Episode 6: Pocket Change Podcast
Do you have money you don't know what to do with? Check out this episode of the Pocket Change Podcast! Investment champion, Brant Tibbs will walk you through the difference between retirement accounts, ways to invest, and how much we should set aside.
Summary
On this episode of Pocket Change, Brant Tibbs, Leaders Investment Services, LPL, and co-hosts Shea and Mary Helen chat about investment possibilities. Brant shares a basic overview of investment types and gets into the differences between 401K, IRAs, Traditional, and Roth. If you are confused by your options, this is a great episode to learn the basics of investing 101.
"The key to investing is going to be drive and direction because you can have all the drive in the world, but if you don't know the direction you're headed, you can sometimes end up at the wrong destination. Or you can have all the direction in the world, but if you don't have the drive to get there, you're not leaving the parking lot."
Key Takeaways
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The main difference between a 401K and IRA is a 401K, which could also be a 403B, a 401K is going to be at your employer. On the contrary, an IRA quite literally stands for individual retirement account.
- When it comes to Traditional and Roth IRA, you're going to pay taxes either way. Traditional is where you pay taxes when you take money out. With a Roth IRA we don't have to pay taxes when we retire because we pay taxes when we put the money in.
- There is more to investing than money. It is about drive and direction. You need to know where you are going and the purpose behind all of it.
- There is more than one way to reach your goal. We all take a different journey unique to our situation.
If you don't know where to start with your investment journey, Leaders Investment Champions are here to guide you.
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Full Transcript
Shea:
Hey, this is Shea.
Mary Helen:
This is Mary Helen.
Shea:
Welcome to the Pocket Change podcast.
Mary Helen:
Where you’ll learn better ways to spend, save, and invest and take control of your financial journey.
Shea:
Speaking of invest, we've got a good episode today. You know, 55% of Americans say they are behind on their retirement, don't have enough or worried about it - struggling. Now we're going to talk a lot about different numbers. Letters 401K, IRA. What do those mean? Lots of numbers and letters all together. But we're going to find out today on our podcast.
Mary Helen:
And I think the best day to start is today.
Shea:
Yeah, no day but today.
Mary Helen:
That's right. Let's get into it. I'm so excited to introduce our special guest today, Brant Tibbs with Leaders Investment Services. Tell us a little bit about what you do.
Brant Tibbs:
Yeah, absolutely. So I am here with Leaders Investment Services here at the credit union. And what we do is very vast. I think that's a conversation that we could talk a long time on. But ultimately what we do is we help our members figure out their savings goals and maybe if they're in retirement, we have to figure out how to retire or to save for retirement.
Brant Tibbs:
So I would say two common misconceptions that I see on a daily basis are that people think that, number one, either they don't have enough money or they are not equipped, or they're not smart enough to invest. They don't think they can have the conversation or that they're worthy of the conversation. That's a myth that simply is just that. It's a myth. That's not true.
Brant Tibbs:
And we're willing to meet someone wherever they are. The second thing is that individuals think that they don't need any help. They've got it all figured out. And the way I approach that conversation with clients is, I'll ask them, hey, what do you do? You’re a nurse? We were founded upon teachers, and I'll look at them and I'll say, hey, listen, I have no idea how to do your job.
Brant Tibbs:
I don't know how to do it. I know. I know a little bit about teaching, but I can't do your job. And so you're an expert in your field, so trust those that are experts in their fields too. Trust them that know a little bit more. And I think the key to that is having the trust. So that's really what we do.
Brant Tibbs:
We want to build up the trust and guide you whether you think you have all the answers or if you don't. And we really want to find those solutions for you and walk you through that.
Shea:
I think that's the purpose of the podcast, is really show people and guide people of, you know, what can I do? I can talk about money, I can talk about retirement and investing and kind of find the solution for that. And always being open about talking with professionals and those that we trust to help us move forward on our financial journey.
Shea:
So I think that's, you know, exactly what we want to showcase and highlight on our podcast.
