How do baseball and financial planning intersect? In this episode, Michael, Tommy, John and Ben break down the game of financial planning. From end-of-year tax strategies to building your financial 'team,' they explain what can help you win big.
Listen in to hear why having a comprehensive approach to financial planning is key, as well as the questions you need to ask to ensure you're on track for success. You'll learn what to discuss with your financial planner and how to make sure they are playing the game to win.
Listen to the full episode here:
What you will learn:
- What it means to be a client of Mason & Associates. (3:20)
- What end-of-year tax planning looks like at Mason & Associates. (4:35)
- How to avoid tax season surprises. (7:00)
- How to ensure your financial planner is playing the game of financial planning. (12:00)
- Which players you need on the field with you in financial planning. (16:30)
- The importance of taking incremental steps toward your financial plan. (18:45)
- How delaying Social Security impacts your financial plan. (24:00)
- The questions you should ask your financial planner to ensure they have your best interest at heart. (27:00)
- The importance of having a tax plan with someone who knows what they’re talking about. (32:00)
- How to get a home run in your financial planning. (36:00)
Ideas worth sharing:
- “Avoiding surprises, tax planning, being proactive and not waiting until April 15th to figure out what the answer is for your taxes, is very important.” - Mason & Associates
- “Absolutely delay Social Security if it makes sense for your plan.” - Mason & Associates
- “Financial planning can sometimes mean short-term pain for long-term gain.” - Mason & Associates
Resources from this episode:
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Read the Transcript Below:
Congratulations for taking ownership of your financial plan by tuning into the Federal Employee Financial Planning Podcast, hosted by Mason & Associates, financial advisors with over three decades of experience serving you.
John Mason: Welcome to the Federal Employee Financial Planning Podcast. I'm John Mason, President and Certified Financial Planner. And on today's episode, the usual crew, Tommy Blackburn, Ben Rakes, and Michael Mason. Folks, this podcast, you've been listening now for almost two years, but I think it's good to reiterate that this may be one of the most credentialed podcasts out there, not only on the financial planning front but certainly when you combine our education, CFPs, CPA, enrolled agent, CLU, CHFC with our knowledge on federal employee benefits, it is probably second to none.
So thank you. Big shout out. Thank you to being on this journey with us. We're excited to be wrapping up 2023. We're recording this in November or it's October 30th today so the World Series is going on. We're going to have a fun episode as we talk about baseball, financial planning, and what that means at Mason & Associates and what that means for you as a federal employee.
So as we get this kicked off, thank you for being here. Do all the things for us: like, subscribe, hit the bell notifications. And oh by the way, our YouTube channel has rebranded to YouTube.com/@fedemployeefinancialplanning so you'll be able to see other content there and we hope to be producing this video podcast soon on that channel as well.
The only negative, guys, that I can think of with this YouTube–like video podcast is I didn't change shirts after we've recorded the last one. So now people are going to know that we've recorded multiple of these in a single day.
Tommy Blackburn: Well, I guess we live and we learn and that's an improvement we'll make going forward. But the cat's out of the bag, right? The secret's out. We've told you before our process is to surge, or maybe we haven't necessarily called it surge, but we do all of our strategic planning meetings and bunching. So it's just kind of a trick that we do for many things around here is we try to batch tasks together to become more efficient and better at it.
Michael Mason:So what you're telling me is I need to have more than two shirts.
John Mason: We need to get you a couple of shirts, Mike. And maybe next time I'll wear, maybe I'll wear a dress shirt next time. Maybe we can all match or something. We also have a new brick wall behind us, which is pretty exciting. So things that Mason & Associates–
Tommy Blackburn: We tore it down to the brick, right? We took the drywall out and there's a brick back there.
John Mason: Well, we had to get bricks for the Mason & Associates, right? So, it's fall, tax planning season right now. So this is really exciting for us too. So, I think for our audience to just maybe understand what it means to be a client of Mason & Associates before we go into baseball financial planning is we have four dedicated touchpoints that happened throughout the year. And it's a little bit different for everybody, but number one is the first quarter. And that's when we do help clients prepare and file their tax return. So we don't do the data entry, but we certainly will review the return before it's filed.
We also help provide source data to CPAs or send it to clients as needed, and also what we're doing during this time is preparing for our strategic planning meeting. And the strategic planning meeting is that once-a-year strategy session where we're looking forward to say, “What can we do this year to improve our financial plan?” ‘Cause remember things here are what they seem: support, empower, educate, and motivate not only people on the YouTube channel and our podcast, but actually real clients to make changes in their financial plan.
