Ep 43: Mailbag – 529 Plans, Financial Advisors, & RMD Withdrawals

Ep 43: Mailbag – 529 Plans, Financial Advisors, & RMD Withdrawals

Today we open up the mailbag to get to a few of the questions that have come into the show and we’ll hit on a few different financial topics that might also apply to your life. From saving for college to working with multiple financial advisors to RMD withdrawals, this episode will touch on three items that come up frequently in our conversations. If you ever have a question for us, send it in and we’ll do our best to feature it on a future episode.


If you've ever been baffled by the world of investment, or feel like you're navigating the labyrinth of retirement planning without a map, get ready to have your financial acumen level up. This episode promises to equip you with essential knowledge about 529 college savings plan - its advantages, limitations and how it stacks up against alternatives like Roth IRAs. The Secure Act of 2020 has stirred the pot of college savings strategies and we'll be deciphering what this means for you.

In the latter part of our discussion, we shift gears and delve into the intricate mesh of retirement mutual funds and Required Minimum Distributions (RMDs). Ever wondered what to do with your RMDs if you're not in immediate need of them? We've got you covered. From reinvestment strategies to potential tax consequences, every aspect will be thoroughly examined. The Secure Act has brought along a slew of updates and we'll be dissecting what these changes mean for those reaching the age of 72 in 2021. So, buckle up for a whirlwind tour of practical financial advice that can be tailored to your retirement planning needs.

Full Transcript

0:00:00 - Speaker 1

Discussions in this show should not be construed as specific recommendations or investment advice. Always consult with your investment professional before making important investment decisions. Securities offered through registered representatives of Cambridge Investment Research Inc. A broker-dealer member, finra, sipc Advisory Services through Cambridge Investment Research Advisors Inc. A registered investment advisor Cambridge and Greenway Wealth Advisory are not affiliated.

0:00:20 - Speaker 2

It's time to dive into some insider secrets of investing and retirement planning To make your retirement as smart and as elegant as possible.

This is Money Chic with Sherry Rash. It's time for another edition of Money Chic Women and Retirement with Sherry Rash from GreenwayWealthAdvisorycom, and on this episode of the show we are going to take some email questions that come into the website. So feel free, if you've got questions, and submit your own to the program or to Sherry in general, really. So just stop by again her website at GreenwayWealthAdvisorycom and we're going to tackle a couple of those this week and see if we can help folks out with some useful nuggets of information. As always, you want to make sure that you're talking with a qualified professional how it relates to your unique situation before you take any action on something you hear on our show or any others. But these are always fun to do because it gives some real world insight into people with similar situations. Right, because we all have a lot of generalities and kind of universalisms that affect us all going into retirement or building wealth, but at the same time, everybody's still uniquely different.

So, there's always a little nugget or two that you can grab ahold of. So, Sherry, how are you? How's things going this week?

0:01:29 - Speaker 3

Going pretty well. I'm excited. I love answering questions from the listeners because it just yeah, like you said, it gives insight into what they're thinking or their situation and like everyone's different, but also we're all similar. We all have. We all have curiosities or wondering how something can affect them. So, I'm looking forward to diving in and answering the mailbag today.

0:01:52 - Speaker 2

Yeah, it's like social security, right, we're all going to get there at some point and figure out when we need to use it, but how you use it and when you turn it on is different from person to person. So it's got that universal piece to it that it's there for all of us but at the same time, how you use it within your strategy, you know, varies from you to me to so on and so forth. So that's what makes these kind of fun is, and it's interesting to be able to share some ideas and maybe it gets a listener thinking oh yeah, I was. You know, I've got that same kind of issue or or something similar. I should probably reach out and talk to you know a professional about it as well. So hopefully that's the goal.

So let's tackle a couple here. See what we've got. We've got Richard, who sent one in, and he's talking about 529 plans. He said should I be doing anything else besides a 529 plan to save for my kids for college, or is that the best option? You know you've got little ones, sherry. What do you think?

