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Welcome to Financially Fluent with Ray Godleski from Southeast Wealth Partners, LLC. Whether you're already retired or planning for the future, navigating financial advice can be overwhelming. This podcast cuts through the noise, bringing real insights from experts who specialize in every aspect of a successful financial plan—including how to adapt when things don’t go as expected. Join us as Ray Godleski answers audience questions and shares actionable strategies—not just empty clichés.
Ray Godleski (00:02.402)
Welcome to Financially Fluent with Ray Godleski of Southeast Wealth Partners. Our goal is to equip you with the knowledge and tools necessary to navigate your financial journey with greater ease and efficiency.
Hey, good morning, everyone. And good morning, Cindi. Welcome to the next episode of Financially Fluent. How are you? I'm great. How are you today? Good, good. Yeah, nice weekend. just excited to do the next episode. What we got today? Okay, well, we have three topics of Q &A style today. And our first one is going to be about a 401k rollover. And that question comes from Florida. So I thought
to have a little fun, we'd start off with a little Florida trivia. What do you think? Oh yeah, you're speaking my language. I love trivia. What do got? Okay. So I think this was gonna be kind of easy. Florida is home to the world's most famous mouse, what year did Walt Disney World officially open? You're gonna have to go back just a tiny bit.
Yeah, no, no more choice. Okay. funny thing is that's a hard one, actually. I mean, you to pick out a year. So I did go to the 10th year anniversary with my parents and I don't know what year that would have been. Yeah, I think that's how old you were. Maybe what you know how old was I? It's a good question. So let me think. I'm going to say that was how about 19.
73. You are so close. Do you want me to give you the answer? Please do. 1971. Oh my goodness. Okay. All right, cool. But you get a gold star still. Yeah, thank you. Thank you. All right. Well, that was close. So appreciate it. What's the question? Okay, here we go. So the first question is about employees 55 and better. So 55 and older.
Ray Godleski (02:13.391)
that have money in their current employer's 401k, but considering transferring some out of their employer's plan, why would someone consider doing this? Okay, yeah, great question. So quite a bit of experience doing that with clients that are usually in their 60s, especially if you think back to the pandemic or 2022. But so the first thing
to find out is if somebody is, I'd say, 55 or older, can you even transfer money out of your 401k into your own IRA, let's say? And most of the plans that I see will allow that to happen at age 59 and a half. Some plans, they may make you wait longer. You gotta be 60, 62, 65, something like that. mean, some, I guess technically cannot do that, but...
and I've seen some as young as age 55. So just because you can do it doesn't mean you should do it, right? And for a lot of those folks, it might be just a partial transfer out, right? It be half the balance, might be 90 % of the balance, could be a small amount. There's many reasons that you might think about doing it. So one of those reasons would be, you know, in a 401k, you can only select
what choices they give you. The employer has a lineup of different funds, target date funds, asset class-based funds, that kind of thing. And maybe you want to invest in something different that they don't offer. So could be an ETF, could be some individual stocks. So just having more investment choices and whether you're transferring that to an IRA that you manage or you have an advisor manage again, it doesn't really matter, but you certainly can do so.
You just want to make sure when you're doing it that the money goes directly from that 401k to the next custodian of that IRA. That's called a direct rollover. Then you don't have to worry about any 60-day provision. You don't have to worry about, I can only do one indirect rollover per 12 months. None of that will apply. So that's important when you are doing it to do a direct rollover. Another reason would be, believe it not, could be lower fees. So each 401k has different fee structures.
Ray Godleski (04:38.434)
That is not always true. So sometimes the fee structure inside of a 401k may be less than outside of the 401k, but there are strategies out there and there are ways that the fees could be lower. So really depends on that particular situation. Another one I've seen as a reason is somebody may have like a frozen lump sum pension. So that means their benefits not really growing any longer. And so now they may take that opportunity.
to transfer it out into something that's more growth oriented. And not only that, when you're dealing with certain pensions and lump sums, those types of things, it may be that only the participant, maybe the spouse gets the benefit. Anytime you're into an IRA kind of structure, now you've got a little better flexibility versus a pension on who are the beneficiaries. You can start to introduce grown kids and different.