That's what we do in the second quarter. Third quarter we implement and fourth quarter we wrap it up with some end-of-year tax planning. So whoever wants to share what end-of-year tax planning looks like for our listeners, I think they'd be glad to hear that.
Michael Mason:You know a simple one for me. A client was looking for a new tax preparer, we sent over last year's tax return, and the preparer says, “Maybe I want to do a mock tax return for this year to make sure they're ahead of the ballgame.” And I pulled up the one we had already done. And of course, with the client's permission, sent it over to the CPA. But I also had 2024's projection.
And I let the CPA know that there's a task in November to call the client and say, “Look, once you're retired for the full year, you're not having enough taxes taken out at the federal level. So we're going to increase that to 400 in December, to take effect in January.”
Tommy Blackburn: I love that, Mike because you really hit it on the head there. I'm encountering that a lot right now. I think we all are as we're doing our end-of-year tax projections. So this is where we're taking income and withholding year to date, anything specific about your situation, and circling back to say, “Hey, looks like we're going to owe, looks like we're going to get a refund. Here's where we are right now.” And whether I think we should take some moves or not. One of the most common this time of year is a Roth conversion, could also be realizing some capital gains or losses. But to your point, that's always that extra step that I think we all do take, but there are times where I'm like, “All right, I'm done.”
I was like, “Wait a minute, I got to go look at 2024 because something changed,” and say, “Okay, so here was 2023 snapshot. I'm going to get back in touch with you in January because something else has changed and we need to make a withholding adjustment.” That's definitely going that extra mile. And I think that's a great example.
John Mason: It's so important. I mean, really not all of our clients have tax planning action items that have to happen at the end of the year, but there's a lot of peace of mind knowing in November or December or even if it was in January, what April 15th is going to look like. There's just so much peace of mind knowing yes, I'm ahead of the game or no, I'm behind and right now you have the opportunity to make adjustments. So remember tax planning ends on December 31st.
Michael Mason:So what are you saying to the audience, John? That we give tax advice?
John Mason: We do. It's very exciting. It's very exciting. Most people are very scared of tax advice. We love it at Mason & Associates. So I’m avoiding surprises and tax planning and being proactive and not waiting until April 15th to figure out what the answer is is very important because now like we have interest rates again, and now all of a sudden if you're underpaid, not only do you have underpayment penalties, you have interest on top of that. So things start to stack up pretty quickly, don't they?
Ben Raikes:And because of that interest, right? That 50,000-dollar bank account that was earning zero before is now actually going to throw some interest income on your return. And to your point, let's not have a surprise in April and tell you, “Hey, you had 2,500 dollars more of income this year. We probably need to account for that.” I think other end-of-year planning is QCDs, charitable giving, as Tommy said, seeing if we have any capital gains or maybe even capital losses. Again, peace of mind knowing April 15th is coming and you don't have to cross your fingers and just hope that you got it right this year.
Tommy Blackburn: The other fun little piece of advice here are planning technique we use. I know I've encountered this here recently with these end of year tax projections is saying, “Okay, it looks like we're going to owe.” One, there's a decision point to be made of do we pay it now? Do we fix this now? Or do we just wait until we file? And there are arguments and things to weigh there. Part of it is how do we fix it? Beyond just getting withholding right for 2024, if we know we have a shortfall this year, what are we going to do?
If anything, are we going to make an estimated tax payment? But I had a fun conversation with a client. Fun. This is my version of fun, right? We're talking about taxes. And the point was we can change our withholding because they said, “Should we do an estimated tax payment?” I said, “You could do it that way. But the best way would be if we change your withholding and get it in the system that way.” And of course there was a discussion around why do you say that? And the reason is withholding is treated as if it is paid evenly throughout the year whereas the point here with the client was if we pay it in Q4, Uncle Sam, the state of Virginia, they're not unaware of what you just did, that you were underpaid throughout the entire year and you made it correct at the end of the year, so they will still penalize you.
We do it under withholding. We avoid it. So it's more legwork, but that's the cleanest way to do it. And I guess another simple way to put it that I've explained to clients is when you get the government expects to get paid. So they want you to make your payments timely.