0:02:40 - Speaker 3

If you're paying for college, a 529 is the best vehicle to save to pay for college. There's pros and cons like everything to 529s. The pro is that you get tax deferred and tax free withdrawals if you use it for education. But the con is if it has to be used for education. So if you don't use it for education, or Richard, your child or grandchild gets a full ride and you saved all of this money, you're going to have to withdraw it and pay taxes on it at that time that you withdraw if you're not using it for education. So the pro is the con. At the same time, the 529s are for education. You have caps as far as how much you can contribute to a 529 each year If you're, or also over a lifetime. If you go past that number, then we can look at some other options as far as contributions go. So for 2022, the maximum contribution each year was $16,000 and it may increase slightly for 2023. We don't have those numbers yet, but if you plan on contributing more than that a year to a 529 or to save for education, then we can look elsewhere.

There are some unique ways that you can fund education, a Roth IRA being one of them. So that sounds kind of crazy. Why would I use a retirement account to pay for education? But you're allowed to withdraw, without the 10% early withdrawal penalty, your contributions up to the amount you've contributed if it's used for education. So that could be something else to consider. But Roth IRAs have limits $6,000 or $7,000 depending on your age. But then the con also is that's money you're potentially taking away from your retirement and you have to be 59 and a half to take that withdrawal without taxes or penalties. So it's interesting but it's very specific on who it could work for.

0:04:53 - Speaker 2

Yeah, that's a great point, Sherry, and, as a matter of fact, I feel like we're going to wind up talking about this quite a bit. So, on probably the next episode that we do, we're going to talk about the fact that the Secure Act did 2.0, got passed at the very, very end of last year like the day before Christmas break or whatever and so there's some changes. There is even some changes to the 529 and to your point about using a Roth. They've actually added that in there. We're still breaking it all down. So, sherry, now I'll come back next month with some more updates, as she said, so we have more numbers and stuff, but they're making it where you can transfer funds from a 529 plan to a Roth IRA as well. So they've kind of had that little wrinkle. So a lot of little things like that. So I still think it's a great vehicle, right, sherry? It's just a matter of finding the right strategy for the individual.

0:05:37 - Speaker 3

When I talk to clients about funding education, I say to them all the money is not going to come from one place. Just like when you retire, all of your income does not come from one place. It comes from Social Security and your 401k savings and Roth IRAs. It comes from all of these different places and college tuition funding. That is no different. Some of it's going to come straight out of your checking account. Right, the money you earn might go straight to the college. Some may come from a 529. And then some may come from your non-college savings vehicles, such as a brokerage account. So just your after-tax savings that you have, that you've invested all of these years. That may have not really had a purpose. You were just accumulating it. Some of that may go to fund education. So that's a definitely. We don't want to just focus on only having the 529 fund college, because there's probably going to be quite a few different sources of it.

0:06:36 - Speaker 2

Yeah, and if you're working with a financial professional for strategizing to pay for your kids or grandkids college, let them know that that's a big priority, right, so that you can look at different it's basically the same kind of thing bucketing different kinds of buckets that you're going to use to get that done and, of course, how many kids and so on and so forth. So it's still a very good option, Richard, but definitely want to have those conversations with your financial professional.

So hopefully that's some things to think about there and, of course, if you need some help with Sherry then reach out to her at GreenwayWealthAdvisorycom, which you've already done, and obviously Sherry is going to follow up with the email questions, but just to remind other folks, they can do that also. So great question. Thanks for listening to the podcast. We certainly appreciate it. All right, let's see what Lilian's got for you. She says Sherry, I'm considering working with a new financial advisor, but only with half of my money. I think I want to keep the other half with a different advisor. Since you're a neutral third party without a vested interest in my decision making, I'm hoping you can confirm for me that this is a good idea, so I'll be able to get advice from multiple people. So she's definitely trying to spread it around a little bit.

0:07:35 - Speaker 3

Yes, I cannot confirm that that's a good idea.

0:07:40 - Speaker 2

I knew that's where you were going.