Mary Helen:
And I love the mission. I love everything that you just said, I think it nails it because I've met with you before. And one thing that I really appreciated - and I don't know if I've ever told you this, but you broke it down. These concepts that I really had never heard of before, like you broke it down and you explained it in such a way that it didn't
Mary Helen:
make me feel stupid, but also, you did a really good job about making me understand the “why” behind it and why I should invest and why it's important and not just, I guess, the service of it, but again, the mission behind it, which helped me just really like light a fire. And I was like, okay, this is important.
Mary Helen:
It's not just something people say that you should do and then you do and mark it off the checklist like there's a mission behind it. And that's the purpose of it. And that's the point.
Brant Tibbs:
That's awesome. I'm so glad you had that experience. And that's my hope that everyone we meet with has that experience, and I think a lot of folks do. I think there's always something to gain from just talking to others that are willing to listen and they're open to listen and they're open to have the patience and the nurturing ability to explain things.
Brant Tibbs:
So I'm glad you had that experience.
Mary Helen:
Absolutely. So let's breakdown investing. What would you tell someone who's getting started?
Brant Tibbs:
That's a great question. I like to meet someone where they are. But if you're brand new to investing and you've never invested before, I would say first things first, and I've heard this on many different platforms, other TV shows and podcasts.
Shea:
Probably on this podcast.
Brant Tibbs:
Actually heard it on this podcast. I actually heard it twice on this podcast. I heard it from two different episodes with Dave and I heard it with Karen as well. And both of those people said, hey, start an emergency fund. I really cannot overstress the importance of starting an emergency fund. We have to take care of today before we can take care of tomorrow.
Brant Tibbs:
Right? And I would say today being anything that could happen to us today.
Shea:
Life happens.
Brant Tibbs:
Just because it hasn’t, doesn't mean it won't. Right. And so while it's important to be forward thinking and look at the future, we also have to be worried about the today. So to answer your question directly, I would say start an emergency fund. Absolutely. And then after you start your emergency fund, start thinking about the future. So worry about today and then focus on tomorrow.
Brant Tibbs:
Tax time is a great time for that. If we happen to get a tax refund, let's maybe consider what can we do with this? Do we have an emergency fund? Can we add something to our emergency fund?
Shea:
Can I boost my emergency fund?
Brant Tibbs:
Or can we use this money to maybe look forward to the future? Are we going to want to start a 529 for the children? Are we going to want to start an IRA for ourselves? You know, what's out there and what can we do? But investing in the today, investing in the tomorrow.
Shea:
So, Brant, when it comes to retirement, for those who need to be reminded or just don't know yet, what is the difference? There's 401K’s, IRA’s. What's the difference between those? And there's traditional IRA, Roth IRA. So break it down for us.
Brant Tibbs:
401K and IRA. So that's a great question Shea. The main difference between a 401K and IRA is - both are going to be retirement savings accounts, right? But they're going to be meant for retirement. Both are going to be long term savings. But a 401K and an IRA are different in the fact that a 401K, which could also be a 403B, a 401K is going to be at your employer.
Brant Tibbs:
So that's going to be I'm an employee of leader's credit union and I'm going to contribute to this retirement savings account, this retirement account. And so as my employer, on the contrary, an IRA quite literally stands for individual retirement account.
Shea:
Makes sense.
Brant Tibbs:
And so that's where that's your responsibility, right? It's your responsibility to save. It's your responsibility to invest. It's your responsibility to, once you maybe leave a job and have a 401K, to decide what you want to do with those funds and roll them into an IRA and decide how you invest going forward. Right. And so both are retirement accounts, but the main difference is: one, I have at my employer and one I do on my own.
Brant Tibbs:
It's possible to have both a 401K and an IRA at the same time.
Shea:
And then there's two different types of IRAs, right? I think there's a traditional IRA and a Roth IRA.