John Mason: I love the two things, real quick, one, Ben called out the interest, which I think is so, so important. We had to call it the interest. And then for our clients, a lot of people own money market, government money market funds as well. And those are very high government obligations. Meaning, they're not taxed in Virginia, and many states, probably most states, Tommy, Ben could elaborate, but the majority of states probably don't tax the government obligation interest either, so remember when you're filing your tax return this year, if that's you, the interest on your no penalty CD maybe is taxable, both federal and state, but those government obligations maybe not. And then Tommy, to your point on adjusting the withholding and the government needing to get paid at the appropriate time, also relevant, even if you were doing the estimated payment, how many times have we seen that the tax preparer doesn't report the estimated payment correctly or doesn't report the income correctly, right?
So if we do a conversion, Mike, in Q4, we have to basically tell TurboTax or the tax preparer, “I didn't do that 100,000-dollar conversion evenly throughout the year. It occurred in November. So the reason my estimated payment happened in November is because that is when the income came in.”
Michael Mason:Bingo. Bingo. Tommy, you'll also like this. And then I think we'll get not to bingo, but to baseball, right? That same client was going to come up, I don't know, eight, 900 dollars short on their state return. And I didn't even remember I did this, six months ago when I did this strategic planning meeting, but I made the note, I said, “You can just pay that at the end of the year because next year, 10,000 more of your retirement from the military is not going to be taxed and that'll fix it so you don't have to get in and have more taken out this year and then have to do it again, take it off next year.” So I thought that was–
Tommy Blackburn: I think it's great. We're always looking around the corner I feel is my message there and it's also a little bit of a segue or a tangent why we only serve but so many clients. Well I mean because you can't look around the corner for thousands of clients like that. You have to have a deep relationship to take that level of care.
John Mason: So let's transition into baseball. So baseball financial planning, so this is really applicable in two ways. I think is, you know, financial planning baseball for the federal employee, for the people listening to this, what are the things that they can be doing to make sure that they win the game? What are the things they can be doing? But then also, if you're working with a financial planner, is that financial planner playing ball too? Do they care about the singles, the doubles, the base hits, the sacrifice bunts, or are they only looking for grand slams?
I feel like there would be a very big disconnect if there's a federal employee or financial planning client who wants to do all these small things right, but then the manager of the game or the financial planner is ignoring all of that, just waiting for the grand slam.
Michael Mason:Yeah, and let's talk about a good example of that. So you meet a financial planner, they impress you enough that you say, “Okay, what do you want me to do?” And the financial planner says, “Well, that 800,000 in your TSP, it'll pay us, so let's roll that over. We'll do as good a job as TSP.” So they want the 800, 000 grand slam, I guess, or home run, but do they want to work hard enough to open two more applications to get you to fund Roth IRAs at 7,000, 7,500? So that's the difference between both people being in the game or just one of them being in the game.
John Mason: Sure. And even things, it's amazing. Like we prepped for this podcast, right? We prepped, but things continue to come to my mind. So beneficiary designations, that's a single or a double for clients, but then for advisors to go back and say, “Okay, do we need to update those beneficiary forms?”
And then we create the paperwork to do that. that's a sacrifice bunt. that's good financial planning, but it's also a sacrifice bunt as the advisor team to make sure that we're churning out paperwork, to make sure that these things are staying up to date. And we just know that there's not a lot of companies out there, there's not a lot of financial planning firms out there that will do the sacrifice bond. Like they're very interested in the TSP, but they're not super interested in generating forms that don't result in compensation.
Michael Mason:Yeah, it's almost even batting practice for the advisor to do that because there's not much gain at that moment for the advisor. Now, there's a whole lot of gain when somebody dies because you got everything tied up so nice and neat. But it's almost like batting practice.
Tommy Blackburn: That's what I was just wondering, too, because I had wrote down the same things for state documents of planning and getting the beneficiary designations. And it does feel like batting practice on the front end. But it is a home run when someone dies. Having these things in places, I don't know how you categorize it.
John Mason: Well, it's pretty short-sighted to not make sure that you have your benefit. If you haven't dotted your I's and crossed your T's, you're going to wake up and you're going to lose the game at some point.
I don't care if you're Bryce Harper or Barry Bonds or Mark McGuire or Chipper Jones, you name them. If you don't do batting practice for 25 years, eventually, you're not going to be a very good major-league hitter.
Ben Raikes:It's a different game, but are we talking about practice?
John Mason:Are we talking about practice?
Michael Mason:Many games have been won on sacrifice bunts. I guess what we just came across is you don't know which run in the game necessarily won it, what piece of advice we're doing, because again if it was survivor benefits or the survivor benefit open season and you got somebody's foot in the door, that was work.