0:07:43 - Speaker 3

And I get the thinking. I'll hear it also from clients. Well, I want to have my money in different places, so it's not all my eggs are not in one basket. The problem with having more than one financial advisor is, well, one. Why do you want more than one? Is it just so you can get as much free advice as you can?

0:08:02 - Speaker 2

Yeah, different opinions. Maybe Different opinions yeah.

0:08:06 - Speaker 3

Could that be overwhelming what? If the opinions are so completely different than each other. One's not better than the other, they're just different. There's more than one way to do things and to invest. And so what if the opinions are different? Then who do you go with?

0:08:21 - Speaker 2

They're philosophies, trains of thought, and often when I see this, Sherry, they're not working together right. They're not going to call each other and make sure that they're doing both doing the very best for the client. They're going to do what they think is best for the client, of course, but that may prove to just be almost like a some-zero game.

0:08:40 - Speaker 3

Exactly so yeah, it could cancel each other out what they're doing or over-concentrate you in particular asset classes, which actually opens you up to more risk, so they're not going to talk to each other. Right, you can provide the account statements to each advisor, but it's not going to be neat and clean and probably the way you're expecting it to run very smoothly. Your money does need to all talk to each other, not be treated in individual silos. So I would say, if you want to work with two or split it, why, besides a lot of information?

0:09:17 - Speaker 2

is it?

0:09:18 - Speaker 3

because you might not really like them that much, or you don't feel like they're completely a fit, or if you're trying to test them out, that never ends up well for anyone?

0:09:29 - Speaker 2

Well, it sounds like she's shopping because she's considering working with a new person. So does that mean, lily, you already have an existing person and you're just not to Sherry's point? You're not happy with them, right?

And if that's the case there's nothing wrong with getting second or third opinions. Shop around by all means until you find the right fit, but typically having multiples is not usually advantageous. So very interesting, so a great question. Think of it like this. I would say Sherry, People who go to different. Well, I've got 10 mutual funds, but I bought them from five firms, right?

And I think that they're all totally different, but then when you start looking into them you see a lot of overlap that you might wind up have basically the same type of, let's say, large cap or something like that, and it's all the same companies.

0:10:14 - Speaker 3

Yes, totally. I see that all the time, especially in 401ks with different companies old 401ks you think that your money's very different because each fund has its own name. When you break it open they're pretty similar. So yeah, exactly.

0:10:30 - Speaker 2

Well, not to pick on you, lillian. Certainly that was not the intent.

0:10:32 - Speaker 3

But it's a good question. It's a great question, yeah.

0:10:35 - Speaker 2

And you did say, since we're a neutral third party, you know. So that's giving you the straight skinny if you will. So definitely have a conversation with Sherry. Have a conversation with your own advisor that you might have and ask yourself why are you thinking about doing that? So definitely reach out to her, have a conversation. 833-833-1903. There's a lot of threes in there. I didn't repeat, I don't think the audio glitch. Let me say it again 833-833.

That's twice 1903. So reach out to her and have a conversation or stop by the website GreenWayWealthAdvisorycom. But great question. Thank you so much for listening to the podcast. All right, Final one here, let's get one from Martha. She says, Sherry, I am turning 72 in the early part of the year and I have to start taking out those, that money from the IRA she's talking about our RMDs Even though I don't really need it. She says so can I just take it out and reinvest it into something else?

0:11:29 - Speaker 3

I love this question. I get it all the time the answer I call it a yeah. But yeah, yeah, you can. You can just turn it around and put it in something else, but you're still paying taxes.

Right so you can't avoid the taxes, because that's usually what they're going after when I get asked that question. So you still have to take the RMD, the required minimum distribution because you're 72, which we're going to have to talk about the Secure Act next time, because this is now an asterisk, because the Secure Act is changing everything right. So, rmd, so yes, you can. You can make that withdrawal, but you have to pay taxes on that withdrawal. But then you can turn it around and redirect it to an after tax account if you don't need the money.

