behalf of whoever their client is.

Mark: The hard part, guys, as we started this conversation is when do you know when to step in? And that really is often on the agent, it's on the person who's in charge of my affairs to come to me and say, "We're having a problem." That means you got to keep an eye on their mail maybe, maybe you got to keep an eye on their websites to be sure that their bills are being paid, and you've got to use good judgment and tact to know when to step in. And as you said, Steve, do it gradually, pick the important things first, and go from there.

Amy: Tough conversations, tough decisions, but very, very necessary ones. Great insights, as always, from our estate planning expert from the Law Firm of Wood & Lamping, Mark Reckman. You're listening to "Simply Money" presented by Allworth Financial here on 55KRC THE Talk Station.

You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby. If you've got a financial question that's bothering you, keeping you up at night, you and your spouse kind of fighting over it, well, there's a red button you can click on while you're listening to the show. It's right there on the iHeart app. We can help you settle that argument or figure it out. Record your question, it's coming straight to us. And straight ahead, talking taxes with your teens, why we think that's so important and what that conversation should look like. You know, sometimes life is incredibly unfair. You can do all the right things, but still it not turn out the best for you. And this comes into play with your 401(k), right? You're maxing out your 401(k), and maybe you put a lot of money into that account at the start of the year, or there's a bonus at the start of the year and it fills up the maximum amount that you can put in, and then suddenly that company match gets turned off.

Steve: Yeah, this blew our producer's mind when I talked about it at one point.

Amy: It's so unfair.

Steve: He's like, "Really, this is real? This can happen?" And it can. So, you know, once upon a time, I used to work in 401(k) customer service, and when this happened to somebody, it tended to only happen one time.

Amy: They figured it out.

Steve: Yeah, and then they're like, "Wait, something's wrong. Something's not adding up here. I did something awesome. I did the right thing. I maxed out my 401(k)." When you max out your 401(k) and you hit that IRS limit, your contributions shut off. When you don't have what's called a true up feature inside of your 401(k) plan and your contributions shut off, you're not getting any match.

Amy: Yes, the employer match also shuts off. So you're thinking you're taking advantage of that full employer match, and of course you would be because you're maxing out the 401(k), there's not another dime that you could legally put into that accounts, and suddenly that money turns off. And that's why I say this can feel incredibly unfair because you're doing all the right things and you're still getting penalized for it. These are becoming...I think less and less plans are doing it this way, but there's still about 3 in 10 that don't have this, sort of, true up feature. And it's important to understand if you do or you don't, because if you don't, you wanna make sure that those contributions are stretched out over the course of that year so that you are able to take full advantage of that company match.

Steve: Yeah, most of the larger 401(k) plans at this point do have the true up feature that, you know, there's data showing about 7 out of 10 according to the Plan Sponsor Council of America's latest survey, 7 in 10 do offer the true up. But if you're one of those employees of a smaller firm that maybe hasn't caught up and added that true up feature, then you certainly need to pay special attention to this because let's say for example, you're under the age of 50, you have great income. In just this scenario you're making...

Amy: Doing really well.

Steve: Yeah, you're making $200,000 a year and your company offers a 5% 401(k) match without a true up. With 26 pay periods at a 20% contribution rate, you'll reach the $23,000 employee deferral limit for 2024 in this situation after only 15 paychecks, in which case you would get $5,800 worth of company match. But if you don't have that true up and they don't come back and make you whole, then you would actually miss out on $4,200 of company match when your contributions shut off. Obviously, that's a lot of missed gain opportunity on that $4,200 over the span of the rest of your career.

Amy: Yeah, the younger you are, right, the more power of compounding can take effect there, and the more money that $4,200 that you've missed out on could make an impact on your retirement. So it's incredibly important to know about these things. And I say this all the time, but I think it bears repeating over and over again. As Americans, we spend a lot of time on social media, we spend a lot of time planning our vacations, we do not spend a lot of time understanding and maximizing our 401(k)s. And that is a huge missed opportunity because most of us no longer have pensions. So the 401(k) is the critical thing. It's the number one vehicle that's going to take you from now into retirement. And if your goal, like most people, is to have the same kind of lifestyle in retirement than you do now....I have never ever, ever met with anyone who says, "I eat out a couple times a week now, we go to the beach once a year, we take the grandkids for a weekend away, but when we get to retirement, we're actually hoping to live on ramen noodles...