It was just work on our part, but it was a game-winner when it needed to be, right? So you don't even know what you're doing. That might be the difference between winning that game and losing it.
Tommy Blackburn: I think we'll do another episode, podcast episode with these topics a little bit further, but to me, it's examples of stacking the deck, of making the game unfair to your advantage.
It's these little things and it's also building the brick house, right? These are the bricks that make it so your house doesn't get blown down. Which one of these won the game? It all comes back together.
John Mason: I mean, this is taking such a turn, right? This podcast has taken such a turn, but it's like you're going to make a call to take survivor benefits. You're going to make a call to do a Roth convert–you're going to make all of these strategic decision-making calls. And in the moment, in the moment right now, it feels like that's silly or that's like not moving the needle or, “Really? Survivor benefits? I don't need that.” And it feels like everything is a single or it feels like everything's a sacrifice bunt, but one day you're going to wake up 25 years from now and you're going to realize what each of those decisions actually were.
Like we can say taking survivor benefits is a sacrifice bunt today because you're leaving your income, you're giving it up, you're literally sacrificing income in exchange for SPP. But if you die tomorrow, what do you think your surviving spouse is going to say? “Grand slam, baby. I'm sorry you're dead, but I'm okay.” Right? That was a grand slam decision that felt like an everyday sacrifice bunt or minuscule decision.
Michael Mason:So again, this turned, this is fun. So, there is the Abbott and Costello, who's on first, what's on second. Yeah, so maybe we should talk about the players that are on the field. So you put SBP on first, so SBP's in the game, right? TSP is in the game, Roth IRA is in the game, buying your military time is in the game, and at any given point, one of those players can win the game for you.
You just don't know which ones. I mean, together, they're always going to win, and the more you have on the field, but at any given point, that SBP–
John Mason: You don't know who your superstar is yet. You don't know who won the game. You don't know who came up with the clutch hit.
Michael Mason:We just know we need them.
John Mason: We just know we need all the players, and having a team around you, like extending that metaphor further is your financial planning team, your tax planning team, your estate planning team, like your trusted professionals, of course.
So this has been a really interesting way to open up this topic. What are some financial planning decisions, if you will, that we would consider base hits for federal employees, like what are the things that are good things that we just want to keep hitting those singles over and over again?
Michael Mason:I'll kick it off. We've said it once or twice, but how many clients have we met, prospects that become clients that nobody wanted to take the time to open Roth IRAs? So you open the Roth IRAs, you can fund them. If you can't, you can backdoor-fund them. And it doesn't look like much when you start at 7,500 per person, but it's a base hit and it begins the process.
Ben Raikes:I think making sure that you are contributing at least 5 percent to your TSP, not leaving that free money on the table. That might not even be a base hit, that just might be making sure the right cleat is on the right foot at that point.
Tommy Blackburn: And I was going to stop for a second, and we're speaking to our federal employees and retirees, but what we just said, that's applicable to everybody out there, so that's where this advice or this education is applicable. Everybody can do Roth IRAs and backdoor Roth IRAs. You may not have a TSP, but you may have a 401k that gives you a match. So these lessons go across spectrums here. I think some other, well, another one I had written down as kind of a base hit is doing feel-good Roth conversions.
So that's where we say, “We could convert a million dollars of your TSP this year, but we don't think that's a good idea. But maybe we only do 10 or 20 or 30,000. We do what's called bracket topping and that in and of itself, not going to change the trajectory of your financial plan that one year. But if we did 10 years of it, all of a sudden we've got 300,000 in Roth that'll never be taxed again.” So these incremental steps can add up.
Michael Mason:And when we started talking about this, John, years ago, we talked about it like we hit. And that's the way, it's the financial advisor. We hit the base hit because we gave the advice to do something that wasn't earth-shattering, but it was a base hit, and if you do small ball enough, big ball wins.
So I would say that, and we don't talk about this one near enough that we do have a podcast on it, but typically if you're a non-smoker in average good health, buying Option B Federal Employees Group Life Insurance, yeah, that needs to be replaced with an individually underwritten term. Keep your basic, we like basic, but helping a client get that insurance coverage they need at a much more affordable rate.
John Mason: All of these seems so small, right? if you're 50 years old and you replace FEGLI Option B and it's costing you $50 a month and you get an individual term and it's 40, you're like, “Oh, I don't know. Is it really worth all that time and all that hassle to save $10 a month?” Well, yes it was because Not only did you save it for 10 or 15 or 20 years, you also had a conversion option on that term policy.