people in entities can be those beneficiaries, whether they're a primary or contingent. And then the other one I've seen is something called a 72T distribution. This is where somebody might want to take a portion of their money, maybe they're, let's say they're age 55 and they're transferring out 100,000, 200,000, something like that into their IRA. And now they're able to take that money out of the new IRA, if you will.
early without that 10 % prepayment penalty through a 72T distribution, which we'll probably cover in the next episode when we bring on a CPA, talk about some of the tax implications. So the bottom line is the reason somebody might do it is really just greater control. Again, it's not a recommendation that everybody should do it, but it's something to consider. But it also sounds like there are some benefits that go along with that.
like you said, more options and things you can do a little differently. I think so. Like I say, it's like, so we've done it quite a few times and sometimes about the consolidation. The thing to remember about this is, especially if someone is still got working years ahead of them, what I've seen some people do is they might leave a hundred thousand in the 401k, transfer the rest out. And by keeping that 400,000 in the 401k, now they can...
Ray Godleski (06:59.342)
If they're in a real pinch, right, they could do a loan provision perhaps up to half that balance of $50,000 for a loan. But yeah, that's reasons why somebody might want to do it. Okay. A of different options there, but I know you would guide someone making the right decisions on what to do. Okay. Let's move on to the second topic. And it's about a solo 401k.
Solo 401k and why would someone want to use a solo K plan? Yes, so the the solo 401k is have really becoming more popular and I you know, i've been using those for a while Some people use what's called a sep ira. So those are similar but different And so I think we first start with answering, you know, kind of what is that solo 401k? So it's going to be for the solopreneur
Meaning, know, somebody's out there making money, whether it's through invoices or 1099s, they are not an employee of a larger employer. So they're in business for themselves and they don't have any W-2 employees. So that's important to remember when you're doing a solo 401k. There are some rules where you might have a W-2 employee that doesn't work that many hours or maybe you haven't had them that long. It's just a tool.
right, for people to use. And some of the benefits with the Solo 401k is, let's say they're married and the spouse is also involved in the business, and it's just those two people. Could even be a side household, perhaps. And so in that case, both spouses can contribute some of their earnings into the Solo 401k and reduce their taxable income by putting in those contributions.
So in that scenario, now again, you can't have a W-2 employee full-time, you've had them for three years, something like that, that's not gonna work. But in a situation like that that I just described, maybe one of the spouse, maybe they're both over 50 or maybe one's in their 40s, one's in her 60s, whatever, there's certain limits they can put in. So if the spouse is say making $33,000 and they're over 50 and they wanted to put 31,000 bucks,
Ray Godleski (09:26.542)
into the solo 401k, that's something they could do. And so there's pretty big limits on how much can get into the solo 401k has to do with how much profit you make. But the bottom line is for somebody over 50, you and you make enough money, could easily put in $31,000 each in that scenario. The other thing I will say about this is over the years, some people are a little bit hesitant on putting money into a retirement account.
especially if they're a business owner like this and they're in their 30s and 40s and they're like, man, I don't want to put money into a plan like this, even though I'm getting a tax deduction this year. And then what if I need that money later? That might be a little bit of pain I'm gonna experience because there's a 10 % prepayment penalty out of a traditional IRA, right? And it's also gonna be income.
Well, in a solo 401k, some of the ones out there, not very many, but there's a couple of them, they allow what's a loan provision. So for that person, now they can put money into the solo 401k. They can take the money out as a loan and pay themselves back the interest, you know, not necessarily paying a bank in that scenario. And because they took out the loan, let's say they had a hundred thousand dollar balance.
They took out 50,000 bucks. They want to pay it back over a five year period. That loan they took out is not income and there's no penalty on it as long as they end up paying that money back into their account. That's something that is kind of an attraction. So it's not a recommendation that you want to do it so you can do it alone. That's not what we're saying here. But what we are saying is for some people that want that comfort level of putting money into it.
They know that there is a not super painful way to take some money out and pay themselves back. Oh yeah. And the other thing I like about these plans is let's just say it's one person and they've put in $31,000 salary deferral, they're over 50 or no, you know what, let's change that up. Let's say they're in that 60 to 63 age category this year.
