Welcome to Ditch the Suits Podcast where we share insights nobody in the financial services industry wants you to know about.

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So buckle up and welcome to Ditch the Suits.

Welcome in to Ditch the Suits podcast.

Steve Campbell here with Travis Moss.

Folks, we're getting closer.

We're in the middle of holiday season.

Appreciate you stopping by if you are brand new to Ditch the Suits.

I serve as the chief brand officer at SEED Planning Group.

Travis serves as our chief executive officer.

We operate seed, which is a fee only financial planning firm.

Fiduciary obligation to put our clients best interest first in digital Suits is all about us bringing years of experience, conversations, working with people just like you that have big life questions.

Am I doing the right thing?

Am I okay helping you make sense of what you can do to get the most of your money in life?

And this has been a fun series.

Last episode in it, Travis, I don't want to steal any of your thunder, but why don't you talk about really these practical insights and why they're important this time of year.

Yeah.

So this might be the credential or.

Not the credential, the acronym episode.

We've got a couple of, we got QCDs popping back in.

We got donor advised funds or DAFs.

We're gonna have a little bit of fun with the terminology.

But, you know, the last two episodes we did, we talked about, we've got 11 actions or things that we can do, some best practices that we can do before the end of the year as we're getting ready for next year that really help us focus on how do we move the ball forward.

Right.

How do we make these little changes.

And what we're hoping is out of these 11 things, people have one or two things maybe they can implement.

I know that some of the, like, especially in the last episode, some of those started to get a little bit complicated because they're not, they're nuanced to a situation.

And so because they're nuanced, it's hard to say everybody in this situation or everybody in that situation or in, you know, this is, you know, it's really hard to do the entertainment thing and say everybody should just have a Roth, because not everybody should have a Roth.

Right.

Everybody should have an ira.

Not everybody should have an ira.

It depends.

Everybody should have six months in savings.

No, not everybody should have six months in savings.

Like, it depends on the situation and what else you got going on.

So anyhow, we've got our final four that we wanted to bring out today and the four of them that we're actually working on, we're going to dig into capital gain strategies, a fun idea called tax loss harvesting.

So some of you are probably aware of that and some of you maybe have heard that before and aren't sure what that means.

Charitable gifting strategies using QCDs.

We'll come back to remember what QCDS are.

We covered it last episode, but we'll cover it again.

DAFS securities and Checks.

So don't worry if you don't know what any of that means.

We'll get you up to speed and then we'll finish with a little bit of gifting to the kids.

We finished our last two episodes with 5:29, which is really about the kids.

We're going to finish this episode as well.

Maybe giving the kids a Christmas present.

It's all about the kids in our, in our warning in our last episode.

Right time of year, holidays.

Don't fall asleep.

Don't let these things go by.

Because once we strike midnight on 1231, you can't go back and do any of these things afterwards.

So last four, final four, final countdown.

We're going to get into it.

You had started with capital gains, so you're in capital gains.

Why don't you help people also understand like what are capital gains and then understanding what would be involved into year end capital gains rates.

Yeah.

So those who have heard like our last series that we did or actually two series ago because of the, the order of things, we did a whole series about capital gains and capital gains rates and you know, some of the tax policy that people are suggesting out there.

But to make this really simple, for most people, capital gains is the difference between what you paid for something and what you sell something for.

So if you buy something for $100 and sell it for $200, you have a hundred dollar capital gain.

And when you file your taxes you get a thing called 1099.

And that 1099 is, you know, with this type of tax that we're talking about is normally like 40 pages long.

If you have that type of investment account and it'll go, it says what your dividends are and what your interest is and what your capital gains are if they're short or long term.

All those types of things we're not going to get into short or long term today because it doesn't matter for the sake of.

Well, I guess it does matter for this conversation.

So let me back up on that.

Long term capital gains are happen when You've owned the asset that you sold for more than a year.

Yep.

Short term happens when you've owned it for less than a year.

So if you have short term capital gains, you actually pay regular income taxes on it or ordinary income taxes on it.