Steve: And just sit around.

Amy: ...and never travel again," right? That's nobody's goal for retirement. And that's why I think so many people are missing the boat when it comes to the 401(k). Spend some time understanding how yours is set up. Is this true up feature in there? Are you maximizing it? Are your investments well-suitified? Are they diversified? So many different things to think through, but man, you get this right and it makes a huge difference.

Steve: Yeah, this is one of those areas where if you are in a fortunate situation where you're beginning to max your 401(k), or you are already maxing your 401(k) and you don't know the answer, you need to call your plan sponsor. You need to call whoever it is that holds that 401(k) and ask the question, "Do I have a true up? Will I miss out on free money if I do a good job and I hit the limit early?" Because if they don't have a true up, we said it earlier, then you need to plan accordingly to spread out your contributions throughout the year. If you get variable income throughout the year, maybe this means a little bit of extra work for you, but that's okay because it's still free money that you would be getting if you plan accordingly without a true up. You can still get all that match. You just need to hit your limit on the last paycheck of the year.

Amy: Here's the Allworth advice. Make sure you know exactly how your 401(k) plan is set up. You could be leaving thousands, maybe thousands of thousands on the table later in life. Coming up next, talking taxes with your teens, why that's so important. You're listening to "Simply Money" presented by Allworth Financial here on 55KRC THE Talk Station.

You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner, along with Steve Hruby. There are four teenagers in my house, right, a 19, 18, 16, and 14-year-old. It's a lot of teenagers. But the good thing about them reaching a certain age is they start working, right, they start bringing home paychecks. But something happens when the transition goes from babysitting or cutting grass and you say it's $30 a yard or whatever, $10 an hour, and you get exactly that amount to all of a sudden you get a paycheck, right? And these kids know, "Okay, I worked five hours at $12 an hour, this is a $60 paycheck," only they open it and it's not 60 bucks.

Steve: So you've seen that recently in your...

Amy: Yes.

Steve: ...own household. Do you remember the first time that that happened to you?

Amy: Yes. I...

Steve: So do I. It's like a life-affirming event. You're like, "Okay, I make $4.50 an hour, I worked this many hours, I...

Amy: Yes...

Steve: ...remember at this...

Amy: ...you know how much that check should be.

Steve: Yeah, it was a very difficult restaurant job, you know, very demanding, and I was excited, and you open that check and you see all those line items for these mystery people stealing your money, it can be a little jarring.

Amy: And I think the conversation can be, first of all, just very informative, right, explaining to them what the different taxes are and the fact that, yes, you may be a teenager right now, but at some point you're gonna wanna retire and you're gonna need Medicare, and you are gonna need Social Security, and you're starting to pay into that system now so that the system is there for you later. And I think there can be a sense of pride in participating in something like taxes that are...you know, not too much in taxes, but contributing to something that's bigger than yourself And really this is the reality moving forward. So kind of understanding that and also maybe just saying, "You know, hey, we're all doing this and, you know, Mom and Dad have been doing this for a long time, now you're part of this very, sort of, grown-up way of getting paid."

Steve: Yeah, this is what pays for the roads that you drive on when you're on your way to work. There is obviously merit to it to some extent, I don't know about pride in it. But sure, it is something that we all have to do. And, you know, we had a segment today on how you can save money on taxes. Maybe educate them on that while you're at it for planting the seed for future tax planning strategies. But certainly making sure that we are setting expectations so that the children that open their first paycheck don't get that just gloomy feeling wash over them like I still remember I got when I opened my first check.

Amy: And also introducing them to the concept that rather than immediately saying, "Okay, well, I'm losing some of this money to taxes, I'm gonna spend the rest of it," the option of investing it in a Roth IRA where that money is going to grow, right, where they're locking and they're super, super low tax rates. Now, think about how much that money could end up being if they're starting to, you know, open up these accounts when they're 16, 17 years old, and obviously if they're under 18, it's a custodial account that you would open for them. But then they can see that money start to grow. They will. The switch will be flipped and they will...light bulb goes on, "Oh, wait, this is worth it. This money is growing." And I think that's a really great thing for them to learn at a really young age. Thanks for listening tonight. You've been listening to "Simply Money" presented by Allworth Financial here on 55KRC THE Talk Station.