Ray Godleski (11:45.1)
And they're using the 11,250 catch up provision that's now in place. So now we're talking about a much larger amounts being able to go in there, right? 34,750 is going into the plan as a salary deferral. And let's say it's March following year, they've been talking to their CPA about, hey, how much profit share can I put into this plan? And so
Usually they'll calculate how much profit they made the year before and the CPA is going to say, know what, could put up to another $20,000 or whatever that number is into that plan. Even though we're doing it now, they haven't done the return for the previous year and you can have that contribution count towards the previous year. And it's kind of nice for those solepreneurs to get an idea of the next year from a cashflow standpoint. How are we doing?
know, oh, this year's looking good. got some, you know, revenue coming up. I feel safe and comfortable putting the money into the plan right now, March of this year to count towards last year's banner year. Now on the flip side, you know, what if you had a terrible year and you're just like, I don't want to put any money in this plan. That's what's nice. You're not kind of stuck. You don't have to put any money into the plan and they really don't cost a whole lot of money to administer.
Ray Godleski (13:12.409)
If you're looking for advice specific to your situation, then take a look at this episode sponsor, Southeast Wealth Partners. To learn more about their team and approach, go to southeastwealthpartners.com. Southeast Wealth Partners is a great next step to be financially fluent. Okay, that's this plan seems like it has a lot of options for the different ages too. Like you had talked about someone in their thirties or over 55 and
just some different options on what you can do because let's face it, when you mentioned side hustle, there's a lot of people out there now having those little side hustles. You know what? I'll say something else about that. If the balance in their account gets greater than $250,000, they may be having to file a form 5,500. So sometimes they may not want to do that. Not that in the world they had to, but the other thing that...
we've seen folks do is be able to, you got a solo 401k, maybe you're keeping that balance in that 100 to $200,000 range. And then you get going back to the question before, if you wanted to, you could actually transfer a portion of that out into an IRA, which again may have a few more investment options. So I've seen, you know, some clients do that where they're constantly in the
$100,000 to $200,000 range in that solo 401k balance, but now we're doing some transfers out direct transfers out from the solo 401k to an IRA. OK. Alright, ready to move on to our last question? I think so. Let's let's do it. Alright, let's do it. OK, this question comes from a person asking about getting a tax credit for helping their child pay for college. Let's call this person Jordan.
Jordan says they file a married joint tax return and expect to gross about $185,000 from employment in 2025. So how could they get a $2,500 American Opportunity Tax Credit for helping their child attend college? Okay. So sounds like this is for 2025. And I think when it comes to the...
Ray Godleski (15:35.026)
American Opportunities Tax Credit, I don't think they've changed those income limits. So it really doesn't matter if this is a 24 or 25 question. So the first thing for the listeners to understand is, let's say your AGI is under $160,000 in this scenario. So that's for a joint tax return. If it's under $160,000 and let's say you paid
$4,000 or more to the college, know, you did out of your, say, your checking account, that's going to afford you the opportunity to get a $2,500 tax credit when you do your tax return. So not bad. Now, if you put in, if you pay 10,000 or 20,000 or something like that, you're still, the maximum credit you're going to get is a $2,500 tax credit. But in this scenario, this question, the gross
Sounds like they're grossing about $185,000. So now that means a couple of things. Let's just say they put in $10,000 into the 401k perhaps. So what's going to happen in that scenario is they're going to be in a phase out territory. So the phase out for these tax credits is between $160,000 and $180,000.
I don't want to get into the calculation right now with that because that's going to be a little bit, I think, hard to follow on a podcast. So let's just say, let's think about this. What if the person, they maxed... Cindy, does it say how old they are? No, it does not say how old they are. Okay. So let's just say they were 50. They're going to be 50 or older this year. Right. So if they were under 50, right?
For 2025, that means they can put in $23,500 as a tax deferral. And I don't know about the spouse, if they're employed, because they could do the same thing. it's very possible, whether they're under 50 or over 50, probably just putting enough money away into a 401k would probably get them under that $160,000 adjusted gross income. But let's just pretend for a minute that maybe one spouse works and one doesn't.
