#114 Boost Your Retirement Savings: Understanding FERS Contribution Rates

Micah Shilanski  00:06

Tammy, I think we are going live now, which is fantastic, so I’m super excited to be doing another live podcast with you, and I know you’re down at Florida as our hurricane is bearing down on you, so I appreciate you making the time to make this work, 100 mile per hour winds coming in, we have to podcast about Federal Retirement Benefits, let’s get into our priorities. 

Tammy Flanagan  00:28

Come hell of high water, and this is not a joke.

Micah Shilanski  00:32

No lie, well as this is a live broadcast to all of our listeners out there one of the things that we love to do is answer your question so Tammy and I can jam all the time on content, we have never run a short of that, but more important than our content is your question, so make sure you jump in and chat through your questions and submit it publicly or privately, etc, so we can go ahead and address them, Tammy, is that okay?

Tammy Flanagan  00:54

Oh, that’s wonderful, we excel in questions, that’s our forte.

Micah Shilanski  01:01

I love it. Well, Tammy, what we want to talk about a little bit today is we’re in October, we have a couple months left for this year, so a little bit, how do we maximize 2024 how do we maximize our federal retirement? There’s a lot of changes potentially happening next year, right? We have a presidential election, we have tax laws expiring, so there’s a lot of unknown things, but let’s focus down on the knowns, the things that we know that we can help control and we can help, kind of move forward. How does that sound?

Tammy Flanagan  01:28

Absolutely! I thought of something else that I bring up, just, not just the TSP, there’s other ways to save money next year, we got open season coming up.

Micah Shilanski  01:38

Yes, I love that, and boy, Tammy and I, we preach on Open Season, and it’s always a small number of people that want to take advantage of it, which I get it right? It’s a big change, I like my health insurance, it’s probably Blue Cross, Blue Shield, right? Because that’s where most people have it, but you like it, you feel confident, it’s scary making that change to another system, but Tammy, I gotta say, I’ve helped a few people, you’ve helped a lot of people with this transition to a different system, not only do they save money, they still have great health coverage, is that fair?

Tammy Flanagan  02:06

Absolutely, yeah. I mean, I’ve put my family through a lot of guinea pig stuff over the years, so I’ve probably tried seven or eight of the federal health plans, and I have to tell you, none of them are bad. Some of them are better than others, some of them cost more, some of them cost less, but they all have catastrophic protection, they all pay for preventative care with no out of pocket expense, so you know, if you have two plans that are almost the same, why not take the one that’s going to save you $100 a month or more. Sometimes it’s even $400 a month design of people that are in some really expensive plans that they don’t need to be.

Micah Shilanski  02:46

It’s not a permanent decision, right? It’s a 12 month decision, so if you enroll in the new plan and you don’t like it, great news next open season, make a change. They’re not kicking you out of the program, you’re not in some special grandfather program, you can just come back into the one that you were, or if there’s a change of life event.

Tammy Flanagan  03:04

Yeah, Yeah, and I think the other thing people don’t realize, especially if they’ve never changed their health plan, is that there is no pre existing clause in the federal health benefit program, there never was so you could be in the middle of treatment for stage four cancer, and you can still switch plants during open season, and they have to take you, so if you can find a plan that provides more coverage for whatever it is that you’re needing, you can switch plants next year, and starting in January, have coverage for something that your old plan didn’t cover, so yeah, I really do harp on open season because everybody complains because the price is going up the average of 7% Blue Cross is going up between 12 and 14% plan everybody loves, so this is a year to really take a close look at the other plans, because, like I said, there’s national plans that cover you worldwide, just like Blue Cross, and they can, they can be a better deal for you. Another thing that people don’t understand is there’s some restricted plans that are open to a lot of federal employees, such as the Foreign Service Benefit Plan that’s not the State Department that’s DOD, that’s Department of Transportation, there’s a lot of agencies that can join that plan it’s an excellent plan, lot less expensive. Nothing against Blue Cross, and if you sell Blue Cross insurance, yeah, I’m not saying nothing bad about it, but the high option, or the standard option, Blue Cross, which is the high option, it’s expensive because of who’s in it. We have a lot of older retirees who don’t have Medicare. They didn’t sign up for it, they didn’t think they needed it, so now they’re in their 80s, 90s, there’s thousands of them actually, who are over age 100 in the Federal Retirement System, and they’re driving up the price, because when you get into your 80s, it’s not uncommon to suffer two or three chronic illnesses, it’s not uncommon to have some really expensive healthcare, like having a stroke, taking a bad fall that you just don’t recover from as easily when you’re 90 years old, and that’s what’s driving up the cost is not the quality of the plan as much as what it’s costing them to run the plan, so get me off my soapbox.