You wake up terminally ill at 65 and you have a conversion versus continually escalating FEGLI Option B premiums. And oh, by the way, you're retired. You have all these great pensions and you're hitting Medicare IRMAA or bumping into the next tax bracket or losing tax credits. Sure would have been nice to have some tax-free Roth IRAs that we had access to avoid tipping the scales out of favor. So again, we're not really going to know how lucrative or how beneficial this advice is until much later in the financial plan. These decisions just keep stacking on top of each other. Another one, which isn't applicable today but it was applicable for most of our career, Tommy, Ben and I, is we're refinancing when rates were low.
Like that was such an easy win. We think, not calling a market top or bottom, eventually all of you who bought a house, there probably will be a refinance opportunity for you in the future too. So whether you're looking at capcenter.com or wherever you look at your interest rates on your mortgages, be on the lookout if you've bought a house in the last 12 to 18 months. Refinance is an easy one. This open season. Sorry, you're not going to hear this now, but it is October 30. You'll hear this after open enrollment, but like switching to Blue Cross Blue Shield Basic from Standard could be an awesome opportunity.
Tommy Blackburn: And I'm so glad you brought that up. I was thinking about a case that Mike and I work not too long ago and I guess it would be these base hits, but they added up to, it was like 10 or 11,000 dollars a year in savings, which is always exciting when we're able to add that together, and it was, I remember, it was a combination of FEGLI, changing our FEGLI election, and changing FEHB.
And again, I mean, it seems like these are base hits, but 10 grand a year in savings is material, particularly compound that over 30, 40 years.
John Mason: No doubt. I mean, Blue Cross Blue Shield Standard to Basic, Tommy, is 200 dollars a month, 200 a month savings or more, especially, and then if you were two federal employees enrolled in family coverage or Self Plus One, and you should have been Single, that's even more.
Tommy Blackburn: I think this one may have even been, we had too much insurance, right? So we were able to give some advice here. And one of it was we had TRICARE For Life and that was where, okay, well, we really just need TRICARE plus Medicare B, and let's suspend FEHB. So we still, I don't know if that's a base hit or a home run that we can go back to FEHB down the road.
Michael Mason:Let me tell you, sometimes these base hits are as hard as they can be for us. Like the couple we met in Seattle, they both should have health insurance in their own right, both work for the FBI, and he had Self Plus One. And it's, they would have just said, “Heck with it, we'll stay this way,” if they weren't hiring a financial planner because they're so well off.
But it's work. It's work to get the government. It's not something you do in open season. You actually have to, and nobody at HR, we've never had anybody ask this before. How are we going to do that? I think this is the form you use and the four or five clients that we've helped do this before, it's a five or six-month process. It takes that long for somebody to get their own health insurance that deserves it, right?
John Mason: Unbelievable. Well now let's transition over to the next category and that is a bunt. So bunts are by nature in baseball, if you're not a baseball fan, you're basically giving yourself up, right? So the pitcher throws the ball, I do a sacrifice bunt most of the time to move or advance the runners to get my team the best chance of scoring.
Essentially, I'm saying I want to get them in the scoring position. The games change, people don't really bunt anymore, but it used to be a big thing. They now have some sort of analytics that tell them not to. But in our world, what is a bunt? And I wrote down ‘delaying social security’ is a bunt.
And the reason I think of that, and it's actually on both sides, the advisor is bunting and so is the client. And why is that? Well, if you're going to delay social security, you have to give up something. You have to give up guaranteed income in exchange for spending your own money. So that is a bunt. That is saying, “I'm making a decision for the greater good of my financial plan to delay my social security. In exchange for that, I need to spend my own money.” Or, “I need to spend less money,” right? But in either scenario, you're giving up something. Whoever wants to take the advisor end, how is the advisor bunting when we're encouraging clients to delay social security?
Ben Raikes:Well, obviously, if you're delaying social security, there is an income replacement that you need for those years that you don't have social security. Normally, that's made up through distribution from either your TSP or an IRA, maybe a Roth IRA. And I think we've been very honest about the way we get paid. We get paid for the assets that we manage, but if it works out for your financial plan and you're going to have more long-term success by delaying social security, then absolutely we're going to say, “Take more money from your portfolio now to make up those income distributions and delay your social security.”
So it's certainly us giving up something, but as fiduciaries and acting in your best interest, absolutely delay social security if it makes sense for your plan.
John Mason: Short-term pain for long-term gain.
