Amy: Tonight, understanding your relationship with money. What kind of investor are you? You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. Not every investor is the same, right? I mean, some are do-it-yourselfers, some of you really wanna leave money for your family. Others say, "Let me have that last check bounce," right? We all run the gamut. And Steve, I think it's interesting because I don't know that a lot of people take time to figure out, where do I fall? Like, what is my relationship with money? Because once you figure that out, it helps you figure out, okay, here's my strengths, here's my weaknesses, here's the kind of help that maybe I need to get from where I am to where I wanna be.

Steve: Yeah. And from my perspective as the investment advisor, I can't be all things to all people. And there are definitely... And I hate to label people, I don't like labels, but some people are do-it-yourselfers, some people are not do-it-yourselfers, and they all want something a little different out of whoever they decide to hire to help them with their finances. I'll give you one. And I think this is me and my wife, family-driven retirees, family traditional values, they drive everything that I want. I want my kids to have something that I never received, which was a little bit of money as an inheritance.

Amy: An inheritance. Yeah.

Steve: Yeah. I mean, my parents, they were happy that they didn't... Actually, my dad really thought that I would inherit his Visa bill so that there would be a balance, which no, you don't inherit...

Amy: The inheritance would be a negative one.

Steve: Yeah. It would be negative. Yeah. And he was proud when he paid that off, even though I told him, "No, you don't inherit your father's debts. That's not the way it works."

Amy: That doesn't get passed on.

Steve: But the whole point is you wanna support your spouse, your children, grandchildren. You want to help them grow and thrive with a few extra dollars. So, you don't necessarily...this type of person doesn't want to bounce their last check to the funeral home as the proverb goes. They really want to leave some sort of legacy, and they just need an advisor that's more or less a collaborator. "Hey, help me do this. This is what I want. These are my goals. I'm not quite sure exactly how to do this, but these are my goals, my game plan, and help me out." And that's kind of a neat relationship to have with an advisor.

Amy: Yeah. I think someone who's very legacy-driven will probably need a little more help with estate planning. And how can I do this? And maybe it gets even more technical than that. Maybe you have, as we've seen many times in our offices, some kids or grandkids or better with money than others. And how do you set it up where you can protect them? Or if you're worried about maybe one of your children getting a divorce in the... There's all different kinds of things that can happen, and there's all different ways that your money and a trust can be set up in order to protect you.

And if you're someone... I don't think it matters what age you are, if you're knocking on retirement's door, or if you're in your 20s or 30s, you kind of already know, is family what drives me? In retirement, when you start thinking about what that looks like in the future, does it look like spending time with kids and grandkids? If this is you, and if this is kind of ringing true, then understand, okay, legacy is a big deal to you. That will probably be one of your main financial goals. You'll need to partner with someone who's really strong at that, who really gets that and can partner with you on that. And that's a great one.

Steve: I'll give you one, and I bet you you know half a dozen people like this, I call them adventurous spenders. They just love life. They love going out, taking trips, you might be this kind of person, taking trips, spending money, just life is for living. And you know what? I might not have saved up as much as I wanted to save at this stage of my life, but man, did I have a lot of fun getting to this point.

Amy: I think my husband wishes I was this kind of person, I am not, I'm a little more anal about my money, but yeah, I think we all know people like this who are really trying to figure... They're living it up now, they wanna continue to live it up in retirement. They often make more, and they often spend it as soon as it comes in. And they don't wanna worry about the money. They really just kind of wanna know, can I take that next trip? Can we go to Mexico? Can we go to Europe? Can I travel in retirement?

And so, this kind of a person, and really, I'm sure you're picturing one in your mind right now. We all know them. They're super fun to be around, they're living for the next adventure. They wanna partner with someone who's going to say, "This is..." Kind of keep 'em on the rails. "This is how much you need to be investing and saving in order to continue at this rate." Every once in a while, the conversation with your advisor could be a difficult one. Could be, "Hey, there are tradeoffs to living this way. You take this trip to Europe in the future, you might need to work an extra six months before you retire."