Micah Shilanski  05:16

Yeah, well boy I’m just going to add to it, and I gotta throw out there the pitch for the high deductible plans as well, they are so underutilized, in my humble opinion, and people, they hear that word high deductible, and they start freaking out right now, Tammy, you look at this from inside the federal system, I look at this from outside the federal system, I actually have a high deductible, which is dramatically higher than the federal high deductible plans, right? But we look at it and say, those high deductibles, we get a little scared on the dollar amount, but it’s to your point, when you start making the switch, it opens up that HSA, House Savings Account, which put money away, tax, pre tax, and use it tax free in the future, it’s not use or lose, which is fabulous, your premium gets reduced, and when I talk to clients about all the time just saying, hey, let’s just take the savings in your premium, like, that’s it, let’s just put that in an HSA account, and if anything catastrophic happens, we got thousands of dollars saved by the end of year one, right? If nothing happens, that’s all your money.

Tammy Flanagan  06:12

Yeah, and not only that, but in the federal plans, which is something else you probably don’t get, you get a rebate of part of that premium that goes into your HSA the tune of, you know, sometimes $150 a month if you’re a married couple, 75 bucks a month if you’re single, so they’re going into that HSA account that you can spend it will grow tax free, you can carry it over, so, yeah, I don’t, I don’t know why people don’t look at those, but I think it’s like you said, it’s the word high deductible

Micah Shilanski  06:42

It is, it scares us. Yeah, yeah.

Tammy Flanagan  06:46

They have catastrophic protection, just like every other federal health plan, so you’ll only hit that limit, and then you pay nothing for 11 years before we qualified for Medicare, sure, and during those years, we did hit the catastrophic cap, and the plan we were in, we only spent 5000 out of pocket because it was on my husband’s side that we hit it, so we both didn’t have to meet it, so we only had him to have to pay the 5000 and everything was 100% including his drugs, all the medications.

Micah Shilanski  07:16

So, I mean, think about that, you get that potentially 150 a month, plus your premium is deducted by several 100 bucks a month, let’s just say conservatively, it’s 200 reduced, right? Which I think is pretty conservative. That’s $350 a month that you could be putting away with HSA times 12, we got four grand stuck away as I have an HSA in year one. Tammy, you do that for 10 years, that’s $40,000 that you have saved plus HSA can grow right on the earnings, and you had one year that was a catastrophic event,okay, so I pulled five grand out, I still got $35,000 plus earnings that are tax free in this account that I get to use in the future, so what this is supposed to be on FERS and TSP, we’re gonna spend the entire time on health insurance, right? This is how important it is.

Tammy Flanagan  08:02

I thought we were saving money, so I thought I’m gonna throw that in because that’s a it’s another way that frees up money to put in your Thrift, that’s a segue into the Thrift.

Micah Shilanski  08:09

You know especially as inflation is super high, right? Groceries are stupid expensive, all of these costs are going up, right? There’s a limit on how much your pay goes up, this is a really neat way you can make a switch and you don’t lose benefits. 

Tammy Flanagan  08:21

I was watching TV for a little bit this morning, trying to watch the hurricane, but they were talking about the shows that you know how when you go to store now, the price of that box of cereal might be the same, but there’s less cereal in it. Gallon of ice cream is the longer gallon of ice cream, it’s like three quarters of a gallon. Well, the same thing happens with some of the health plans, the price may not go up as much, however, look at the deductible, it may have gone up, look at how much you’re going to pay out of pocket, that may have gone up, so remember, there’s several things that are gaging what you’re going to spend on health care is not just the premium, it’s your out of pocket expenses, it’s what features that plan has, what does it cover? If you’re someone who needs hearing aids, some plans don’t cover it at all, some plants will give you $4,000 every three years, so there’s, there’s specifics you got to look at.