Ben Raikes:Absolutely.
John Mason:And that's on both sides, right? That's the client having to get over that mental hurdle of spending their own money. That's the advisor potentially getting compensated on less assets because of that decision. Short-term pain for long-term gain, and it's certainly better. If I'm a consumer and I'm thinking I need to hire, I want to interview a financial planner. The worst question that they can ask, “Hello, Joe, you're a financialplanner.com. Are you a fiduciary?” That is the worst. You don't get anywhere with that question. Maybe you should call–
Michael Mason:Are you honest?
John Mason:Yeah, you don't get anything from that because everybody, even people who aren't bound or regulated by the fiduciary standard are going to say yes because they're not fiduciaries and they're probably allowed to not tell the full truth, right?
So everybody's going to say yes to that question. Maybe we should be asking, “Do you bunt?” And then see what they say to that. “Do you bunt? Are you willing to make all of those hard things? Are you willing to do all the work that nobody else has ever wanted to do? And then what is your process for success that's going to make sure that you continue to do all those things?”
Michael Mason:And we're going to talk about home runs and maybe grand slam home runs, but doing the sacrifice bunt discussion, understand you never know the impact of what that bunt is going to do to the game, what's going to cause the game to be won. So don't think of it as small advice. It may not be a sexy advice, but if you and your spouse live to 95 years old, delaying Social Security to age 70 was effectively a grand slam. It looked like a bunt when you did it, it becomes a grand slam in the plan.
John Mason: I think we wrote another one down, didn't we guys? We talked about maybe taking survivor benefits. We also talked about working until age 62.
Michael Mason:Oh, yeah. I mean, it's you work, let's say you're gonna end up with 40 years. You could have retired it at 60 and 38 years or you can work two more years. And you get the credit for working forward, right? Because you get 1.1 for every year of service.
Ben Raikes:And we've seen it too where that decision isn't two years. It might be a couple of months. You might be a couple of months away from increasing your income by 10 percent for the rest of your life for as long as you are around. I mean again, that's another one. It's small ball, but when you think about two months of my time. Is it small? Well, that might be a grand slam.
Tommy Blackburn: That to me might be like knowing the lace your shoes up in that case. A couple months away, are we playing the game at all here?
John Mason: Yeah. And to your point is, I think all of you are making this point indirectly, is that human resources or OPM or whoever, like by nature, these are good people. Let's not say anything disparaging because we all believe that they're doing their best, but frankly, there are some plays like the flea flicker–wow we're going into base or football–like they just aren't called that often. And not many people are always familiar with the plays that aren't called that often.
So, Self-Self. Switching from Self Plus One to Self-Self. That play is not called very often. Suspending your health insurance on RI79-9 is not called very often. Understanding the benefits administration letter as it relates to what is service eligible to get you credit for the 20 years and age 62 and that 1.1 multiplier like these plays are not called that often and human resources, they're doing their best. They absolutely are doing their best, but when you have 3, 4, 5 decades of experience serving federal employees, we know where to source this material, where maybe that new HR person, maybe they've only been there for a couple weeks, and we, Tommy, I know you and I, we don't want to go on too big of a tangent, but we had a client trying to suspend federal employee health benefits for a year.
And the HR person said, “No, your financial planner doesn't know what he's talking about. And financial planners don't know everything.” And then seven months later came back and said, “Well, your financial planner was right. We need to use the RI79-9.” So that was pretty frustrating.
Tommy Blackburn: They definitely ran us over with the bus, called us out individually that we didn't know what we were talking about. But it was pretty gratifying for us to say, “Fine. Listen to them if you want,” and then seven months later, “Hey, you guys are right and we're fixing all of this now.” And because we could actually document that you guys were right They're gonna pay us what we, you know, the back premiums that we shouldn't have paid to begin with.
John Mason: So a couple other categories, right? Maybe we just go straight to steals. I think we can do that one pretty quickly, and then we'll hit home runs, grand slams, wrap up the episode.
Michael Mason:Sure.
John Mason:So steals, I think steals, I don't know if you guys all agree with me or not, but steals feels like tax advice to me. It feels like–and we're not tax evasion.
We're not like, truly, there's not a lot of ways to reduce one's tax bill, right? People always come into our office and they say, “I'm paying so many taxes. I need you to reduce it.” And it's well, that's really not possible unless you have a lot of kids or you give a lot of your money away to charity, there's not a lot that we can do to actually reduce your taxes, right?