When you have capital gains, you pay the capital or long term capital gains, you pay the capital gains rate on it.

Two totally different tax rates.

Short term capital gains, higher tax rate, long term capital gains, lower tax rate.

That's all you need to know about that.

Long term capital gains tax rates are 0, 15 or 20% currently.

That's the way it currently works.

And depending on how much money you have or how much income you have will depend on if you pay 0, 0 for part of it, 15 for part of it, 15 for Part of it, and 20 for part of it, or 15 for all of it, or 20 for all of it.

Just it depends on how all the rest of your taxes work.

So a lot of times what I have discovered is most people don't actually understand how the capital gains system works and they don't understand how to calculate those taxes.

And I've actually worked with tax professionals that don't understand necessarily how all that works.

So that's what capital gains tax rates are.

Now back to what we've talked a lot about with projections and financial planners.

If you've got assets that are subject to capital gains rates, so if you own investment properties, rental properties, those types of things going to be subject to capital gains.

If you have a brokerage account that's not related to being like in a retirement account, it's just after tax money, maybe you got an inheritance and you bought a bunch of Apple stock or something like that.

Right.

Those are things that are subject to capital gains.

And what happens a lot of times people say, well, I don't want to sell my stock because I don't want to pay the capital gains taxes on it.

And okay, but there's not a lot of ways around paying capital gains.

And we'll talk about that for a second.

But number one, do you understand what your rate is?

Number two, if you looked forward.

So let's say that you're in these low tax situations like we talked about with the Roth conversions, and you're going to be in a much, much higher future tax situation.

So you could potentially pay 0 to 15% on the capital gains right now.

You don't know it because you're not doing the tax planning, but if you looked at it, you'd be able to figure out how much would be zero.

How much would be 15%?

Or if you wait too long, you're probably going to pay 15 to 20%.

So the question there is, and I always ask people, how old are you and how soon do you think you're going to die?

Because if you have money that's invested in something that has a big gain in it, you've made a ton of money on it, good for you.

You win, right?

That's the whole idea, is to make a lot of money and you won't sell it because the taxes, you can't use it now.

You can go get a loan against it in a lot of situations and stuff like that.

Then you're paying interest rates, interest.

So you got to decide, do I want to pay taxes or interest?

But more importantly, when you're, when you're thinking about how old you, there's, there's, there's two ways out of capital gains right now.

You give it to charity, you don't have to pay capital gains on it or you die and your kids get a step up.

Otherwise, if you want to use the money, you're either going to be paying interest on a loan against it or you're going to be paying the capital gains tax.

The question is if you've done good with a stock or a building or something like that.

Remember I talked about, it's kind of like whack a mole.

Where's the tax popping up?

Is it better for that tax to pop up now or is it better pop up later?

This kind of like, woe is me.

I gotta pay taxes.

I'm just against taxes.

That's a stupid attitude because somebody's gonna get those taxes.

And if you said, well, no, I'll just wait, okay, so if you're 60 years old or 65 years old right now and you're in good health, you're not diagnosed with terminal cancer or something like that, right?

And you're thinking, okay, I'm looking forward to the next 30 years of my life.

You know what the average life cycle or life cycle of a correct.

Of a Fortune 500 company is?

So a company you'd probably have stock in is it's less than 16 years right?

Now, that company that you own that you don't want to pay the taxes on, very likely will not be around in 30 years.

So if you look at that and go, I'm not going to sell because I don't want to pay the taxes.

I'll just wait 30 years till I die and then I'll leave it to the kids and they'll get the Step Up.

Number one, they're coming after the Step up and just about all the tax legislation that they're trying to pass every single year, they're debating about whether or not take away the Step Up.

But number two, you're making a bet that that stock actually retains its value.

And there's lots and lots of examples where that doesn't work out well.

Let's take a quick break to hear a word from your sponsor.

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Well, and I think that's a helpful explanation at the beginning of how capital gains work and really understanding that another big word that we sometimes hear is tax lost harvesting.

