Amy: Tonight, it was not the news that we wanted. Despite multiple aggressive Fed rate hikes, the slowing housing market, a slight uptick in jobless claims, inflation, it remains red hot. You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. Not the news that we were hoping for today when it comes to inflation.

Steve: Well, no, but it wasn't that bad.

Amy: No, it wasn't. And it wasn't super surprising, and it wasn't all the things, but it wasn't exactly what economists had predicted. It was a tick in the wrong direction and, you know...

Steve: But I hit a nail.

Amy: ...markets respond, at least initially to the... You did, you nailed it.

Steve: I hit a nail. What did I say yesterday? I said, "It will be volatile." I went out on a limb and said it'll be volatile.

Amy: You did. You said the market will react, and it did.

Steve: Yes. Yes, yes, indeed. It'll either go up or it'll go down. Got it right. Actually, it's done both, I mean. You know, right after the news came out, down 500. Oh, this is gonna be a fun day. And then at one point during the day it was up 600 and it's like, 1100 point swing in a couple of hours. You know, I saw a study yesterday, Amy, that said one out of six people wake up stressed. They didn't interview advisors, because I think it's six outta six advisors, you know. When there's news coming out during markets like this, it's like, "Oh man. What's this gonna be like? And I hope everybody's okay, and...," you know. But this is the world...this is the world we live in, and until we get inflation not just under control, but see a good trend of it being under control, we're gonna continue to see volatility.

Amy: And let's talk about the numbers. The yearly rate of inflation basically the same. Slipped to 8.2% from 8.3%, so moving in the right direction. And, of course, if you wanna look back to June, that's when it peaked at a 41 year high of 9.1%. So, from June to now we're down 9.1%, down to 8.3%. But here's where I think the rub is, the so-called core rate. It pulls out food and energy prices, because those are...

Steve: Stuff we don't need. We don't have to eat or drive.

Amy: ... Stuff that we use all the time but the prices are all over the place all the time as well, to try to figure out, okay, what's some more consistency? Things like, how much you're paying for your home, or rent, medical care, new cars, those kinds of things. That actually rose last month, and it rose more than economists were predicting. They said, "Ah, probably up 0.4%." It was up 0.6%.

Steve: Yeah. And that's a big miss. And let's go back just for a second on the big number, the consumer price index. Yeah, it went from 8.3% to 8.2%. It was expected to go to 8.1% so not that big a deal. But you're right, and it's the core price index that I think has people a little bit concerned. But there, again, when you look at the numbers, the biggest component is shelter cost, rent. And you and I have both seen what's happened in the past year, two years or so. "Wait, my house is worth how much more than last year? I went on Zillow and they say I can get how much for it?" Well, that translates to landlords that have rental properties saying, "You know what, this property's worth a lot more. I'm gonna go ahead and bump rates up when the lease comes due." Well, the lease is a 12-month lease in almost every case, so there's a lag-time. And that's what we're talking about, is lag-times. Well, what have home prices done lately? I mean, mortgages are up to what, 7%?

Amy: Yeah. There's a 20-plus-year low mortgage applications right now, right?

Steve: Yeah.

Amy: So, I think it is slowing down, but you mentioned that term, lag-time, and that's exactly what we're experiencing right now. I mean, Andy Stout's on the show a lot, our chief investment officer, and he's...

Steve: Oh, he had that nailed. Yeah.

Amy: Yeah. And he said, "Listen," like, "the Fed will make these moves and it will take six to 12 months for us to see the impacts." That's like when you order a new refrigerator or a new couch, and they say, "We will be at your house sometime between 7:00 a.m. and 6:00 p.m. Well, that's a heck of a window. Great. Good luck planning that. Well, good luck planning this. And I think we, you know, just feel like, "Gosh, this has been going on forever." And, you know, I do kind of blame the Federal... Well, I blame the Federal Reserve on a number of fronts, but from the perspective of when inflation first came into the picture last year, the word was transitory. We laugh at that now...we laugh about the fact that they said inflation, but I think it kind of set this tone, or planted the seed that whatever the Fed does can take care of this pretty quickly, control inflation down quickly. But history shows anything but that.