Michael Mason:Oh, by the way, they weren't paying a whole lot anyhow.
John Mason: Right, outside of the normal TSP 401k. So why, to me, is tax advice or tax planning, or tax action stealing? It's like taking advantage of something or using the rules to our advantage where nobody else is doing it, right?
People are not critically thinking about, “If I do this Roth conversion this year. Then it's going to help me not go over my IRMAA,” or, “If I do this this year, it's going to lower my total lifetime federal tax paid.” To me it just feels like we're, the deck has kind of been stacked against us. And every time we make a tax-wise move, we've stolen some of the back, right? Like we were taking back what's ours a little bit. So that's why I think it's a stolen base.
Michael Mason:Yeah, QCD, you know, given to your church from your IRA instead of from your bank account.
John Mason: That's amazing. That's because you didn't pay tax and then the church didn't pay tax. That's perfect.
Tommy Blackburn: Went in tax-free, came out tax-free, didn't hit anything. It's beautiful.
John Mason: That's definitely a stolen base.
Ben Raikes:John, you talked about it before. It's the backdoor Roth, right? You make too much income, you should not be able to contribute to Roth IRAs. But if we do it this particular way, we can still get money into those accounts. We feel like we're breaking the rules, but we are playing well within the guidelines and we can continue to build up those Roth accounts.
John Mason: So taxes are one of the largest bills that most of our clients, if not all of our clients will pay in retirement. And maybe just a quick call out to your tax plan is really how do we reduce total federal tax paid over 30, 40, 50 years. And in order to execute that tax plan, guys, we have to do annual tactical adjustments, right? So you have this overarching long-term tax plan, but that requires annual meetings with somebody who's willing to give tax advice to actually steal back what's yours, frankly.
Michael Mason:When we say this, and we've said it multiple times, working with somebody who's willing to give tax advice, understand the majority of the people in my business, which some people think everybody that's a financial planner is in the financial planning business.
Not necessarily so, but if they're not giving you, if your financial advisor is not giving you tax advice, it's because he doesn't know his rules or he doesn't know the tax rules, but it's not because they're not able to, because just in the easiest sense, if they help you open a Roth IRA, they have given tax advice.
So if they're smart enough to know you should have a Roth IRA, then they should be smart enough to know you should do QCD and they should know how to do it, right? And they should know how to do Roth conversions and backdoor Roth conversions.
Tommy Blackburn: A couple of steals, I know we probably need to move pretty quickly here, but one that came to mind was utilizing the 0 percent capital gains rate.
To me, that feels like, you know, typically I should pay tax when I realize capital gains. And if we do this right and our situation is right, being able to do it at no federal income tax, that seems like a steal in my book. The other one is when we have a brokerage account kicking off dividends, gains, and so forth, and we don't take these other steps we just talked about where it's, “Hey, we could fund a Roth IRA or an IRA. We could move this into a tax-preference vehicle.” Usually, people think we don't have the cash in the bank, but we have this taxable asset, this taxable brokerage account. Let's just move it from one pocket to the other.
John Mason: That feels like a steal. I love that capital gains one. That one's just beautiful. It's like everybody told you were always going to have to pay tax on that long-term capital gain until you didn't have to. It's amazing. And then harvesting losses to offset future gains is another opportunity.
So let's transition now into a few of the big hitters. So, the Hank Aaron, the Babe, Barry Bonds, Sammy Sosa, Mark McGwire, and today's game show, Shohei Ohtani, right, Acuna Jr. So let's talk about some extra-base hits, some big grand slam home run opportunities.
Michael Mason:The first one that comes to mind is maybe you didn't do a 20-year career in the military, but you did four years at the academy, or maybe you did do a 20 or 30 years, you can't buy the 20 or 30 years towards your federal, but you can buy the four years of academy time. So that's a home run, buying academy time, buying military time that didn't result in a retirement. I did almost six years in the Air Force. If I had a federal employment opportunity, I would buy those six years. That's a fastball grooved right down the middle home run is what that is.
Tommy Blackburn: The one that always is the easiest when we start thinking about home runs, particularly with our federal, is that CSRS, CSRS offset, the voluntary contribution plan, the VCP, the biggest mega, mega backdoor. We can take funds that have already been taxed, hundreds of thousands, move them through the VCP and into a Roth IRA where it's never taxed again. And it almost feels like a grand slam steal because you didn't pay any tax to do that. So that's got to be a grand slam.
Michael Mason:That's a big one, yeah.