And, and I think this one's confusing because even if you work with a financial advisor, they'll say on one end we don't give tax advice, but then they'll say, hey, we're implementing tax loss harvesting so help us understand maybe the value of taking advantage of this.

So what they're really saying is we're going to run a portfolio with a, with a buy and sell strategy that is designed to make the results of the portfolio tax neutral.

So what they're trying to do is take advantage of losses in particular positions to wipe out gains in other positions, which on the surface sounds great.

And what's happened is lots of people have said, well, that must be good for everybody and in all situations.

So you go and you sign up for a program.

They're like, the big value here is we do tax lost harvesting.

I think that there's some fundamental issues with this.

We have clients all the time, like I, I don't want to pay as much income tax as I've got a loss in my portfolio, sell that loss so I can take the loss.

You are now making an investment decision for a tax reason and it's not a good reason.

And what I mean by that, let's say that your, your Valero stock back during COVID is down 70%.

So you sell it so you can write off the.

So you can get a capital gains loss at which you can only offset against the same type of income.

So if you don't have the same type of income, you can't even use it all.

You can only use like up to 3,000 of it.

But let's pretend you can use it all.

And so you deduct that loss.

So capital gains you pay taxes on, capital losses you get to deduct up to a certain amount in certain circumstances.

So you say, okay, let me deduct that.

And now you're deducting it, you know, against a 12 or 22 or 24% tax bracket.

But you took a massive loss.

And so this investment that you have, what's the likelihood that that investment wasn't going to recover?

But now you don't have it anymore, you had to sell the investment.

And the way that what's called wash rules work out, you can't just buy that same account rate back up or that stock right back up.

You have to wait 30 days.

Otherwise they wash your cost basis.

Basically it just adopts into the new position because they know you're gaming the system basically.

So you have to be out of it in 30 days.

If you look at where most returns come with stocks, if you miss one or two days with that stock, you miss most of the returns.

So you know, on like a yearly basis or a longer term basis, you could take a, like take the s and P500, you take out like the top 10 days, you've missed half, half of the returns over the last decade or something like that.

So you have to be really careful with trying to time it and making investment decisions for no other reason than I'd like to take the tax loss.

Unless you have something really legitimate to use the tax loss for.

In a good investment, I call a horizontal strategy.

I need to get an equal or better position going forward.

And what I mean by that is if I've got a stock that is if I were to appraise the company, because all companies can be appraised, just like your house can be appraised and it appraises at 100, but it's right now selling for 60 cents on the dollar.

So it appraises at 100, but selling for 60, I need to get into something that's got the same type of profile where I can make that 40% back.

If I bought it at 100 and wrote it down to 60, and there's nothing wrong with it, it's just the price is wild, right?

I need to be able to hold that till it goes back up to 100.

So if I sell it out to tax loss average, to take the loss, I need to put it back into something that has the same profile, that has the same capability going back up that 40 in the same timeframe.

And that's normally extremely hard to do because you can't buy the same thing.

And if it's mutual funds, you can't buy fundamentally the same fund.

So if you have an S&P 500, you can't go S&P 500.

S&P 500.

It would trigger your wash sale, even if it's a different company's fund.

So what I look at with tax loss harvesting is you have to know your personal situation and your personal tax projections.

Back to our tax planning that we've talked about and back to our current versus future projections.

Number one, do you need a tax loss?

Does it make any sense?

How is it going to actually help you?

There might be things that you could sell that you could say, hey, you know, there's so much volatility, this is great.

I could sell that one and I could buy that one.

And that's a wonderful horizontal move.

My portfolio is not going to get dinged at all.

But if you look at it and you say, man, I'd really be taking a step back with my portfolio to do this.

You probably shouldn't do it.

It's going to cost too much, Harm.

So think about it like this.

Let's say that you could save $10,000 in income taxes by taking the loss.

Like you could actually save 10,000, which means you got massive losses, right?

Because that's, that's the actual tax deduction component of it or the net result.

But in order to get the $10,000 in tax savings, you had to lock in $100,000 loss in your portfolio.

Good for you.