Steve: Well, and I get why people want... I mean, obviously you want that to be the case, but you go back to March of 2020 when the pandemic hit, and all of a sudden we shut down the economy and, "Oh my goodness. What's happening?" Stocks cratered. You know, three, four months later, it was like, "Hey. Yeah, it wasn't so bad." Yeah, it was at the time when you went through it, but over in three or four months, yeah, we liked that. So, I think a lot of people thought this was gonna be over in three or four months, and here we are in October and we've seen our 401(k) balances drop and drop and drop and drop, and, you know, how long is this gonna last? One of the best signs I've seen, Amy, is just talking to regular people. And I tend to be optimistic, I tend to say...

Amy: I like this about you. Me too.

Steve: Yeah. And, you know, I know it's gonna get better, I just don't know when. But, you know, I say, you know, Oh, maybe next summer. I think you'll be happy. And, you know, I can throw out tons of numbers on, you know, rebounds one year after a 20% or 25% drop. But everybody out there that I've heard from at least is saying, "Oh, I hope you're right, but I see this being years and years." When everybody is that pessimistic that's usually when you're at the bottom. I don't know if it's gonna rebound tomorrow, but you're usually around the bottom. And I look at historic swings in stock prices and... You know, in the 1980, 1981 recession when Volcker had to raise rates 4% in about three or four weeks...I'm sorry, three or four months for...basically identical situation, yeah, we saw about a 27% drop in stocks. We're down 25, you know, 25%. So how much lower is there? I almost don't want to ask that question, but, you know, I just feel like we're somewhere around the bottom, and the rebounds are generally pretty darn good.

Amy: You're listening to "Simply Money" here on 55 KRC. You're joining Steve Sprovach and I as we try to make sense of this latest inflation information that's out. What does it mean? Well, one thing that it means, of course, is the Federal Reserve will continue down its aggressive path that we've been seeing lately. In fact, just earlier today they were saying...economists were predicting about an 83% chance that we were gonna see another 0.75 interest rate hike from the Federal Reserve next month. Well, now these numbers are out, 96% chance of another super high hike...

Steve: I was gonna say, it's like ivory soap, 99.99, you know.

Amy: Exactly. We're heading in that direction.

Steve: Andy Stout, chief investment officer at Allworth, I mean, he's been on top of this. He's been saying, "Yeah, I can't imagine them not doing 0.75% increase in November, and they'll meet again in December." And, you know, maybe they'll start tapering it back to 0.25% there. The Fed has been pretty transparent in what they need to do. And one of the reasons for the recent market drop is the Fed said, "Oh no. This will not be quick. It's gonna take some pain." I like a perspective I was reading this morning about inflation, and instead of taking a look at September's numbers over the previous September, they were looking at three-month periods. And June was 9% inflation, highest in 40 years.

But you know what, after that, July, August, and September, it was only a 2% increase in inflation over those three months. So, what's the short-term trend? I hope that we're seeing a much lower month-to-month increase, and that would be a good thing because that tells me maybe the lag time on what the Fed does and its impact on the economy, maybe we're into it. And maybe the Fed will see that, okay, we're getting to the point where we're accomplishing what we need to, and maybe we don't need much larger rate increases.

Amy: You just mentioned the Volcker days, back in the early '80s. So, the inflation rate crossed the 8% barrier in September of '78. It stayed there until February of 1982. Four years of the Federal Reserve trying to bring that rate down, that's how long it took. It got back down to that normal rate, 2.5% in 1983, five years actually to pull it down.

Steve: Oh, you are Debbie Downer. Oh, come on now. Yeah, but it was 15% inflation then, 15%. Yeah.

Amy: Yes. But it did, it crossed that 8% barrier. And before that the last high inflationary period goes all the way back to 1951, you know, and it took several years, 1973, three years to get back once it got above the 8%. The point here is it takes time, and I think that the Federal Reserve by using that term, transitory, at the beginning of all of this, kind of set the stage for, okay...

Steve: Misleading.

Amy: Yes. Well, misleading. And the markets respond to that. Any day that we have any economic data coming in that shows, oh, maybe this is working a little bit, markets take off, right?

Steve: Yeah.