John Mason: I think when you think about home runs and extra-base hits and grand slams, I mean, ultimately those can win you the game. And to me, I think it's just coming to the realization that if I do all of the little things right over time, I get to the same result.
Doing all of the little things right at the end of the day equals a home run in my financial plan. Taking all the right steps, doing all of the right things, not looking for instant success or instant gratification, that's your home run or your grand slam. Federal employees should know by now, you know, through our podcasts and our clients and our YouTube channel, things are what they seem. Support, empower, educate, motivate.
You're different. You live in a different world than everybody else, and I think it's just so important to understand that you have a really good financial plan, you make all the right decisions over time, we don't need to hit lotto ticket, we don't need to be swinging for the fence, I guess, is what I'm saying.
So many people buy lotto tickets, so many people take unnecessary risk, so many people are holding single stocks, and they're doing all of this stuff because they think they're losing the game, but they're not. So sometimes we should just not swing for the fences because we don't need to. Maybe that's your home run.
Tommy Blackburn: Solid advice. I guess, are we getting into the wrap-up here?
John Mason: Yeah, let's wrap up with some action items.
Tommy Blackburn: I think my action item is, well, one, I think, putting in the work, doing the basics puts you in the position to hit the grand slams a lot of the time, so, kind of like that VCP example. You wouldn't have been able to fund it, to take advantage of it if you hadn't accumulated funds to run through that. So I think basics can put you in to a position to make home runs. And my other action item here was really a call out a request to our audience. If you can, we love to hear from you. Please send us some questions. Send us some topics you'd like to hear about, and we don't have to answer them in a podcast format. We'd be more than happy to shoot a quick video and post it on YouTube. So we'd love to hear from you. Please reach out.
Ben Raikes:Just like there are good and bad managers in the game of baseball, they can, really bad managers can actually lose you some games and really good managers can win you some games. You need to work with a good financial advisor.
And what I mean by good is working with someone that knows your benefits. A lot of these base hits are things that apply to both federal and non-federal people, but some of them. are very specific to federal employees only. If you're working with an advisor that doesn't know these things, you're never going to get the base hit.
And then there's even some of those grand slams that we talked about that you exclusively have available that nobody else does. Imagine having a grand slam in your back pocket, but you can't use it because your manager never told you about it.
Michael Mason:Yeah. And as my closing comments, as I think about this, yeah, maybe the grand slam in our mind is a grand slam because it was so instantaneous. You could see at that very moment how you've changed somebody's life. We call them Clarence moments and hero stories at Mason & Associates. So maybe it's just so apparent because again, those things we call bunts could be just as impactful.
But when you help somebody buy survivor benefits when they didn't think they could get it because they've been retired six months, and you help them buy it on Friday, and they're dead on Tuesday, and their spouse, since 2000, is 55,000 cost of living adjusted. You know that's a grand slam instantly when you did it.
The reason it happened so fast is we knew he was terminal, and we were able to make it happen. That was a grand slam. It's impactful. So those grand slams, Clarence moments, hero stories.
John Mason: I think we have to know the score is what I, what it comes down to, right? And over time, you can win a game a lot of different ways. You can win the game with a grand slam that happens instantly where you can see the result or sometimes it takes a full nine innings, and a lot of walks and a lot of hit by pitches and a lot of stolen bases and a lot of base hits, and some good managers and some good coaches and the right people on the field, and at the end of nine innings, because your game of life is nine innings, it's a long ball game, and if you're listening to this podcast and you're 50 to 60 years old, it's like the fourth or fifth inning. We've got a lot of baseball left, and we'd certainly would love to throw our hat in the ring and say, if you're not working with a financial planner, give us a call, shoot us an email: masonfp@m asonllc.net, Mason F-P like financial planning at Mason LLC dot net. Our website, again, masonllc.net, YouTube channel, folks, Tommy said it earlier. Do all the things for us: like, subscribe, hit those bell notifications, leave us some comments and reviews. We'd love to hear from you.
This is another episode of the Mason & Associates Federal Employee Financial Planning Podcast. It is our pleasure. It's our honor to be here with you for almost two years. Remember, we're financial planners first, we do the second, and our mission, support, empower, educate, and motivate you to make changes in your financial plan. We'll see you next time.
The topics discussed on this podcast represent our best understanding of federal benefits and are for informational and educational purposes only, and should not be construed as investment, financial planning, or other professional advice.
We encourage you to consult with the office of personnel management and one or more professional advisors before taking any action based on the information presented.