But there's someone who's going to say, "I get you, I know you like to go on these adventures. How do we keep you going on... Maybe do you need to tone it back a tiny little bit in order to be able?" But those are the kinds of conversations that particular kind of person is having with their advisor.

Steve: The biggest issue I have as an advisor is, okay, how much do you spend? When the response is, "I've never done a budget and I sure as heck I'm not gonna start now," you kind of know this is an adventurous spender because they don't wanna budget, they don't want anybody to tell 'em what they can, and more importantly, cannot do. So, the best...

Amy: They need a spending plan. Right?

Steve: Exactly. Yeah. So, my job becomes, "Okay, lemme show you the consequences. I don't care what you do, but this is what happens, and this is what your life is like. And if you continue on this path..." And maybe they decide to settle down, but maybe they don't.

Amy: And at least though, they kind of have a heads up, right? About if you keep making these decisions, here's how that's going to end up for you. And I always say, when it comes to money, knowledge is power. Not knowing how your spending affects you, that's really the scary part. Someone putting it in front of you so you can make a decision, well, that's much more helpful. You're listening to "Simply Money" tonight here on 55KRC as we're asking you, hey, what kind of investor are you? Which of these rings true to you? Are you very legacy-driven, very family-driven? Are you adventure-driven? Do you live for that next trip, that next thing? I don't know. Are you a skydiver, a golfer? All the things.

Very different ways that you would approach money. Here's another one, and this might ring true as well, proficient and prosperous. You know a lot about investing. You understand how markets work. You don't have to spend hours pouring over your 401(k) investment choices because you understand them. You don't have to do research. You already kind of know how these things work. This is kind of a very different kind of investor than the first two we talked about.

Steve: My older son is like this, and he happens to be an engineer. And that's a...

Amy: Makes a lot of sense.

Steve: It's very true. He just loves to research, put it all on a spreadsheet. He understands a lot of what's going on, and is somewhat of a do-it-yourselfer. And you know what? Not everybody needs to hire an advisor.

Amy: No.

Steve: This is a type of person that, okay, I've got this. Maybe I want to hire an advisor to run just a financial plan, to map this out over the next 30 years. Or maybe I just want someone looking over my shoulders, kind of the way I am with taxes. I'm capable of doing my own taxes, but I prefer somebody else doing my taxes for me. It's time that I'm not spending, they might point out something that I wasn't aware of. And as an advisor, this is the value that you may bring to the table. This type of investor tends to just wanna say, "Hey, let me run this by you. I'm pretty set with what I do. Is there anything I'm missing?"

And I love that question because, okay, maybe it's a Roth conversion, maybe it's a Roth 401(k) as part of your contributions. Maybe there's a little value added you can add to the relationship, but you're generally with this type of person, you're not gonna be hands-on and tell 'em, "I want you to do this, this, and this," because that's not what they're looking for.

Amy: Yeah. You probably like to steer the conversations with your advisor. If you have an advisor, I would say what you need to be looking for is someone who, first of all, listens to you, right? Gets you, gets your investment philosophy, what you're trying to do goal-wise, but then says, "Have you considered a Roth conversion? Have you considered this? Have you considered that? Here's why this might make sense. Here's where we might be able to save you some money in taxes." They're literally bouncing things off of you.

You can be really proficient in money, but we all know, unless it's something you're doing day in and day out, right, 40 hours a week, you probably don't have it all figured out. And so, it can always be helpful to have someone to bounce some things off of, "Hey, have you tried this? Have you thought about this?" I think that's the kind of person that probably falls into this category.

Steve: Yeah. And this is the way I am with cars. I just dropped off a car yesterday. And I know it's gonna need some repairs. Okay? It's gonna need some deferred maintenance taken care of. I just bought the car, used car, a couple months ago. And I caught myself talking to the guy at the desk about letting him know I've restored cars, I've done this, I've done that. I understand your language.