Amy: And it's like, "Okay, but this probably isn't the end." And then, so two days later when data comes in and it's the opposite of that, showing the labor market isn't tightening yet or whatever it is, inflation is ticking a little bit higher, it's like, "Oh my gosh. We thought this was over." But why do we think this was over already, you know?

Steve: Yeah. But here's the good news, and I've talked about this before. Yeah, Volcker, he had to put the hammer down and it put us in a recession. Yeah, stocks dropped 27% in the early '80s and that recession lasted 20 months because inflation was at 15%. The market rebounded after 20 months of a recession, it didn't last forever. When markets rebounded, they went up over the next five years about 230%. All of these downturns tend to be a lot shorter than the rebounds, and a lot less than what you make on the rebounds. And that's why I kind look at this as, every bad day is one day closer to getting through this thing, whenever that happens to be and then, okay, we're back on track.

Amy: Here's another headline that has to do with inflation. We've been talking about this all week, Social Security Cost-of-Living Adjustment. Today is the day that the numbers came out, and those of you who are on Social Security, well you're looking at an 8.7% increase for 2023. That is the largest in decades.

Steve: Yeah. But they haven't announced what the Medicare Premium increase is.

Amy: Yep. True.

Steve: So, now tack on 1% higher and that'll be how much... What the government giveth the government take away. But, you know, it's good news because the average person is gonna get an extra 140, 150 bucks. It feels like you're getting more money, but then you go out and buy stuff and realize, "Well, I got 140 bucks more, but everything I normally buy to live cost 180 bucks." You know, it's the way it seems.

Amy: Exactly. And this Cost-of-Living Adjustment is tied to one sort of index of figuring out inflation, but it's urban wage earners, like people in cities who are working, and that's how you decide what retired people are going to get. It's not highly reflective of how much you're spending on healthcare or housing.

Steve: Makes total sense, Amy, come on now. Come on.

Amy: This is a government program, so it makes as much sense as you would expect for a government program. But keeping an eye on this, I think this will provide maybe some relief. The interesting thing is, is we're a year and a half into these high inflation prices when this will actually take effect. So, one thing to keep in mind, to your point, let's see what Medicare is going to cost next year, and then maybe we'll celebrate, right?

Steve: Yeah. Well, we'll be okay. I mean, we need these cost of living increases because stuff does cost more. And keep in mind there are also some other numbers that came out. We actually saw jobless claims increase a little bit. Not that I'm happy that there are more people out of work, but that tells me that...

Amy: Bad news is good news right now.

Steve: That tells the Fed it's working and maybe they don't have to keep raising rates forever. So, keep your fingers crossed that we're gonna continue to see enough of a slow down where, hopefully, you and I don't lose our jobs, but the economy slows down enough to keep the Fed happy and stop raising rates.

Amy: Here's the Allworth advice, markets will likely stay volatile until there's evidence that inflation is truly cooling. Be patient. Markets have responded in a favorable way every single time after a downturn like this. Did you know the number one party school in the country actually includes retirees? Yes, we will explain. Plus, why this is not the year to procrastinate on that holiday shopping. We're back in three minutes. You're listening to "Simply Money" here on 55KRC, The Talk Station.

Amy: You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. If you can't listen to "Simply Money" every night, you can subscribe to our daily podcast @"Simply Money". It's on the iHeart app or wherever you find your podcast. Roth conversion, to convert or not to convert. We're gonna look at that because there's a lot of people saying now is the time to do it. We're gonna walk you through what you need to think through first. So, there are some times when you look at something and you say, "That sounded like a good idea, but in reality we probably should have thought through this." Arizona State University, trying to get more...

Steve: Tempe, Arizona.

Amy: ...diversity onto campus, decided to have a dorm for retirees. Retirees who are paying a pretty penny to live on campus, but they also get to go to classes and learn new things. And think about how, you know, the younger kids will be interacting with these retirees, all the wisdom that they have, and it's gonna keep these people young and...

Steve: What could go wrong?

Amy: What could possibly go wrong, Steve?

Steve: Why am I feeling creeped out about this? I mean, I've got this really sad picture of, you know, old guys with binoculars hollering, "Get off my quad," you know. You know what's happening...first of all, it's really expensive. I mean, they...