You didn't pay taxes this year, bad for you.

You now have a hundred thousand dollar hole in your portfolio.

You have to figure out how to make up.

And this is where you know the intersection between understanding investments, tax planning and financial planning all comes in.

So you can see how you have to do the financial planning and tax planning.

But people go like, oh, we don't do investments, you just buy index funds or whatever, or we just buy ETFs.

And then they talk about tax loss harvesting and stuff like that.

You have to understand investments because you're buying and selling something that makes money based on what it actually Is so when you buy Visa or MasterCard or Apple or even the S&P 500, there's a real value to it and a real price.

And you have to understand that if you don't understand that all you're doing is gambling, they say, well, the monkey can throw the dart at the wall and do just as good as most mutual funds if you're gambling.

The context of that discussion is way.

I mean, it's a horrible contextual discussion.

They're comparing apples to oranges.

If I were to take a random sampling of every investment out there and just throw a dart at the wall.

Yes.

But if I were to slim that universe down to the actual quality component of that universe, now expertise does actually matter.

And so it's like, you know, the devil's in the detail of that argument.

But it's so important with tax loss harvesting.

Could it help you?

Yes.

Could it hurt you?

Yes.

It's not for everybody.

You have to actually go through the process of saying, you know, maybe tax loss harvesting for some things will help you and for other things that would hurt you and you want to use it situationally.

Yeah.

And again, I'm just thinking about the listener who's never heard somebody talk about the things that you have that's maybe kind of marveling at it because their experience has been going to a tax preparer and saying, I want to limit my taxes as much as possible.

So the preparer looks at what they have and says, okay, then sell this to get you to where you are.

They're not understanding the totality of the entire comprehensive financial picture in a way that you described.

So I think what you're trying to help people understand is get somebody that's going to talk to you the way that Travis Moss just did.

And I think that, again, tracking along, we are on number 10 now out of 11 practical things that we can do.

Hey, it's the holidays.

You know, maybe we're all feeling a little bit more benevolent.

We want to give away.

We want to help charities.

We want to help good causes.

Maybe many of us are just writing checks and send them away or giving somebody cash.

Hold on just a little bit.

Let's talk about charitable giving and maybe some things people can look at.

Travis.

Yeah.

And if I can indulge just two more points in the last one, I've had people go to tax preparers and had a tax prep CPA tell a client, why would you ever sell those investments?

You would have so many taxes.

Just leave them as they are.

They're they're not an investment professional.

They are not licensed or credentialed to give you investment advice.

And if you're 60 years old and somebody tells you to own a stock for the rest of your life, they are not qualified to talk to you.

Yeah.

So just right there, you stay in your lane, I'll stay in my lane type of thing.

So I think that that's just really, really important to be aware of.

And there was one more kind of tack onto that.

So if you give me just a quick half second, let me collect my thoughts on that a little bit.

So we've had clients who have come to us and they've been doing tax loss harvesting for years.

And what that means is they've been.

Every time something's down or negative, they sell it.

Yep.

So they're always selling things when it's down.

What's the number one rule of investing?

Right.

Sell when it's up and buy when it's down.

Tax loss harvesting is triggering them to always sell when it's down and basically just essentially have to find a replacement.

So a lot of times you're buying when something's up, or at least up more than the other thing was down.

And so when you look at the performance on that, you have to be very careful that you don't have severely muted performance.

You may save tax dollars, but if you have a large enough portfolio like we have illustrated, the loss of a percent or two, total performance on that year in and year out could be devastating or even more.

Because if you're always selling the losers just because they're down for the year, you're always selling, though.

Okay, so jumping forward to charities.

Yeah, we're just trying to be benevolent over here as listeners.

But I do want to say, folks, that if you will bear with me, there was also a series where we did some six different.

I think things that you could do to add 1% to your overall portfolio.

I think what you were just talking about leading up to that is again, if you are taking those losses 1% per year, how detrimental they can be.

We had also expressed that if you do 1% better each year across six areas, what you can really add to your bottom line.

But now want to talk about being benevolent, and now we want to talk about giving back to charities and good causes.