Amy: They're probably rolling their eyes at you like, "Oh, you're one of those know-it-alls."

Steve: Oh, you know it. You know it. Yoh, we got one of them in here again.

Amy: Telling us how to fix his car.

Steve: But the value there is, okay, it's not a project I feel like taking on now. Am I willing to pay the money for somebody else to do and take it off of my desk? Ted, take care of it and give me back a car. And I know his language, and he knows I know enough about this stuff to be dangerous so that the real value is okay, he's solving a problem for me. And even though I could do the repairs, maybe I just don't feel like it. And I think some investors are like that too.

Amy: Here's another group of investor, hardworking. And listen, I mean, we're all hardworking. Of course you are. But you've worked really hard, you have disposable income probably at least at some point in your life. And the key here, though, is when you think about growing your money and protecting it, you go toward, you gravitate toward protecting your money. You're risk averse. You've worked so hard for what you've got that you wanna make sure that more than getting more of it, that you're protecting what you have.

Steve: Yeah. Blue collar. This is the way I grew up, this is the way my parents were. And yeah, they worked hard, they saved what they could. They knew it wasn't as much as they wish they had, but you know what? I need to take care of it. I need this money to last a lifetime. This is where you really need a good relationship with an advisor. And trust, honesty, ethics are by far, that's everything in the relationship. Returns, yeah, everybody wants to make money, but it's not really what you're looking for. You want somebody to help you not run out of money and be absolutely upfront, blunt, honest with you about you're in good shape or you're in bad shape, but here's how you can be in better shape. That's what they're looking for. You talk about a collaboration. I love these people. Cincinnati is built on this type of person.

Amy: Yeah, yeah, yeah. We're very familiar with these kind of people at Allworth, right? We've got lots of them that we get to work with, and they're great. And I think sometimes, the conversation with these people is more almost along the lines of the adventuresome kind in a very different way. The adventuresome, you're saying, "Hey, if you keep spending at this level, this is what will happen." But sometimes, what you need to have the conversation with these hardworking people who really wanna protect their money is, "But if you don't take on some measure of risk, what you could be risking is going broke safely and slowly over the course of your retirement, right? Because you don't have enough coming in if it's all stashed away in your bank account or you're not taking any kind of risk on."

So, all of these are just different ways that you might fall into, different categories that have to do with how you handle money and the kind of person maybe you should be looking at to partner with you in order to get you where you need to go. Here's our Allworth advice. Understanding what kind of investor you are should empower you to get the kind of help you need with your money. Coming up next, times when it's better to save than invest and vice versa. You're listening to "Simply Money" here on 55KRC, the Talk Station.

Amy: You're listening to "Simply Money" brought to you by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. If you can't catch our show every night, you don't have to miss a thing. We've got a daily podcast for you. You can find it on the iHeart app, or wherever you get your podcast. Just search Simply Money. Straight ahead at 6:43, the steps to take when you inherit money, and we're specifically talking about a retirement account like a 401(k). These are people that we come across all the time.

Here's the thing, maybe you have a little extra money sitting in front of you, extra money after you pay the bills, or maybe it's something like an inheritance that's come your way. The question is, okay, what should I do with this money? Do I invest it? Do I save it? Those are several questions that need to come with that in order to help you figure it out.

Steve: There are. And if you're barely scraping by and you've got credit card debt and you've been dreaming about, "Oh, I'd love to have this car, or upgrade a house, whatever," and you've got a decent windfall, that is a very dangerous thing.

Amy: Yes.

Steve: I mean, you've been scrimping and saving and you seem to not be gaining any ground whatsoever. And you have this bunch of cash dropped in front of you, and your first inclination is, "I've wanted that car for so..." I'm just gonna buy it. I'm gonna buy it and, you know, that's what I'm gonna do with this money. And the problem with that is you still have the debt, you still have the problem, and now you've got something, a car, that's going down in value.

So, take your time on these decisions. If you get a windfall, you get an inheritance, you get a chunk of money, there's no hurry to make a good decision. I think the first thing you need to take a look at is, do you continually carry a credit card balance?