Amy: Insanely expensive.

Steve: It costs, you know, $0.5 million, $1 million to buy in to basically a dorm room, you know, on campus. And then it's still 4, 5, 6 grand a month. And it's funny, all these old people who are my age, which is a real sad thing to think about, they're all complaining about the noise. This is the best part. "Oh, these kids. They play their music too loud." Come on. If you buy a house next to an airport, you're gonna get airplane noise. If you move on to a college campus, guess what, you're gonna hear kids partying.

Amy: Well, and you're right. Exactly, they've brought a lawsuit. Some of the residents of this dorm, the Mirabella, have taken a lawsuit against the university saying, "There's this," you know, "hotspot across the street called Shady Park, and they're thump thump thumping their bass all night long, and the kids are loud and they're partying." And yes, to your point, what exactly did we expect here?

Steve: Yeah. Well, we were ahead of the curve in the late '70s. I lived in a 60 man fraternity house with 60 guys, hungry, you know, college kids, you have a cook and a kitchen. And we had a hard time finding a cook until this guy Ernie showed up. We didn't know at the time Ernie was a homeless alcoholic, but he was a good cook. So he says, "Hey guys, I'll take the job but I have no place to live." Well, we had a closet on the bottom floor of our...it looked like a dorm wing on the bottom floor of our fraternity. And we fit an old mattress in there, about a third of it stuck out in the hall so you couldn't close the doors.

Amy: Oh my gosh.

Steve: We found a dresser in the garbage. And we called it Ernieville and Ernie lived there. So we actually moved a senior citizen, somebody in their 60s, into our fraternity house, and so we're ahead of the curve. It worked out great. Until he didn't showed up.

Amy: Yeah. But Ernie knew what he was getting into. He was moving into a frat house, right?

Steve: Yes.

Amy: He did not complain when the music was loud.

Steve: I just want it to be known, I'm a trendsetter.

Amy: Yes. Something like that, Steve. Something like that. All right. Well, when the date says October 13th, there's a lot of things on your mind, but probably holiday shopping isn't one of them. But we would say maybe this year it needs to be for a number of reasons. Last year we had supply chain issues, some of those are lingering. That's one thing to put out there.

Steve: Yeah. And this almost sounds like a replay of October of 2021, doesn't it? "Hey bud..."

Amy: It does. That part of it does.

Steve: ...do your Christmas shopping early, do your holiday shopping early, because there are supply chain problems." They're better. The supply chain is way better, but it's still out there. And it's the same issues, computer chips, getting ships to dock, and all that sort of stuff. And so, yeah, don't wait last minute again this year.

Amy: Well, and you could say, "Well, that was a year ago, it should be better by now." And to your point, yes, in some cases it is. But also since last holiday shopping season, well, there's been this huge storm. There's global events like the war in Ukraine, China has a zero Covid 19 policy.

Steve: Oh, they're still shutting down factories, yeah.

Amy: Has shut down major manufacturing, you know. Hurricane Ian, as we talk about that, the huge demand that remains in Florida for a lot of products for rebuilding. You know, people down there are stranded, homes are destroyed...

Steve: I know. I know all about that, yeah.

Amy: Yeah. The whole recovery effort down there is huge. And then other, I say random things, but, like, things that you wouldn't think about. The Mississippi River is actually approaching record-low water levels. What?

Steve: Yeah. I think the number I saw was 400 barges were stuck, and they were waiting for a good rain so these barges can move again. You know, I don't know where these problems are coming from.

Amy: It literally is a perfect storm.

Steve: We didn't have these... Is society moving backwards or forwards? I mean, we didn't have these problems years ago. I'll tell you one, remember that, that railroad strike that was averted? Well, maybe...

Amy: Yeah. You were celebrating that because you said, "Hey, if this happens, this is going to be a huge deal. Huge impact.

Steve: Like, a quarter of all goods are moved by railroads. Well, one union didn't like their 25% pay increase, you know. So, this is not a done deal and it is gonna affect the holiday season again, especially something with a computer chip. So, if you're buying something with a computer chip and it's on sale sometime in the next couple of weeks, or between now and Thanksgiving, you know, Black Friday, you might wanna think about just grabbing it now.