Brant Tibbs:
Yes, absolutely. So traditional and Roth. Traditional and a Roth are both, I would say, wrappers. And the way those wrappers work, they just shelter you from taxes. Now, both wrappers work a little bit differently, right on the inside of one of these wrappers. We actually pay the taxes before it goes in and we never pay taxes again. In the traditional IRA, we have where we don't pay taxes as the money goes and we actually get to write those taxes off.
Brant Tibbs:
We get to write that money off from our taxes. But whenever it grows, we pull money out. Then we pay taxes at retirement.
Shea:
So traditional, you pay taxes when you pull it out and the Roth is post-taxes, is that right?
Brant Tibbs:
Yes. So I often make the joke: You're going to pay taxes either way. But let's pay it on the front end. That way as we continue to go along, our account grows perhaps. Maybe we get raises as time goes along and our tax bracket goes up. And as that tax bracket continues to go up, we now have the ability to say, hey, I contributed and paid taxes when I was in a lower tax bracket.
Brant Tibbs:
And now that I'm in a higher tax bracket, we're not having to be bogged down with the taxes. I always use the phrase: pay the right amount of taxes. Don't worry about tax liability, just pay the right amount of taxes.
Mary Helen:
I think it's awesome that we're talking about this because you really don't know the difference between everything that you just named until somebody teaches you. And that sounds so simple. You don't know until somebody teaches you. But this is such an important topic and this is something that hopefully everybody has or is going to have sometime in their lifetime in order to best prepare them for the future.
Mary Helen:
But they need to know where to start, and that's what we're talking about today. So what is the key to investing?
Brant Tibbs:
The key to investing is going to be drive and direction because you can have all the drive in the world, but if you don't know the direction you're headed, you can sometimes end up at the wrong destination. Or you can have all the direction in the world, but if you don't have the drive to get there, you're not leaving the parking lot.
Brant Tibbs:
So you've got to have both. You've got to have both. And I think that's where the advisor-client relationship is really important. I can't provide you drive, but I can provide you direction. At the same time, if I'm going to give you direction, I've got to have you provide drive as well. And so I would say drive and direction and understand what your role in that is and how you can continually improve on both.
Shea:
I've got a trailer full of money and you're going to tell me where to go.
Brant Tibbs:
That's exactly right.
Shea:
Could get a semi full instead. Take my pocket change and turn it into retirement.
Brant Tibbs:
Turn it into Dalla’s.
Shea:
That's right. So what I really want to know going right off of that is how can I retire a millionaire?
Brant Tibbs:
Again, I think this goes back to drive and direction, but the key in all of that is consistency, right? Everyone has an idea of...and I think at some point some are going to be later in life than others and some are going to be earlier in life...but they kind of have an idea of where they want to go.
Brant Tibbs:
And I think both are okay, but whatever we decide, we've got to have some consistency in that. We've got to pick an amount and continue to do it. If what you have to save every month is 50 bucks, that's awesome. Save your $50 and continually save. Don't go astray from that. And also don't set a goal that's unrealistic if you've never saved $50 - and I've heard this before -
Brant Tibbs:
If you've never saved $50, don't try to save 500 right out of the gate. Build your way up to that point. So consistency.
Shea:
Yeah. Because $50 over 30, 40 years is going to make a big difference in the long run when it comes to retirement.
Brant Tibbs:
Yeah, absolutely. Absolutely.
Mary Helen:
And one thing that I've also been taught is that you can't tell everybody the dream either. Like investment to an extent can require sacrifice and can require you saying no to certain things or not going out on a weekend or you know what I'm saying? And the goal of this podcast is not to tell you what you can't do, but it's tell you, it's to tell you what could be.
Mary Helen:
But when I say like you can't tell everybody the dream, not everybody's going to understand why you're not spending money in this area. Not everybody is going to understand where you're going and what your direction is. But I think that's just something that we have to remember when we have a goal, no matter what the goal is, financial or not, sometimes you can't tell everybody the dream because they're just not going to understand.