So.

So, Travis, I think with this.

We've talked about this for almost over four years.

There's a lot of people that want to do the right thing.

They want to give back, but maybe the methodology for how they going it, this is where a light bulb goes off and they go, geez, guys, I didn't even know about some of these things.

So talk to us about these letters and these acronyms and what they mean.

And I'm going to, I want to make it easy too, because I'll talk about these letters and acronyms and most likely where you're going to be able to benefit from them.

QCDs, qualified charitable distribution.

We talked about this in the last episode.

You can do These when you're seventy and a half, if you have RMDs or not.

If you have RMDs, if you have IRAs, you cannot do it out of the retirement account of work.

It has to actually come out of an ira.

So you might have to do an IRA rollover, but you can do QCDs.

This year the amount's up to 105,000.

So you can actually take up to 105,000.

If you're of an age where you have to take RMD's required minimum distributions.

So everybody has an age where they have to start taking those.

Or if you've inherited an IRA and you're over 70 and a half, you're already taking distributions, but you can offset the required minimum distribution by this amount.

So if you had an RMD of $40,000 that you had to take before the end of the year and you do $40,000 to your favorite charity right out of your Iraq, you now don't have to take any more money out.

A dollar for dollar offsets it.

But you also don't pay tax on any of the $20,000.

So those clients that have, or anybody out there, I guess they don't have to be clients of ours, but anybody out there who's got charitable interests and their favorite charities doing like a capital campaign or something, this is a wonderful way to help fund that type of stuff because you get that, you know, just incredible power of just off the top tax deduction.

So that when you're 70 and a half, that is the, in my opinion, up to $105,000 worth of gifting.

The best way to gift.

Yeah, it is.

Maybe somebody's got a better idea.

I'd love to hear it.

But that is so powerful and so effective in so many different ways.

If you're 70 and a half and you have IRAs and you gift, gift out of the IRA, stop writing checks.

Stop it.

Yeah.

And just a super practical what you do and what we have people do is put together a list of the organizations that you'd like to Give money to give us the dollar amounts.

And then we will prepare the paperwork to make sure that wherever you have an ira, these checks get cut Right.

From the IRA to your organization.

So they stop coming to you and then you lose out on the tax savings.

Yep.

And why people don't do it, I don't know.

It's just, it's.

They just don't know.

They just don't know or they don't have a professional that's telling them, because I don't do tax planning, that that's something that they can actually do, right?

Yep.

So that's number one thing.

You're over 70 and a half.

That's also when we go back to like the Roth conversions and we talk about overconverting.

Right.

Convert up to maybe what you think that you're, you're going to be gifting in the future and leave that money in there.

Don't, don't convert money that you're otherwise going to give to charity.

Right.

Like leave that money in the IRA and give it all to charity.

Have fun with it.

DAFS donor Advised Funds.

These are for the folks that give a meaningful amount per year.

Let's say you give at least $5,000 per year to charity, qualified charities, and you do it every year.

And you have money outside of retirement accounts that you could gift, whether it be cash or stocks or whatever it is.

So you open a donor advised fund, which is really just an account at a charity.

So.

And you normally do it through a foundation.

So you go to find a foundation if you don't have a foundation.

Like if you have an account at Schwab, Schwab has a foundation, Fidelity has a foundation.

You can open accounts for them.

Your local community probably has a foundation.

You got to check the fees on all these things because they can get expensive.

But you can open a charitable account called Donor Advice Fund.

Now the cool thing about that is you get to be the director.

You're the boss.

You also are the donor.

So you send the money into the fund and you get to deduct that.

And then once the money's in the fund, it gets to be reinvested.

If you gave it stocks, the stocks get to be sold.

Nobody pays the taxes because it's a charitable fund.

And then you don't actually have to give the money to charity all at one time.

You could say, hey, I put 50 grand in this thing, but I'm going to invest it and let it keep growing.

And I'm going to give five grand every year to My favorite charities.

So the reason why you would use that is because most people aren't taking advantage of itemizing their deductions because of the way the current tax laws are.