Amy: Yeah. I mean, let's talk about, like, what this means to you. First of all, there's no waiting for later to see if there's better deals on Black Friday. That just doesn't even exist anymore. But second, there are some deals out there, it's certain retailers, because inventory has started to come in. And they have in some cases 20%, 40% more inventory than they had this time last year going into the holiday season. And so, they are already discounting things that came in over the summer that they still haven't sold. Now the question is, are those things things that you would want to buy for people for holidays? Who knows? 

I mean, it could be, I don't know, summer shorts, flip-flops. Or maybe that doesn't help you, but some of the things probably will. So, looking for deals and discounts now probably will help. Also, there was this cycle that existed for years and years and years in holiday shopping, Black Friday, Cyber Monday, the shopping after Thanksgiving, that is a thing of the past. Now Amazon's got a second prime day coming up in a couple of weeks.

Steve: Yeah. And don't fall into this trap though. My wife Anne, she found something that she liked that was on a great deal, and she said, "Just consider this my Christmas gift." I know after 38 years, "Oh no. She's getting a Christmas gift." I'm not gonna fall for that crap.

Amy: It will also be a Christmas gift.

Steve: Yes, indeed. Yes, indeed.

Amy: She's a very smart woman. Here's the Allworth advice. This isn't the year to procrastinate doing your holiday shopping. Get on top of it now to ensure you get what you want. And also, when you look at inflation right now, things costing so much more, if you get a deal, snatch it up. As you know, we are incredibly passionate about financial literacy. Next, we've got some dear friends making sure more kids are getting the money lessons they need to thrive. We'll explain. You're listening to "Simply Money" here on 55 KRC, The Talk Station.

Amy: You're listening to "Simply Money". I'm Amy Wagner along with Steve Sprovach. You know, we are incredibly passionate about financial literacy here at Allworth Financial. We have been on this show for years and years and years, huge advocates of that. And we have partnered, over those years, with the UC Economic Center that does just an amazing job on so many levels of educating, really, from some of the youngest children on the basics, the fundamentals of understanding money and finances. And joining us tonight is Julie Heath. She's the executive director of the UC Economic Center and Alpaugh Family Chair in Economics. Julie, let's talk about the SmartPath program, because that specifically is something that is having a huge impact on children learning about these incredibly crucial concepts.

Julie: The SmartPath program was started several years ago with very generous, $1 million donation from one of our board members, Peter Alpaugh. And since we started the program... It's a platform. It's for grades K-8. It teaches them economics, financial education, there's a lot of math mixed in so that teachers can kill three birds with one stone. The platform itself is driven by stories so a different story at each of those levels. And it's all animated and very powerful, engaging. It's won, oh, I don't know how many national curriculum awards. It's been recognized nationwide. We supplemented it with some puppets for the smaller kids. We partnered with WCET and Megan Piphus, who's a tremendously talented ventriloquist and singer, and Bootsy Collins was a part of that too. And that effort won three Emmys. So, we're just always looking for ways to expand and improve, so that we can reach as many children as possible.

Amy: Julie, as someone who went all the way through school, kindergarten through high school, without ever having a personal finance class, I love the fact that we are getting into these classrooms at the age of kindergarten. Let's talk about just specific concepts that you think kids are really picking up on because of this program.

Julie: Well, you know, a lot of people when they think of economic and financial education, they automatically go to, "Yes, high school students definitely need to learn that." And, boy, you get no argument from me, yhey absolutely do. But we don't wait until high school to teach anything else. So, while I agree with that statement I would add that we need to start much younger like we do every other subject, and then by the time high school students get to that financial education course in high school, which is now required, thanks to the Ohio legislature by the way, it actually has something to stick to. You know, we don't wait until high school to say, "Woah, it's time kids learn some science." We start with the concepts they can understand and build on those year after year.

Julie: And we do the same thing with economic and financial education. So, with the lower grades we teach them concepts like you can't have everything you want, you have to make choices. When you make a choice you incur an opportunity cost. We teach them when they get a little bit older about needs and wants. We teach them how to budget, what happens when you save and when you don't save. So they are concepts that are absolutely accessible to these little kids. Little kids become consumers at a frighteningly young age.