Micah Shilanski  09:14

100%, yeah. What are your needs, right? Baskin, you know, insurance is like Baskin Robbins, you got 31 different flavors, right? You’ve got to find the flavor that’s right for you, not just think every vanilla is going to be the same. 

Tammy Flanagan  09:27

Right, but it’s really hard when I do in the Baskin and Robins because I got to taste like five or six of them, I can’t make up my mind, so what you got to do is narrow down your choices, say I don’t want that free one today, I don’t want the soybean, I just want the chocolate or vanilla, and so that’s what you really got to do to make it easier to choose which health plan you got to narrow it down to your top three then start doing the comparison.

Micah Shilanski  09:52

You know, before we switch gears, I did have a we did a couple questions came in our comments, one from TC, it says, is it worth the switch to a high deductible close to retirement, or is it too late at that point?

Tammy Flanagan  10:04

Well, my husband switched to a high deductible plan and retired the next year, because he retired at a relatively young age, so we were able to stay in that high deductible plan until returned 65 so we were in it for 11 years. So it just depends on how close you are to Medicare age, once you have Medicare you can no longer contribute to the HSA, if you have any health insurance, if you have TRICARE, if you’re under your spouse’s private sector plan, you can’t contribute to the HSA, you have to just have the Federal Employees Health Benefit Plan, it has to be a high deductible plan to contribute to an HSA.

Micah Shilanski  10:41

And not what we think is a high deductible, it has to be an HSA eligible plan. I know in the private sector, that’s some of the issues that we have, is there’s some high deductible plans, but they’re not actually eligible for HSA contributions, so the federal sector is really good about high deductible plans do qualify, but if you ever have to switch out for any reason, that’s something to watch out for.

Tammy Flanagan  11:01

That’s right, that’s exactly right, yep, and you can use that money even if you’re not in a high deductible plan, so once we went under Medicare, we had $14,000 sitting in our HSA, so I’m now using that to pay my Part B premiums with tax free dollars, who gets to do that?

Micah Shilanski  11:18

But you do because you had good planning.

Tammy Flanagan  11:21

That’s right, helps to study this stuff, but I don’t think anybody wants to spend as much time studying it as you and I do.

Micah Shilanski  11:30

That’s fair, that’s fair. Well, Tammy, let’s jump into this just a little bit. I want to spend this a little bit of time on some some questions that we get from our listeners talking about their FERS contributions, then I’d like to focus a little bit on the TSP, some things we can do, and then talk about maybe some other changes we should be thinking about this year and next, is that okay?

Tammy Flanagan  11:49

Sounds like a plan.

Micah Shilanski  11:50

Perfect! So your pension, right? You know, you have three parts to your federal benefits, from a retirement perspective, which are fantastic, Retirement Income perspective, your pension, your TSP, and you have Social Security. So the FERS pension, it’s really cool, because it’s defined benefit, the longer you work, the more of a pension you’re going to get, it’s your salary, it’s your high three times a percent, and that’s the formula we’re going to the federal government put together to determine how much you get, but Tammy, how much do federal employees pay in order to get this pension?