0:12:16 - Speaker 2

Yeah, this is a traditional IRA. She didn't say. I'm assuming it is right. If it's a Roth, then obviously this you wouldn't be paying the taxes on it. But it's probably more than likely traditional, because she didn't clarify that it was a Roth. But to your point, yeah, they are making some changes. So, since Martha, you're turning 72 this year, one of the changes we know for sure is that they are moving it to 73.

0:12:38 - Speaker 3

So if you're changing, so ask me this question next year. That's right.

0:12:41 - Speaker 2

So we're going to have that information for you here in the coming weeks We'll do a new podcast on all the changes that they've made. So pump the brakes for just a second on that. But I guess the crux of her question really was can she take the money that she doesn't really need and just stick it into something else? Right, and so that's?

0:12:59 - Speaker 3

the answer is yes, yeah, and the answer is yes, you can.

0:13:01 - Speaker 2

You're still paying taxes at the end of the day, though, yeah, and so you can reinvest it in whatever type of account. Is there any kind of limitation as to where she can put that?

0:13:10 - Speaker 3

No, no, it's after tax money now. So we can, you can put it really wherever you'd like as far as investing it goes, and many times wherever your IRA is. If this accounts with an advisor, they can just open up an after tax account and just move it, move it straight from there. So it's not even as if the money has to hit your checking account and then you send the check in. So it could be a pretty easy transaction for you.

0:13:35 - Speaker 2

I like to play devil's advocate with these. Sometimes, you know and this is where having a good strategy and a plan in place here you would come into fact because she says she doesn't really need. It right, but double checking that you know just to make sure, because maybe you know, maybe you could shore up an emergency fund with an RMT, or maybe you want to do some gifting or qualified charitable donations to your favorite church or something. So there's little things that you could certainly look at as well as other than just a well, I don't need it because I'm doing fine, kind of situation.

0:14:03 - Speaker 3

Yeah, it's a good problem to have to not need to take that RMT, yeah, but yeah you can always make the charitable contribution and have that deduction, not pay the tax on it. So there are other options to explore as well.

0:14:18 - Speaker 2

Yeah, and that's all part of the review process too, so that's a good thing to say. Usually in different times of the year say, hey, well, I don't really need the RMT, what else can we do with them? Right? So oftentimes advisors get those questions. So, great question, martha. Thank you as well.

And, yeah, check out the next episode or the next couple of episodes. I'm not sure exactly when we're going to do it, but it'll be coming soon, because they did make quite a few changes to the Secure Act. They're kind of calling it 2.0. That was included in the OmniBus thing that passed right before Christmas, that $1.7 trillion, whatever. There's some more changes to the retirement rules, that setting every community up for Retirement Enhancement Act. That's the Secure Act. So we'll talk more about that information as we get it all broke down for you guys, and with that we'll wrap it up. So how do you check out new episodes? Well, you subscribe to the podcast and you can find us on Apple or Google or Spotify under Money, chic, women and Retirement. You can just type that into the search box of those, or you can just stop by Sherry's website, greenwaywealthadvisorycom. That's GreenWayWealthAdvisorycom. Sherry, thanks for hanging out and chatting with me and taking some email questions. I always appreciate you.

0:15:23 - Speaker 3

Thank you, it was fun, absolutely yeah.

0:15:25 - Speaker 2

We'll have a great day, folks, and we'll see you next time here on the podcast Money Chic, Women and Retirement with Sherry Rash from GreenWay Wealth Advisory. Discussions in this show should not be construed as specific recommendations or investment advice Always consult with your investment professional before making important investment decisions.

0:15:43 - Speaker 1

Securities offered through registered representatives of Cambridge Investment Research Inc. A broker-dealer member, FINRA SIPC advisory services through Cambridge Investment Research Advisors Inc. A registered investment advisor, Cambridge, and GreenWay Wealth Advisory are not affiliated.

Shari helped my husband and I consolidate our finances and create a system that works for us. She is a great listener and very authentic - we are thrilled to have this trusted advisor on our team.

Jessica, Charleston
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