Amy: Well, and Julie, I've seen research that children have kind of their basic kind of knowledge of money and how they're going to spend it, what their relationship with money is going to be, sometimes in place by as early as age seven. And so, if they're not learning about these concepts in a very constructive concrete way in school, it scares me to think, you know, what that relationship with money would look like down the road.

Julie: Exactly. You know, kids are bombarded with consumerism, with ads, with all kinds of things from pre-school, very, very early. So, we need to give them the sense that they are in control of themselves when faced with that kind of messaging.

Amy: You're listening to "Simply Money" tonight here on 55 KRC. We're joined by Julie Heath, she's director of the UC Economics and are talking about the SmartPath program. It can be used in your children's classrooms to really educate them, K-8. But Julie, one of the things that's been lacking with this program is that it can't reach everyone. It is for English-speaking students, but that's about to change.

Julie: That is about to change. We took a look at the platform, and as proud as we are of it and as many thousands and thousands of children that it reaches, we recognized that it wasn't diverse. And so, we added a component that if teachers or parents... It's also available to parents, it's free. If they want to have some racial and social justice discussions, we give them materials to do that. If a parent or student has a child with some cognitive disabilities, we give them the resources to be able to connect their child with the platform. But there was still this missing piece in terms of inclusion, and that was having it be available in Spanish. There are over 3,000 Ohio students using a smart app platform now. A fair amount of those are Hispanic students. So, I have been trying, for a couple of years now, to get the funding to fund a Spanish translation of the platform. And I'm very pleased to say that we are there.

Amy: And we are so excited to be part of this announcement, because people who are very near and dear to our hearts here on the "Simply Money" Show, Ed Fink and Nathan Bachrach, the founders of "Simply Money", they were co-hosts of the show for decades, and have always been huge advocates here in the Tri-State and in, really, everywhere for educating people about money. And they are two of the people who stepped up in order to make this happen, right Julie?

Julie: They are. Nathan, and Ed, and Bill Nier who is... Nathan is on our board, and Bill Nier is also on our board, a longtime board member. And so, the three of them came together and now we have the funding to translate the platform into Spanish. We know just with the Cincinnati Public Schools, just CPS alone, over 3,200 students are native Spanish speakers. So, it's a Federal law that materials be provided in countries of origin language, so that students can more easily make the transition to their new country. And Spanish, of course, is the largest of the non-English speaking. So, we're just very, very proud and so very grateful to Nathan, and to Bill, and to Ed for giving this opportunity to reach even more students.

Amy: For long-time listeners of this show, you will just understand what a big deal this is for us, because we truly are passionate about making sure that everyone, everyone is educated about money. And Julie, I think you made a great point. You're not gonna have someone reach high school level and never have had a science class before. So introducing these concepts to everyone, at kindergarten through eighth grade, is going to be just a game changer in the lives of these children. And we're so glad that we've been able to be part of that.

Of course, Ed Fink and Nathan Bachrach, Bill Nier also giving money to be part of that. Excited to be part of this announcement, The UC Economics Center SmartPath program. I'm looking at the page right now. If you've never checked it out, go there. If you are a parent, or a grandparent, or an educator, great resources for your children. You've been listening to "Simply Money" here on 55 KRC The Talk Station.

You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner along with Steve's Sprovach. Do you finally maybe now if comfortable thinking about going on a cruise? Well, if you do, we've got some unreal deals. You're going to wanna hear about that straight ahead. To convert or not to convert. We're talking about the Roth conversion here. There are certain times when you'll see more headlines or more people talking about this because the kind of current situation might make it a little more favorable. So, right now markets are down. You can buy more, you would pay less in taxes because that money is worth less right now, or that investment is worth less. So, there's a lot of people talking about, maybe you should convert to a Roth IRA.