Tammy Flanagan  12:19

Federal employees know this because they look at their paycheck and their little line there that says FERS, so that’s your contribution towards that future pension benefit. For most federal employees, it’s .8% so it’s a very small contribution, which I think a lot of employees equate to a very small benefit, and a lot of times they’re very surprised at the value of that benefit, considering they only put in less than 1%, so the agency contributes the lion’s share of the money that needs to be in there to fund FERS, but Congress got a little sticky in 2012 they were realizing that the agencies needed money every year, the appropriations bills eventually get passed, and we’re still waiting for that to happen, but so Congress decided they were going to shift some of the burden to pay for FERS from the agency budget to the employee paycheck, and they couldn’t do it to current employees, because there would have been a big fuss, right? The lobbyists would have been up on Capitol Hill in no time at all, so they said, we’re going to make this for people we hire next year, so this was in 2012 so everybody hired for the first time in 2013 they’re paying 3.1% into FERS, as opposed to the .8% and that went through so easily and so smoothly that they did it again, and Congress said, if you’re hired in 2014 you got to pay 4.4% into FERS, and that’s where we stand now, so anybody coming into federal service, they’re contributing 4.4% into their FERS benefit, 6.2% towards FICA tax, and then hopefully 5% they still have left in their bank account to put into their TSP account or more, but we at least want them to put in 5% no matter what, because they got to get the match that matches pretty money you don’t want to leave on the table. I feel sorry for brand new hires that are coming in maybe to GS-7 or 9, that’s really hard to pay rent, especially no matter who you are, I think rent prices are outrageous, so you got to get a roommate. 

Micah Shilanski  14:31

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Micah Shilanski  15:27

Yeah, those are important, though, I mean, what you’re paying for is not only your pension, which is a huge part of it, but but as Tammy and I you and I just talked about, you’re paying for that health insurance for life because you retire with the eligibility of an immediate pension, and you’ve been an FEHB for at least five years prior to retirement, that pension allows you to keep health insurance into retirement, so it is expensive, is it worth it? Probably, even at that 4.4% right, there’s still, it’s still advantageous to have, and again, states don’t really have this pension anymore, it is still pretty unique to the federal government now. 

Tammy Flanagan  15:57

Yeah, it’s really, it is valuable, and if you look at how much a FERS retirement benefit is, and then you tried to figure out, how much more would I have to have saved to create that kind of income, you’re happy to pay that because, like, if your pension is 20,000 a year, you know, even just a rough off the cuff calculation, wouldn’t you need to have at least 500,000 saved to equal that for 20,000 a year.

Micah Shilanski  16:23

Pretty close to 400 grand a quick math, yeah, 400 grand is what you need to adjust to a $20,000 pension, so that’s a lot, and it’s a pension that goes up tremendously.

Tammy Flanagan  16:41

And that’s not a guaranteed lifetime benefit. 

Tammy Flanagan  16:42

I was about to say, yeah, yeah, that G word which makes it even harder, right, guaranteed, yes ma’am.

Tammy Flanagan  16:44

Right, right backed by the full faith and credit of the US government which you can’t say that about your own savings account.

Micah Shilanski  16:46

So we got your FERS contribution, now it’s good to know what it is, right, because we want us to make educated and informed decisions, really important, but Tammy, to your point, we can’t control that, we can’t say, hey, instead of paying 4% I want to pay 10% into my FERS in order to get a higher pension, it doesn’t work that way. That’s why it’s a defined benefit, so the government defines what your benefit is, but on the other side, we have our defined contribution, which is this is now where we have some flexibility, and we can fund our TSP, but you got to be careful, because sometimes Tammy, you and I run into few mistakes, a few opportunities people miss, maybe on the TSP funding. So one of the things is, we always recommend, and we don’t give investment advice from the platform, because everyone is unique, the one thing we will say is everybody should be putting at least 5% into the TSP, because you double your money, you get that 5% match under FERS, which is wonderful, it’s common sense, yes, ma’am, but Tammy and I, right before this, you and I, were chatting about sometimes mistakes that we see, which is, people get so excited about the TSP, they try to, we call front end, load it, they’re like, hey, much money as I can to the TSP in the first six months out of the year, now, why would we want to do this? Well, that’s it says, hey, the sooner I get my money to work in the TSP, the more it has time to grow, so okay, I can get behind that the concept, but we’re missing a pretty important piece here, aren’t we?