Amy: Yeah. Paying off debt first and foremost. I can't remember exactly what the statistic is, but it's with lottery winners, right? They get this huge sum of money all at one time, and usually, they're broke within, I think, it's like four or seven years. It happens. Not only do the lottery winners who are winning the mega millions jackpot, it's with an investment, with a bonus from work, anytime you have extra money, rather than, to your point, Steve, going to that car, or that vacation, or whatever, step back and say, "Okay, 10 years from now, what will I be glad that I did with that money?"

And I think that helps you think a little more long-term about it. And to your point, first and foremost, it's getting out of debt, paying it off, and determining that you're going to stay there. Just breaking that cycle. That's the first thing.

Steve: No question. That's a killer. Take care of what got you in that problem in the first place. But I'll tell you that the most important question, once you take care of, okay, now I'm not... I've got all the credit cards paid off is, "All right, I still have some money left over. What's the time horizon on this money?" That sounds like a fancy investment advisor phrase, but it's really, you're asking yourself, what's the purpose? What do I want to do with this money? Is this money I want to put away for retirement? Am I renting? Do I want to buy a house and I need the down payment?

Very important question because if the answer is, "I'm most likely gonna need this money within two, maybe even three years, but certainly, within two years," don't even think of investing it. Because the last thing in the world you want to do is, okay, well, I did everything right. I put it in a diversified portfolio, and you did it, let's just say, in the fall of 2007. And within six months, markets nose-dive, your let's just say $20,000 is worth $8,000. "Oh, the best house I could have imagined came on the market. Let me have my 20 grand back." It's only eight. You don't wanna have that discussion with your advisor. You don't want to be in that situation.

But you know what? If you invested it for two to three years, you're gonna see a bounce back, most likely to get back at least to where your money was when you started if your time horizon was at least two or three years. If it's less than that, throw it in the bank, get whatever interest you can get, period.

Amy: Yeah. And when you're throwing it in the bank, what bank are you putting it in? If you need that money soon, and I think I'm thinking of a friend who has to pay for a wedding in a couple of years, and he was like, "Do I take the money out? Do I leave it again? I think the markets can go this way. I think they're gonna go up or whatever." And I was like, "Take it out. You just don't know what's gonna happen." But also, online banks right now, and most of them are FDIC insured. I was just looking, they've got some CDs, the money market accounts that are making north of 4% in interest.

Steve: I know. Yeah.

Amy: It's a great time to shop around and see. So, I would say, "Hey, if you need that money anytime soon, that's where you need to go do the research. Put it in an account that's actually gonna make you some interest." I also wanna throw something else out though, Steve, do you have a solid and healthy emergency fund?

Steve: Oh, yeah. Yeah. Because that's the foundation.

Amy: Yeah. Nowhere near sexy... Yeah. Nowhere near sexy as the new car or the trip. But I'm telling you what, when you need it, and it's not if you need it, it's when you need it, you will be so glad that you have this money. It takes so much stress out of your life. Then you're not looking at, okay, I have to pay for this medical bill, or this car that broke down, or this HVAC unit, or whatever it is, because it's coming. Am I gonna pull money out of my 401(k)? Am I gonna put it on a credit card? Most Americans, and research study after study has shown us, does not have $400 set aside that if an emergency came up, they could pay for that. Make sure, that's why I think this emergency fund is the most critical piece of a financial plan.

Steve: Yeah. If you don't have an emergency fund and you just got yourself out of a debt issue, you're gonna get right back into the debt issue. You're gonna get right back in it and racking up credit card debt and maxing out a card or two. Yeah. You've got... And yeah, maybe the target is three to six months of spending. But you know what? Even a couple of thousand bucks is a pretty darn good emergency fund because when something does come up, you can hit the emergency fund and not the credit card and not get back into that same boat that you were in. I'll give you another one. Let's just say you do have a time horizon more than three years. Are you putting enough in your 401(k) to get free money?