Steve: Yeah. And it's not a gimme, and that's what I want to make clear, and definitely talk to a tax advisor before you make a final decision. But yeah, you're right Amy, this is a time of year where you take a hard look at, "Okay, we're getting close to the end of the year. How much is my taxable income gonna be? Do I have some room in my tax bracket before it jumps up?" And the reason that's important is, you know, if you are retired and taking money out of a traditional IRA, or 401(k), you are more than familiar with, "Yeah, that's taxable income. I pay a lot in tax on that." You pull money out of a Roth IRA if it's been there long enough and you're over 59.5, it's tax free. "Okay, we like tax free better."

Well, you can convert a traditional IRA into a Roth IRA partially, fully, but it's a taxable event. In other words, the government is not gonna let you make a change so that you get tax-free income without you having to pay tax at some point. And that's the whole point of a Roth conversion and the reason you want to take a hard look at it before you make that decision. If you transfer money from a traditional IRA to a Roth IRA, you will pay tax on the amount that you transfer over. Why would you do it? Well, you know what, if you're a married couple and you make less than $80,000, $81,000 or thereabouts, you're in the 12% tax bracket adjusted gross. If you're over $81,000, you're at about $22,000. So, let's just say your adjusted gross is $60,000 and you're paying 12% tax on it, you might wanna move $20,000 from your traditional to your Roth IRA.

Yeah, you pay tax on it, but it's at 12%. You didn't go over the threshold and start paying 22%, and now you got some money in a Roth that's gonna be tax free if you leave it there five years. So it's not a gimme. You're gonna pay tax on the money and you've gotta leave it there five years to get the earnings out tax-free. But I'll tell you what, if you wanna move money out of an IRA into a Roth, this is the time of year you should take a hard look at it, because you're starting to get close to knowing what your gross income is gonna be for this year.

Amy: We talk about the flexibility that you have when you have different kinds of accounts, investment accounts, with different tax treatments. If everything is tax-deferred, well, you're gonna pay taxes on every single penny you take out of them at your current income level, right?

Steve: Yeah.

Amy: If some of it is converted into a Roth or in a Roth savings vehicle, well, you don't pay taxes on that money when you pull it out. But here's the key, does it make sense or doesn't it make sense? Say you've got $100,000 in traditional IRA that you're looking to move, but if you pull more than $40,000 out, well that's gonna bump you up into another tax bracket. That doesn't make sense. So, you're gonna move $40,000 over this year, that's fine. Where is the money that you're going to pay the taxes from? If you have to pull part of that $40,000 out to pay taxes, you are losing some of the money that you had invested. Doesn't make sense. If the tax money comes from somewhere else then it could make sense. But there's a lot more to think through here, well, than just to, "All right. Someone says to convert into a Roth. I'll do that."

Steve: Yeah. There's a lot of people in our industry that run seminars and say, "Just do it. It's the best thing around, and it's a way to get you in the door." It's not. You gotta examine your specific situation, and little things like, "Okay, I've got after-tax contributions in my traditional IRA. Well, that screws up the equation," you know. So, that may determine, "No, I don't want to do a Roth because of the after-tax money." And I'll tell you the other thing, because some people get so wrapped up in taxes that, "Oh, I don't wanna pay tax. I want everything getting into a Roth." And I've seen people convert $150,000, $200,000 in a given year into a Roth, and they pay tax on that amount that they convert. And then, "Okay. Well, I understood that I had the money in a separate account to pay the tax on. I just want it in the Roth," and then they get their Medicare bill. And you know what, if you go $1 over the threshold with Medicare, you pay a different premium. The average...

Amy: And it is a pretty penny.

Steve: Oh, yeah.

Amy: That premium is a lot. It catches people off guard.

Steve: It does. Most people pay $170 a month for Medicare, but if you do a big Roth conversion and for that year your income is over $170 grand, you're gonna be paying $544 a month Medicare. So, that's also another consideration that you wanna take a hard look at before you do a Roth conversion. With that said, still look into it because it has advantages if you do it within the constraints of the rules of a Roth conversion and you're comfortable with them. But talk to your tax advisor first.

Amy: Well, and I think one of the advantages too is if you're planning on leaving that money to heirs, right?

Steve: Yeah.

Amy: You're passing that money down, it becomes a lot less complicated as to when they have to take that money out, when they have to pull distribution. So, that can be beneficial. But here's the thing, if you were going to leave that money to a charity, it doesn't make sense to make the conversion...