Brant Tibbs:
Yeah, I would say retirement is a lot like life. It's a journey and not everyone understands the destination you're headed to and not everyone has the same way to get there. Some of us are going to drive and some of us are going to fly. Some of us are going to end up on the beach and some of us want to go to a big city.
Brant Tibbs:
You've got to make your retirement destination your own, and it doesn't look the same for everyone. It's unique to that individual. And that's the cool thing about it. Right? Let's meet you where you are and let's get you to your destination the best way possible for you.
Shea:
Take me to the beach. I'm going to be a snowbird when I retire. Hopefully early too.
Brant Tibbs:
So now that we've talked about investing for the now, investing in yourselves now and investing for the future, you know, how exactly can we do that? Let's talk about concrete ways to invest in the future. I typically like to tell people, you know, don't think of money as I'm going to do a set amount per month -
Brant Tibbs:
If you can, that's great - but some people that might be able to contribute $500 a month could be doing more if they're making more or they could be doing less because they don't really have 500 to give. They're really stretching themselves thin. So I tell people to invest as a percentage of your income. I think percentages are important. If you look throughout history, percentages are in everything.
Brant Tibbs:
And so if we're going to be a good steward and shepherd our money, let's look at it as a percentage, for example, 401K’s. I think a magic number we hear with 401K's or 403B's is 3%, right? We always hear 3%. You get 3% match if you give 3% of your salary. So if we invest as a percentage and we make $50,000 and we save 3% of our salary and invest that into a 401K, or maybe we invest that monthly into an IRA, we're investing about 1,500 bucks a year.
Brant Tibbs:
So let's say that you do have a 401K and you're getting a 3% match on top of that as well. So now you're putting in 1,500 bucks and your employer's giving you 1,500 bucks. Congratulations, you just saved $3,000 for your retirement in one year, all by thinking about it as a percentage of your income.
Brant Tibbs:
And so we can take that 3% or 4% or 5%, whatever it is, and we can apply that to any salary. That way it's not only individuals that make above X amount. That goes for anybody.
Mary Helen:
So as we know, tax season is here. It's happening. Some people have already filed their taxes, some people are making their way either now or this week or this next upcoming month. What are some tips that you would share with them about tax season and how to invest once they get those taxes back?
Brant Tibbs:
Yeah, Mary Helen, that's a great question. I am obviously not a tax professional, so I would always consult with your tax professional before making any final decision. But I think what we do a lot of at the Leaders investment services is we help find solutions. So the first thing you need to know is when is the last day to file taxes this year? April 18.
Shea:
Okay. Yeah.
Brant Tibbs:
Very important day, right?
Shea:
Need to get on that.
Brant Tibbs:
So that's a day we need to be reminded of, perhaps. And keep in mind. So I would say Tax day is April 18th this year. Also, we need to look at what our investments are in. Right. Let's look at are we in a IRA that maybe we didn't contribute fully to last year? We only have one chance to contribute to an IRA that is up until the tax day of the next year.
Brant Tibbs:
So if you have any more contributions you want to make to 2022’s IRAs, you've got until April the 18th of this year to do so. So that is also an important day as well. April 18th is an important day as we might have last minute contributions.
Shea:
It's good to keep in mind as people might think it's calendar year, but it's actually tax day that you can contribute up till. So that's a good point.
Brant Tibbs:
I get a lot of folks that will come in and say, I didn't know that. Is it possible to make that contribution? And it is. And to that point, last year's contribution limit for anyone under the age of 50 was $6,000. And thanks to Secure Act 2.0, that was passed in December of last year. This year we can actually contribute $6,500 into our Roth IRA or traditional IRA.
Brant Tibbs:
And so that's also another key tax related question to know about and be thinking about.
Shea:
Yeah, it's a great tip for our listeners and those who are depositing into their IRA’s.
Mary Helen:
I do want to clarify something. So when you say last year and this year, do you mean in 2022 they can contribute? What was the amount that you said?