Amy: Yes.

Steve: I mean, that's what a company match is.

Amy: Company match. Sure.

Steve: Company match is free money. So, if you are only putting in 1% or 2% and your company match is on the first 3%, yeah, get as much free money and do that 3% in your 401(k) if it's money you can invest for at least a couple of years. And a retirement account by definition, yeah, that's money for the long haul.

Amy: So, if this is you, right? You've gotten a lump sum recently or you're expecting one, think through. Debt, emergency fund. Do I have a purpose for that money? And if I do, am I gonna need it in the next couple of years or is it long-term? Based on those answers, that should tell you, do you save it? Do you invest it? Where do you put it? Here's the Allworth advice. Is it better to save or invest? Well, the answer is yes, both. Both play a key role on your road to financial freedom. Coming up next, how to help your kids build credit from scratch. You're listening to "Simply Money" here on 55KRC, the Talk Station.

You're listening to "Simply Money" brought to you by Allworth Financial. I'm Amy Wagner along with Steve Sprovach. I remember when I first started college, the first few days, there were tents everywhere on the way to every class offering me a free credit card, and a free t-shirt, and hats, and frisbees, and all the things. All you had to do was sign up. And I remember lines around those tents. Times have changed since then. There are laws, right, protecting credit card companies from targeting teenagers. But it leads to a new problem, which is how do you build credit when credit cards aren't readily accessible to you? Joining us tonight, of course, our credit expert, Britt Scearce. Britt, where do teenagers get started? They need credit, but how do they build it?

Britt: Yeah, it's kind of a chicken or egg kind of thing. How do I get credit if no one will give me any credit? So, there are a few different tactics you can take that you don't have to worry about trying to get... Applying for a bunch of loans and getting turned down and that sort of thing. There are ways that are guaranteed to start and establish a credit history. So, one of the first ways is to approach your bank or credit union about a secured credit card. A secured credit card is one that doesn't require any existing credit or anything like that. They're pretty much guaranteed issued as long as you don't have any fraud in your check systems.

So, which normally kids would not, right? So, you can put a little bit of money on deposit with the bank or credit union, and they'll hold that as security. And then they'll give you a credit card to use with that once they're... As collateral. And then you utilize the credit card responsibly. Usually, after about 12 months of using it responsibly, they'll make it an unsecured card, and that puts an instant guaranteed trade line on your credit report. So, there you go. You have finally established a trade line that kind of starts everything.

Steve: So, is that different from a debit card?

Britt: Well, it is because a debit card is tied to your checking account and that is in no way tied to a credit line.

Steve: Okay. So, debit cards, they don't improve your credit, they have nothing to do with credit reporting. So, that's a secured credit card. How about signing on on your parents? When my kids were in college, I gave them each a credit card that was in my name. Does that do anything to build up their credit history?

Britt: Well, that's a great idea, Steve, because that's actually what I did with both of my sons. I added them as an authorized user on one of my credit cards, a MasterCard account that I've had open since probably 2006. And you basically call your card issuer and say, "Hey, I want to add one of my children to this card as an authorized user." You have to give 'em their information and so forth. And they will issue a card with their name on it.

Now, that will instantly put all of the history from your account that you've had open for all those years onto their credit report. It'll create a credit trade line on their credit report and put all of that history, the account balance, the account limit, and so forth onto their credit report. And that pretty much instantly gave both of my sons a 750 plus credit score because that's a card that I don't use a whole lot, and has a good limit on it. And that's exactly what the FICO score loves.

Amy: Britt, I wanna though, talk about too, and I think this is a great way where parents can help kids. Obviously, if you don't have a great credit score yourself, it's not gonna help your kids at all. Yeah.

Steve: But don't do that.

Amy: Don't do that. But assuming you have... Yeah. Assuming you have solid credit, your kids can kind of trail off of you. What's the conversation you suggest that parents have with kids? Because I think I've mentioned this to you before, but I remember the friend that I had in college, always the best dressed at every game, at every event. And I was always like, "How does she do this?"