Ray Godleski (17:58.418)
And so what they could do is maybe they have an HSA available at their employer. So perhaps they have that. And so I think the limit this year for a family putting money into an HSA, let me look that up real quick. It's over $8,000. So anyway, yeah, they could put in, let's say they put in $8,000 into an HSA plan and they also
put in the, you know, over $23,000 into a 401k. Now they've reduced their adjusted gross income, gets below that 160,000. Therefore they can take advantage of that big, that tax credit. The other thing too, that might be a above the line deduction, reducing their AGI would be a pre-tax payroll deduction for their health insurance. So.
I think the best way to have that answer would be to look at a pay stub. Usually, I always like to look at a most recent pay stub and what was the pay stub at the end of the year last year, anytime we're giving kind of planning advice. That's a really good practice to do. they could look at their, if they look at their pay stub, they'll get a good sense of what is taxable and what's not. Yeah, that would be the way to do it. Now I have one question for you on this one. Income limits.
you talked about. Does that change year to year? So when it comes to the American Opportunity Tax Credit, that hasn't changed for a while. You want to pay attention to that. And here's the other thing people need to know about that particular tax credit. If you are head of household or a single filer, the limit is much less. It's $80,000. So just got to keep that in mind. The other thing that's out there is called a lifetime learning credit.
I'm not going to get into that one, but it's similar, but you can't do both. And so when you mentioned income limits, there's all kinds of income limits in the tax code. We'll probably do a separate episode about that to get into the Roth limit, net income investment tax, when does that apply, child tax credit. There's tons of credits out there. They have different income limits. So it's certainly a little hard to follow that bouncing ball.
Ray Godleski (20:24.069)
And the other important thing for them to remember is, it's not just what kind of money are they making from their place of business, but do they have other types of accounts that are producing dividend income or interest income? Do they have rental income? So we do need to make sure, or he would need to make sure, what is the total modified adjusted gross income at? Because that's going to really be important.
So he do needs to account for if he's has other source of income in addition to say like a W-2 income does he have, or maybe even we talked about side hustles earlier, it could be possible they have some other side hustles. they really need to make sure they're looking at all of those things as well before making this kind of determination on whether they're gonna be able to get a $2,500 tax credit. just another thing I'll say about that is let's say they just spent $2,000 out of their account.
Forge College, in that case, you get a $2,000 tax credit, not bad, but you do have to spend the 4K to get the 2,500 bucks. Okay, so I think that's all of our questions for today. And then Ray, thank you for all of those wonderful answers and a lot for us to think about and talk to our financial planner about. But I do want to encourage our listeners to send their financial planning questions to Ray. And you can send those to Ray at
sewealthpartners.com. And as always, please put your podcast questions in the subject line. And if you really want to get on the show, please include a trivia question because Ray loves trivia about music, sports, and US history. Yes. Yes. No, love that. Love that. Yeah. Please do encourage questions to come on in. And then Cindy, maybe you thought you'd be able to escape without a trivia question.
Coming back to you, but I'm so sorry you're not. So I will be nice though and give you a couple of topic to choose from. And today we're only going to give you three choices. You're going to have to be guess which state this is or sports or music. So what you going to pick from? Let's do music. I don't know how confident I am, but let's do music. Okay. All right. All right. I think this is pretty easy.
Ray Godleski (22:49.917)
The sports one would have been tougher, but here we go for music trivia. Name this massive hit in 1996. So just answer it as soon as you know it, okay? Okay. That topped the charts for 14 weeks by Los Del Rio. You know it yet? No. I'll give you one more clue. Sparking a global dance craze.
96 14 weeks massive hit 1996 top the charts for 14 weeks by los del rio working a global dance craze i you stopped me on this one ray i don't know all right i'll give you a hint take your right hand and touch your left shoulder and then take your left hand and touch your right the macarena i needed that
Yeah, yeah. All right, cool. Well, thanks for playing and look forward to doing our next episode. Thank you for listening to the financially fluent podcast. Click the subscribe button below to be notified when new episodes become available.
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