Brant Tibbs:
Yes. So in 2023, So from January 1st, 2023 until April 16th, tax year of next year, we can actually contribute 6,500 into our Roth. So it's up 500 bucks from what it was previously. Or traditional, either one, any IRA.
Shea:
So tell us about different tax incentives for IRAs for traditional versus Roth.
Brant Tibbs:
Yeah, that's a great question, Shea. So obviously with the Roth IRA, we don't have to pay taxes when we retire because we pay taxes when we put the money in right? So with the traditional IRA, we actually pay taxes when we retire. So a lot of people wonder, well, how does it work if I'm giving $200 a month to a traditional IRA?
Brant Tibbs:
How do I actually get to write that off of my taxes? So when you go to file your taxes, if you have a traditional IRA, that's when you will put that you contributed, we'll say, $3,000 for the year. And so if you made 50 grand, you contributed 3000 to a traditional IRA, but technically you made 47. And so that's how the government views it.
Brant Tibbs:
So you get to write that off and when it comes time to retire now we have to pay the taxes on it then. So a lot of times during this time of the year, people will look at, well, how can I get a tax break, right? How can I save a little bit of money on taxes? And so what they'll do is they'll say, hey, I'm going to put an X amount of dollars, up to $6,500 now, into a traditional IRA, and that'll save me on taxes.
Brant Tibbs:
Well, really, what we like to do is we like to look at how much is that saving you? What's the concrete dollar that it's saving you? So let's say you took $3,000 and you put it in your traditional IRA, and let's say that may have saved you 500 bucks on taxes. So what would have happened if you would have taken the same $3,000 that you put into a traditional IRA and put it into a Roth?
Brant Tibbs:
So you put it into a traditional IRA and you get to write it off on your taxes. But let's say that money grows to 30 grand. Well, you've actually got to save or write off $3,000 on your taxes. But now that same $3,000 is worth 30. And so the taxable liabilities there, you know, may save you in the short term, but it cost you a lot in the long term.
Brant Tibbs:
And so that's definitely one thing to consider. If you're looking for some tax breaks, think about the long term repercussions. And let's look at if it makes sense or not.
Shea:
I think what you mentioned about consistency being one of the keys to investing and really a good tax tip and just thinking about that long term gain, that risk and reward that's there and being sure you either speak to a tax professional or someone that you trust about making the best decision for your taxes. All right. So our last question.
Shea:
We ask this on every podcast. It's a fun question. So we've been talking about a lot of big details with taxes and investing. But if you had some extra pocket change just in your pocket, I mean, I'm not talking full piggy bank, just some spare change. What would you spend it on?
Brant Tibbs:
That's a great question. I'd like to say I'm a big believer in investing in general, and so I'm not going to go with the cliche answer of investing in a specific stock or a mutual fund.
Shea:
Penny stock, you know?
Brant Tibbs:
Not going to go with that answer, but I'm going to say investing in yourself or investing in others around you. I'm a big believer in investing, but take a look around the community and look at a lot of the good organizations here and look at a lot of the people around you. Invest in those people, invest in those communities and invest in yourself.
Brant Tibbs:
Right? Be better and grow both academically. Just invest in yourself and invest in those around you.
Shea:
I think that might be the best answer we've had for our pocket change question. By just investing in the financial, emotional, social, spiritual well-being. I think that's what this podcast is all about. And we want to highlight those different things that we can do in our lives to set ourselves up for success. So we appreciate you sharing those tips today.
Brant Tibbs:
Yeah, absolutely. Appreciate you guys and ladies, for letting me be here. I really appreciate it.
Mary Helen:
Thanks for being on the podcast.
Brant Tibbs:
Absolutely.
Mary Helen:
We hope you all enjoyed today's podcast. Be sure to rate, review, and subscribe.
Shea:
The Pocket Change Podcast has been presented by Leaders Credit Union.
Mary Helen:
Where we power your passion and make lives better.