Well, I went to her dorm room one night and she was bawling, crying because she had gotten herself into $9,000 worth of credit card debt. Yes. And then she was going to have to go to her parents. So, what's the conversation that you have, if it's on your account, what do you suggest you say to the kids, and how do you protect yourself? Right?

Britt: Exactly. So, here's the thing. With the secured... Sorry. With the authorized user account, you can, in many cases, set limits, spending limits, on those cards, so that only...

Amy: Which would be key, probably. Yeah.

Britt: That is key. But here's the other thing. If you're doing this with a teenager, you could do this as early as when your child is 16 years old, if you wanted to do that. And you don't have to give them the card. You don't have to actually give them the card so that they can go run it up like that. Or only give it to them when they're... "Okay, you're going on a trip and I wanna make sure that you're gonna be able to get home if there's a problem," or something of that nature. Or if you have a flat tire, you could just give it to 'em at those certain times. But if you're giving it to 'em when they're going off to college, I would recommend putting some sort of a limit on there saying, "Hey, this card is only able to be utilized up to, $1,000 or 2,000," or something like that.

Steve: Well, okay. So if they're on...you, as the parent, if they're on your account as an authorized user, would I, as the parent, actually see what they're buying, what they're using the card for in my statement?

Britt: Yes, sir, you will. Because you are the one that's actually responsible for that debt. So, you are the... This card, it's kind of an extension of you, so you're allowing someone to use it legally. And everything that gets charged on that card will show up on your statement, and you are the one that's responsible for the monthly payment on it.

Steve: So, I'm thinking maybe not let the kids know that I can see what they're buying until I've got something on them. Yeah.

Amy: Hey, these are all great days.

Steve: Hey, what are you doing with that stuff? Come on now.

Amy: Exactly. Yeah. You're getting the alerts, you're setting limits. So, you're putting some kind of guardrails on your kids as they're learning. And also a huge fan of this, but open and honest conversations about being responsible with credit. My dad, Gary Wagner, I gotta tell you, one of the best things he ever did was impress upon me, "You never wanna get into credit card debt." He gave me a credit card when I went away to college with a $30 a month spending limit.

Steve: You just aged yourself.

Amy: He was like, "Literally buy yourself a tank of gas a month and this will help you build things up." But to this day, right, 46 years old, I've never carried a balance on a credit card. Not to say that there weren't times when it was really tough not to do that, but that was impressed upon me at an early age. So, I also think as you're trying to help your kids build credit, you gotta have conversations with them about ways to be safe and smart about it.

Britt: Exactly. For me, I utilize that authorized user tactic to establish a credit trade line on my boy's credit reports. But then they went and... We went to the credit union and, excuse me, and we actually had them apply for their own $1,000 limit unsecured credit card. Because they had actually had a credit bureau now and a decent credit score, they actually qualified for their own credit card. And so, which the small $1,000 limit, so that is in their own name that they are managing that's building their long-term credit that way.

So, utilizing some of these tactics like a secured credit card, or like an authorized user account, it's just to establish the initial credit. Because here's the thing about the credit bureaus. One, they're so friendly and they're so nice that once you establish a credit report, once you actually have enough data on a credit report to where they can generate a FICO score for you and everything, they will sell your name to all kinds of other lending institutions that wanna also sell you more credit. So, you will start to obtain offers in the mail that say, "Hey, you're pre-qualified for this and that up to $3,000," or that sort of thing. So, you know, that will start. And once you have something established, that's all you really need to do as far as... From there on, you're gonna find people wanting to lend your money everywhere you turn.

Amy: Great advice as always from Britt Scearce, our credit expert. If you have a teenager, a 16, 17, 18-year-old, how to help them build credit, good credit, and also the conversations you have to have with them. 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. Straight ahead, I am the biggest fan girl ever of Warren Buffet.

Steve: Yes you are.