Tammy Flanagan  18:02

Oh, yeah, I had a woman that’s been doing this for years because she liked the idea that towards the end of the year she had all this extra money in her paycheck. She was so proud of the fact that she found loaded her thrift until I told her she’s missing out on those last four months of the year, because unlike other plans, the TSP is matched bi weekly, so you put in 1% the government puts in 1%, you put in 2, they put in 2, you put in 3, they put in 3, you put in 4, they’ll put in three and a half, and then if you put in 5, they’ll put in 4% and of course, everybody gets the 1% automatic, so by the time you put in 5% you’re getting 5% from your payroll office going into that TSP account as well, so like you pointed out, like that’s 100% return on your investment, but you got to do it every two weeks, you can’t say, I’m going to put 20,500 in January to June, you got to do it consistently throughout the year.

Micah Shilanski  19:05

Now from a retirement perspective, from the lens, I look at it, Tammy, and I know you do as well. I actually like level funding, because it gets us on level paychecks, and when we have consistent income, we have consistent spending, it makes retirement planning a lot smoother, so I really don’t consider this a downside, but where I run into it too, especially people up here in Alaska, maybe they came from the oil sector, then they went to work in federal service, in an oil sector, the match in private sector, the match can work differently, where it doesn’t matter when you put the money in, as long as you put in enough you get the full annual match, so sometimes, again, people with a yeah, they don’t care when it comes in, which that’s just not the case with federal employees, it does matter when it comes in.

Tammy Flanagan  19:43

But it’s a bi weekly match, and it’s hard to realize that until you actually sit down and explain it to somebody, because I’ve seen this happen a lot, and I think it’s a fairly common thing for some people to not understand this, so that’s really important, it’ll make you some money right off the bat.

Micah Shilanski  20:01

Another thing to really think in mind, right? Is one of the questions that we always get, which I think it’s a good question to talk about, because people get sensitive about this, and it’s like, hey, Micah, when I retire, I want to be debt free, I want to have my mortgage paid off, it’s, I’m going to free up 2000 bucks a month if I pay my mortgage off, this is going to be great, so they come into the concept of saying, hey, I got a $400,000 mortgage, and I have 400,000 in my TSP. I’m gonna pull out my letter from the TSP, I’m gonna pay off my house, and I’m gonna free up that 2000, 25 hunderd dollar a month mortgage payment, whatever it is, but it doesn’t kind of work out that way, does it Tammy?

Tammy Flanagan  20:37

No, and I’ve seen the worst than that, I had somebody wanting to take out a half a million from their thrift they were going to come to all their kids student loans, pay those off, pay off their mortgage, totally, everybody’s debt free, and whole family, but right now they got to, this is all pre tax money, so next April, they got to pay the piper, and you know, the reason why we’re saving pre tax money is to lower our taxable income, or we think we’re going to have lower income in retirement, so we’ll pay a lower tax rate, and that’s not true when you pull out a half a million dollars in one year, because now you’ve probably pushed yourself into the highest tax bracket for some of that money, in much higher than you were while working for the bottom so yeah, you’re kind of defeating the purpose of putting away money pre tax. 

Micah Shilanski  21:24

Yeah, if you’re single, you’re definitely in the highest tax bracket, if you’re married, filing joint, you’re in the second highest tax bracket, you’re just probably right below that, potentially in your income, so, Tammy, you just went from paying 20-22% taxes, to 32% taxes, that’s like 50% more, by the way, folks, right? I mean, that’s a big increase in the dollar amount we’re going to give to IRS, so we really got to be thinking about the tax planning as we’re saving so as you’re making your contributions this year, still not too late to change it was being with a new client today, and they’re not max funding their TSP, and they just got on autopilot, Tammy. They’ve put it for $1 amount, they just set up with that dollar amount, life happens, all this other stuff, they had a bunch of kids, all these other things happen, which are beautiful, but then just never increased the TSP contribution said, well, great news, right? It’s only October, we still got a couple pay periods left, and so we’re going to start catching up for this year, but the next year, in January, we already got it marked on the calendar, we need to go back to that level payments, so we’re getting all of that 26 pay periods funding in the TSP.