So if you're going to give $5,000 a year away every year and you don't itemize, you're not getting any tax benefit for that period.

And if you're too young to do it from the QCDs, how do you do this?

So if you have enough money to, say, pay the next five years worth of charitable gifts, then what you do is you group all that up at one time, you send that over to the donor advised fund, and now maybe you have a much larger tax deduction and you might actually get to itemize.

And so let's say before you weren't itemizing any of it.

Now out of all that, you get to itemize maybe an extra $20,000.

Well, that's still a tax deduction on $20,000.

Maybe you could combine that with some more Roth conversions in a higher tax bracket and get, you know, two for your money on that.

Basically the other things that you can do is you obviously can get cash or securities.

So if you're not in a situation where you can do a donor advised fund and you're not in a situation where you can do a qcd, but you have stocks, and maybe you've been selling the stock so you can give them to charity, stop doing that.

Or maybe you've been taking the dividends and giving them charity.

You're paying taxes on these things, right?

You can actually give the stock straight to the charity.

The benefit to that is it'll go into whether or not you can itemize.

But charity won't pay taxes on the capital gains.

And you can buy the stocks back up if you want in a different account.

So if it's your favorite stock, you could buy it up, but then it'll have a different cost basis, you'll have the higher cost basis.

So the next best thing to do out of those is the securities and the last is cash.

So if you can't do any of those other things, then you do cash.

Cash is like the worst way to get as much as it seems.

Like, you know, I just write a check and it feels so good, it's so nice and so easy for them.

You're missing out.

And so if you say, well, it doesn't matter, it's not about me.

I'm the one gifting.

Look at it this way.

If I could show you how to get an extra $2,000 on your tax return.

Because the way that you gift, you could give $2,000 more a year to your favorite charity.

So if it's really not about you and it's only about the charity, in short order, you could figure out how to actually give the charity more money.

And if you happen to work on a nonprofit on a board or work with a major gifts giver and stuff, and they're not having conversations with their donors like this, you really need to tell them to have a timeout and say, hey, when you have somebody come and give you money and they're like over the age of 70 and a half, and you know they are, ask them, hey, why do you give us cash?

Just so you know.

And give them a little pamphlet on Iraq QCDs, and give them a little pamphlet on how Donor Advice Fund worked, and give them a little pamphlet on how you can accept securities and how to do it, you know, and.

And that, I think is a significant value, not just to you, but to the charity, whoever, whatever reason you're gifting, you can get more out of it.

Hey, and here's a little shameless plug.

These are things that I actually help make for organizations.

So if you are helping with a nonprofit and would like a little giveaway card, just send us a message and say, hey, Steve, help me put one together.

But, Travis, you had mentioned something, and I want to make sure that I understand it, because I would call this a stat hacking within financial planning.

You had talked about if you know that you're going to be making qualified charitable distribution.

So let's say it's $10,000, but you were also going to do a Roth conversion?

Is this how it would work if you were planning to take $25,000 in a Roth conversion, but now you've discovered with a QCD that you want to give 10, would you only take 15 in the Roth conversion and leave 10 still in the account?

Because you're going to give that away?

Well, the qcd.

The qcd, yeah, it depends.

So if you had to take an rmd, the QCD would allow you to convert more money to a Roth.

And people get confused with this.

You cannot take an RMD and convert it to a Roth.

But just because you're taking an RMD doesn't mean that you're not in an advantageous position to do a Roth conversion.

So let's say that you're taking a $20,000 RMD and you still have room to convert another $18,000 to Roth, and that'll keep you in the 22% tax bracket.

If you do a $10,000 QCD, it's going to reduce your RMD to $10,000.

And so before you had the 20,000 plus the $18,000 in taxable room.

So that 10,000 that otherwise would have been part of the RMD that you cannot put into your Roth now can go into that Roth conversion bucket, bang a rang.

So you can, by doing that qcd, you can increase that.

Now if you were doing the stock contribution one, if we said, look, maybe we're under RMD age, right?