Amy: And we've got some lessons from the world's, I would say, most famous and also best investor. You wanna stay tuned for those. There's a lot you can pull from those. We get a lot of questions from people. Obviously, we do the "Ask The Advisor" segment every week. We got a question recently, though, that's one that echoes a lot of 'em that we get. So, we thought maybe we'll spend a little more time on this one.

The question came from Bonnie, and she wrote this, "I recently inherited a 401(k) with over half a million dollars in it. The money's just sitting there. I keep feeling like I'm going to make a life-changing mistake. Can you help me? What do I do with this?" The problem about this question, first and foremost, Steve, though, is we don't know who she inherited it from because the rules are different depending on where that money came from.

Steve: Yeah. And obviously, and condolences to Bonnie for whoever it was that passed away, but it's obviously a windfall and it's a lot of money. I mean, half a million bucks is a lot of money to pretty much everybody out there, but she's frozen. She's not sure what to do with this money, and it's such...

Amy: Which is better than the opposite because we often see people that don't take just a minute.

Steve: Yeah. And they just blow it. Yeah.

Amy: Yes. Exactly.

Steve: Yeah. And we always say there's never a rush to make a good decision. So, thanks, Bonnie, for taking your time on this. Since we don't know what the relationship was with the person who passed, let's assume it was a spouse. Okay.

Amy: Okay. Start there.

Steve: Because that's pretty common. Okay? And on a 401(k), when a spouse passes away, first of all, there's gonna be a beneficiary on the account. And by the way, good reminder, on a regular basis, confirm your beneficiaries on your 401(k)s and IRAs because I don't care what you did in your will. If you said, "You know what? I'm divorced now, so I'm gonna change it to my new wife or just put the kids on the will." If you didn't change the beneficiary on your 401(k), that's who gets the money. The beneficiary...

Amy: It's going to your ex.

Steve: Yeah. It supersedes the will. So, you might think, "I took care of this." No, you didn't. And that ex would get that money in the 401(k). So, if this is a spouse, it makes it fairly simple. Okay, you've got this money and it's now your 401(k). If your spouse had already started taking distributions, you're gonna be taking distributions. Keep in mind that the government just wants to tax this money. That's the whole game plan, is, okay, tax-deferred until it's not tax-deferred. And then we want you to take out at least a minimum amount. So, if your spouse, before passing, had been drawing distributions, you are most likely gonna have to start drawing distributions and be taxed on it. Don't worry about that 10% penalty though if you're not old enough because that's waived on a beneficiary, but you never get away from paying tax on it.

Amy: Which is a great point because you can continue to take those distributions as you just mentioned. Or her other option, if it's coming from a spouse, would be a lump sum distribution. Now, keep in mind, you have...

Steve: Government wants that.

Amy: ...half a million dollars. I'm gonna assume here, Bonnie, that it might bump you into a slightly higher tax bracket. Yes. So, you would be paying a pretty penny of that money. You'd be losing a pretty penny of that money in taxes that you wouldn't if you pulled it out a little bit over time. So, probably not your best option there. What about if it's coming from a grandfather, an aunt, that you were really close to? Something like that. Well, then the rules change a little bit.

Steve: They so. And I'm thinking of a situation I've seen in my professional life, and we'll just call her Aunt Rose, okay? Aunt Rose accumulated quite a bit of money over her lifetime, and nieces and nephews, her husband had passed, and nieces and nephews are around. She didn't have kids of her own. And they all split the money when Aunt Rose passed. This is a neat gift. I mean, it really is because it reminds the kids every year, because yeah, they do have to start taking required minimum distributions and be taxed on it, but every time they do a distribution, they're thinking of their aunt, and what would my aunt have wanted me to do with this money?

I see it paying for grandkids' educations, and things like that. It's really neat. But there's a lot of confusion over a non-spousal inheritance because there was something called the Secure Act 2.0 that was passed literally right around Christmas time of 2021. So, nobody paid attention to what was in it. And it wasn't a huge piece of legislation, but there were a bunch of little rules that were put in that legislation like required minimum distribution age being bumped up to age 73, which a lot of people don't know if you're not already old enough to draw a minimum distribution.