Steve: It really doesn't, no...

Amy: ...because the charity never has to pay taxes on that money. You know, the rules are different if that money's being left to a charity. So, just lots to think through if you're considering a Roth conversion.

Steve: Yeah. I think for a lot of people it's worth looking into. For some of those people, "Okay, I'm gonna do some but not a whole lot, because I don't wanna blow into the new tax bracket." And it's awful nice. I like having options for anybody, you know, clients or myself. So that in retirement, I would love to have $50,000, $80,000 in a Roth IRA that I could draw from, more than that in a traditional IRA which grows tax deferred. And that way I've got a choice. I need a new car when I'm in my, you know, late 60s, do I pull it out of a Roth tax-free? Have five years passed and, you know, the other rules, I might do that. Or I might pull it out of the traditional, pay my tax on it but reduce the amount in the traditional so I have lower required minimum distributions. So, these are all things to think about before you sign the paperwork.

Amy: You have options, right?

Steve: You do.

Amy: Here's the Allworth advice. If it's done correctly, a Roth conversion can be a powerful tool. If not done properly though this could cost you thousands. So just make sure you do your research first. How does a cruise sound right about now? For some, you can get them for $30 a night. Some insane deals. We're gonna talk about those next. You're listening to "Simply Money" here on 55 KRC, The Talk Station.

You're listening to "Simply Money" presented by Allworth Financial. I'm Amy Wagner, along with Steve Sprovach. If the pandemic scared you off from going on a cruise but now the thought of it doesn't make you so scared, well, there are some deals out there. I don't know, Steve, like, I just don't know if I'm there yet. I've been on a couple of cruises in my life...

Steve: Have you? I've never done one. Never done one.

Amy: I was gonna ask you where you fall on this.

Steve: No. Never done one. I'm open to the idea, but, you know, Anne and I, we don't drink hardly at all. So, you know, free alcohol being included in the price doesn't, you know, really matter. Don't eat a lot so... There's not a lot going for it, in my view. And I'm a cheapskate. They can be pretty expensive not lately though.

Amy: I was gonna say, well then maybe now's the time for you to take your first cruise, Mr. Sprovach. Carnival has dropped some prices to $26 a day...

Steve: Yeah, that's nuts.

Amy: ...for four night trips. So it'll be like right around Thanksgiving time, at the end of the month, a four night Carnival voyage out of Miami, $104 per person total, 26 bucks a day takes you out of Miami to The Bahamas. Doesn't sound bad.

Steve: I got a funny feeling that's not a balcony with a couple of windows on the outside...

Amy: Oh, you're in steerage. You're under the [crosstalk 00:37:17.194].

Steve: You're under somebody's bed, and you gotta mop the floors before you go to bed at night. Yeah, that's gonna be a cheap one. But even some of the nice ones like Norwegian, I mean, they're running pretty good deals.

Amy: Here's the thing that you have to keep in mind, as you're looking at a cruise. Some of them are just bare bones. And you mentioned alcohol, most of them you have to pay extra for alcohol. You have to pay extra for Wi-Fi, you have to pay extra for all the excursions. So while some have lowered prices to what seem like insane deals, and they are, you also have to keep in mind, "Okay, but if I'm going to have any drinks, if I'm going to do jet skiing, or snorkeling or whatever, I'm gonna pay on top of that." What some have done is say, "We're not going to lower our prices, but we're giving free excursions, free alcohol, free upgraded packages." So, if you have ever been into cruising or interested in trying it, and you're not nervous anymore about being on a ship full of people, you know, floating through the ocean, if you feel okay about that I'm telling you, now is the time to look. We've been talking about holiday travel prices, how insane they are. This is the place where there's the deal because the cruise industry is trying to put themselves back out there and saying like, "Hey, it's safe to board."

Steve: I'm just glad they're back. Yeah. I'm glad they're back. That's the key. And it's good people are out enjoying life again.

Amy: Thank you for listening tonight. We hope you come back tomorrow. We're talking about the ways that your mental health is impacted by your money. You've been listening to ""Simply Money"" presented by Allworth Financial here on 55 KRC, The Talk Station.