We're under, like if you're 73 now, you'd be doing RMDs.

So you're under a certain age, you're not doing RMDs yet, and you have room to do like a $30,000 Roth conversion while keeping yourself in that 22% tax bracket, or pick your tax bracket, whatever your favorite one is, and you are able to do a large enough donor advised fund contribution or a large enough stock contribution straight to a charity.

Because sometimes with a donor advise, that's really if you want to stretch it out over years.

But if you're just going to do a huge lump sum gift, right, do not sell the stock and write the check.

Give them the stock.

So let's say that you give them a stock in a way that reduces your income by $40,000.

So you had $30,000 get to 22%.

Now you've given this big gift that you're able to deduct and pull that number back down.

You can add that 40 back to that 30.

Now you can do a Roth conversion for 70,000.

You're still paying the same amount of income taxes you probably otherwise were going to pay.

Or pretty close.

I mean, you got to do the math on it, depending on the situation, but it just opens up room.

Everything's still within that 22% tax bracket.

Or you know, if you're in the 24, in the 12, it just gives you more room.

So yeah, you can.

By understanding how these different things work, you can make, I mean, not only could you save on the capital gains, could you get better deductions, could you.

You can also do Roth conversion.

I mean, there's so much stuff you can start do when, when you start putting these concepts together.

Dang.

It's like when you nerd out with Money man and you start stacking ideas on top of each other.

It's like, whoa, whoa, whoa, help me understand all of this.

And again, I think this goes back to.

Because it's easy to look over there and say, man, why has everybody else got more money or wealthy?

It's because when you understand these principles and how they apply.

Jess, one of our planners says all the time financial planning is a lot like playing Tetris.

It's just kind of understanding how the shapes go together and your situation is going to be different from mine.

That's different from another person.

So I think it's really important to understand what pieces you are so you can play Tetris.

But hey, at Ditch the Suits, we like to finish talking about kids.

So we're going to give you point number 11 in this series, Practical Takeaways Talking about gifting to kids.

And we've gone over charities, but why it's important to think about gifting to kids.

Hey guys, Steve Campbell with Ditch the Suits want to take one quick moment to make a big ask.

If you haven't already.

Travis and I would love for you to subscribe to this podcast.

But if you haven't, also, we would love for you to leave a five star rating and review.

Your rating and review will let other podcasters know that the show is worth their time.

So let's get right back to the episode and thanks for listening to Ditch the Suits podcast.

So with kids, and this comes up a lot, you know, and every family dynamic is unique and you got to look at your kids and you got to think about, you know, what situation do you want to put the kids in?

Is a healthy situation to give to them or isn't it?

But chances are if you're healthy and your kids are healthy and you're going to leave your kids in inheritance someday, you know, when you pass away in your 90s or long, you're going to live, your kids are going to be in their 70s.

So at that time, it's wonderful that you gifted to them, but what the heck did that do for them?

So first and foremost, understanding your projections, kind of where you're going to end up and what does it actually cost you to gift.

And then the other thing is to think about, if you do gift to the kids, what does that gift turn into?

So if you gift to the kids and the money turns into them being able to fund retirement accounts or something, it turns into more wealth.

If you gifted the kids and they get to go on family vacations they otherwise wouldn't go on, it turns into experiences.

And that's a form of, you know, it's really a form of wealth if you give to the kids and the kids blow the money because they're irresponsible or they buy booze and, you know, drugs and that kind of stuff.

Well, then you shouldn't have gifted to the kids or you should stop gifting to the kids.

Right.

So it's kind of situational, but part of that is understanding.

Do you have enough?

And I think this normally happens for couples when they get near their 70s and they're looking at the size of the RMDs and the fact that they don't want their RMTs in the future and because they don't want to pay the taxes on it.

Like, what am I supposed to do with all this money?

It's like, yeah, it's time to start giving it away.

But when you give money to kids who are responsible, that kid, that money also has a value.

And although it doesn't grow on your statement, it grows on their statement.

Yeah, right.