One of the other things, though, is that yes, you do have to start taking a required minimum distribution from a non-spousal 401(k) or IRA. You don't have to pay the 10% penalty, but you do have to take them. And by the way, you have to have that account emptied out after the end of the 10th year. So, within 10 years, you've gotta empty that account out. These are complex rules, and this is why you've gotta sit down with an accountant and make sure you're not unintentionally screwing up. But yeah, you're gonna have to start taking some money out.

Amy: Here's the Allworth advice. Inherited money can be a complicated situation. Get the conversation going with someone you trust. We would suggest a qualified financial advisor, a fiduciary that's putting your best interests ahead of their own. Coming up next, lessons from my favorite, Warren Buffett, that anyone can use. 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. He is a wealth of knowledge and one that I would say we can all learn something from. Warren Buffet. I...

Steve: You are such a fan.

Amy: I really, really am.

Steve: You are.

Amy: I mean, I'm sure if you ask most women my age, they'll throw out like Brad Pitt or something like that. And I'm like, "I really love Warren Buffet, I'd love to sit down and have lunch with this guy sometime." Although, I think when was the last time that people bid on it? It went for like millions of dollars. So, I probably can't afford that. So, we'll just read his book and take some quotes from it, and share them with you. One of the really cool things I think about Warren Buffett is, first of all, he didn't come from money. This was not born with a silver spoon in his mouth. His last name was never Vanderbilt, right? He just knew.

And, I mean, he says he knew from an early age that he was going to be rich. It is a mindset. And when you think about it, if from an early age, your...I'm not saying number one goal, but a big goal in your life is that you are going to be what you consider rich, you make decisions very differently when it comes to money. You start looking at, do I want this thing or do I need it? If I don't need it, then I'm not gonna buy it. I'm going to save, I'm going to invest. I think it changes everything about your relationship with money.

Steve: You set expectations for yourself. Right? I mean, you set the bar high, and you have a goal. And if what you're doing or what you're spending money on doesn't get you closer to that goal, you don't do it. I mean, he must have been so mature as a kid to be able to do this. I mean, his first deal, him and a buddy, they got together and they pulled their money and they bought a pinball machine. And they put it in a barber shop, started making a little bit of money.

What did they do? They didn't go out and buy anything with that money that they were making other than more pinball machines. And eventually, the two of 'em split 1,200 bucks, which at Warren Buffet's age, that probably would be close to enough to buy a car back in that day, you know? So, that's called reinvesting. If you're making money, have your money make money for you.

Amy: First of all, I have a 13-year-old. He's been on the show talking about money. If he pulled his money to buy a pinball machine, he wouldn't put it somewhere else, he would want it in his bedroom. You know what I'm saying? I mean, the fact that Warren Buffet was like, "I'm gonna buy something that I would probably actually really like for myself, and I'm going to put it somewhere where it can make money for me so I can buy more," I mean, that is just a completely different mindset. Not only that, though. I mean, and he actually said like, "I always knew I was going to be rich. I don't think I ever doubted it for a minute." So, he knew he was going to be rich. But then when he got there, there's something called lifestyle creep, right? It never crept into his life. He lives a very...

Steve: He's a cheap scape.

Amy: He lives a very modest lifestyle. He literally eats at McDonald's, he drives the same old Buick, the same house that he bought was like the 1970s. He doesn't have six or eight houses, he says, "In fact, that would stress me out. I wouldn't be any happier with having all of these possessions than I am right now with what I have."

Steve: He's being himself. He knows who he is, and that's important. And finally, he's a contrarian. When everybody's excited about how great investments are, he's selling. When everybody is disgusted, they want to get out of the market, he's buying. So important.

Amy: Be fearful when others are greedy, and greedy when others are fearful. Smart man. Thanks for listening tonight. You've been listening to "Simply Money" presented by Allworth Financial here on 55KRC, the Talk Station.