Or if it's an experience, is growing on their ledger, their lifetime experience ledger.

So.

But here's what we want to think about with the kids.

We've had clients that do this, and I think that this is, again, going back to.

We've talked about in previous episodes, getting the kids involved in planning.

Let's say that your kid is a really good kid and they're doing everything they're supposed to do.

They get their first job out of school.

They're making 60, 70 grand, and they're doing their 401k and they're getting their match.

They're putting six grand away.

They're getting a match for it.

They're doing everything they're supposed to be doing.

You are of an age now where you're no longer allowed to put money in a 401k.

You can't get a tax deduction.

And in fact, you're being told you need to take money out and pay the taxes on it now because you're going to pay a lot of taxes in the future.

So you're in a situation where you can't take advantage of some of the.

Like, you can't put more money in a Roth.

Right.

You can only convert money to a Roth, that type of stuff.

But yet you still have to pay taxes on some of this money that's coming your way because, you know, you buried that, you know, whack a mole, and now it's showing up and you got to deal with it.

So if you've got kids that, you know, have a good head on their shoulders or have a good advisor or something, if you give a kid who's making 70,000 or 80,000 or 100,000 or 40,000.

Whatever you say.

Look, I'm going to give you $20,000.

Live up to $20,000.

Put your 401k in that, in that Roth, that 401k Roth.

I want you to take your paycheck and I want you to max out that 401k Roth.

I will replace the take home.

So if your take home was $1,500, that's now going into your Roth at work.

You know, if that's the difference, give the kid fifteen hundred dollars a month to cover that.

They are funding something you can't fund anymore and they can't afford to fund with money they otherwise will pay taxes on and you will pay taxes on for the rest of your lives.

Get it in the best possible vehicle.

So when we have some families that they got it together like this, like they're.

The kids talk the par.

You know, they, they try to help each other.

They're pretty sound smart kids and stuff.

It's okay to say, look, are you max funding these?

And make your gifts pointed.

Then if you don't want to give them money to go on vacations and stuff, give them money to fund their retirement accounts because you can't anymore and you're in the distribution phase where all it does is create more taxes.

I think I got lost on the.

Or stuck on lifetime experience ledger.

I mean, I made that up today.

That was, that was a new one.

I like that though.

I think I'm gonna, that's on a.

T shirt if you guys don't know.

We, we have this kind of internal saying at seed when Travis says stuff.

It's, it's.

We, we're gonna put it on a T shirt.

But, but lifetime experience ledger, I, I just think that's cool because again, it's easy to come here and want to get, you know, financial insights that will help you.

And we're definitely going to do that.

But we always kind of forget the life component to this whole thing that you still have to find the balance between excellence, experiencing a life that you feel good about.

And some people want to leave a life and a legacy when they're no longer here.

Some people want to be able, I mean, partner when you even just said when you're a certain age.

When I'm 90, my kids are going to be 60.

That's really hard to think about.

But that's the reality of it.

And as a father, I want to make sure that they're well prepared and their families doing the things And I want to see them experience it through my eyes while I'm alive.

I think there's a lot of people out there, but as they come to this end of this year, celebrating the holidays with their family, they're looking around at their loved ones.

They don't know if they're doing the right things by giving them these 11 insights.

Maybe all 11 don't apply, but I'm sure if you even took just a handful of these and started to evaluate your 401k, the overspend or undue spending stacking of ideas, this is the stuff that gets me excited every day to come back here and do this work.

Because this is real planning that really helps people run a money business, which all of us run.

At the end of the day, let's make sure we're being good stewards of what's passing through our hands so that there's no one else to look around and say the government did it or that person did it.

Take ownership of what's right in front of you.

And if you don't understand it, get in touch with Travis and I head over to ditchthesuits.com shoot us an email.

Let us know what you need help with.

We are here to help inspire you.

So partner, great job.

11 practical insights.

We're coming to the end of the year, folks.

Coming up on year four of Ditch the Suits.

Holy smokes.

As always, thanks for being our guest on Ditch the Suits.

And until next time, thanks for stopping by.