Tammy Flanagan  22:24

Yeah, sometimes that can be overwhelming, like when somebody’s putting in $500 bi weekly, and now all of a sudden you’re telling them, let’s put in 1100 bi weekly, right? So that can be overwhelming, so even that go up a little bit, you know, go up $100 and then keep increasing that every six months, or every four months till you get there, because I think sometimes we just throw our hands up and say, oh, I can’t do that, because I can’t put food on the table, or we got to eat hot dogs for the rest of the year, so maybe you have to make it more manageable, sometimes it takes that.

Micah Shilanski  22:57

So I love studying money psychology, right? Because money is super emotional, as you work with people, we find it out, you know, if you ever had to deal with inheritance and family, you know money’s emotional, talk about budget with your spouse, you know money’s emotional, so I love studying the psychology aspect of it, Tammy and so I picked up a tip a long time ago from a money psychologist, and his comment was, we can handle a 10% change in our spending every 90 days, so what that means to me is just saying, okay, real quick, if you’re putting in 500 bucks into your TSP a month, great, go to 1100 I’m sorry, a paper if you go to 1100 that’s huge, what if you just increase the 10%, just another extra 50 bucks right from 500 to 550 and then wait another 90 days, let’s see how that settles out, then I love what you said. Let’s just increase it again, little baby steps to get the right place.

Tammy Flanagan  23:48

Yeah, but you got to keep striving, you hired. The same thing happens with the way some employees are invested. They started off 30 years ago, putting whatever it was, you know, 60% in the C fund, 40% in the G fund, and that’s just what they did the whole way through which may not be bad, but they’ve never gone back to rebalance the account through highs and lows, it could be a good thing, but then you have those folks that are 100% G fund the whole way, never understanding volatility or understanding how to manage an investment, and they’re thinking, oh, 100% G fund, I should be able to retire quite nicely, and they realize, when they pull that money out of the thrift and add it to their FERS benefit and maybe their Social Security is still not enough to retire at 57, and they may have to end up working till 62 to make up for the fact they didn’t have the investment returns they might have had, had they been more balanced, better, much better invested.

Micah Shilanski  24:45

Yeah. Well, another thing to think about on this note too, is something we’re helping our clients out right now, and I love to do in the fall, Tammy, you and I talked about this a bunch, is Roth conversions. We will do millions of dollars, millions of dollars, by 10s of millions of dollars, Roth conversions this year alone with our clients, and no, we’re not trying to balance the national debt, right? That’s not our goal. Our goal is to lower our clients taxes over the next 10 years, and so in two years, well less than that, now our current tax laws expire in 2026 who knows what the new administration is going to do, right? Which way taxes are going to go? But we got to be thinking about that, so again, we’re still in October, you can still increase your funding to your TSP, you can put Roth money inside of TSP, and that’s most appropriate, you could look at Roth conversions, which is taking pre tax money, now you can’t do this inside of the TSP unfortunately, this has to be an IRA account, potentially a 401K account, and you can convert that money from pre-tax into a Roth, pro and a con, when we do this, we got to pay taxes on the money, that’s the downside. If you’re under 59 and a half, that means you probably can’t have the taxes withheld, otherwise you’re going to get your hand slapped with a penalty, so that means we got to have money to pay the taxes, but again, the way I’m looking at it, if my taxes are here today and in two years, my taxes go up 20% which they more than likely will, under the current law, would I rather pay taxes here today or here tomorrow, well, if it’s here today, should we be doing more of those Roth conversions and again, well, that’s not a direct tax that’s not saving more money towards retirement, per se, if I get less taxes, that’s having more money in retirement, which is ultimately what we’re solving for.

Tammy Flanagan  26:21

Yeah, that’s a good suggestion. It’s something we’ve been doing for a few years now t oo. I wish we would have started it earlier, so don’t do what we did, you know, start it now, when you have the chance to do it, and like you said, if you can get the tax money somewhere else, then you can put that whole amount into the IRA, which is even better, got to be strategic.

Micah Shilanski  26:42

Boy, Tammy, I don’t think we got through half the content again, but I think we covered a lot of things, which is absolutely phenomenal, I want to do 30 minutes, we want to be respectful of everyone’s time. We did have another comment come in from my dog smells, that’s a great username, and they do have, they said they would have done a high deductible plan years ago, but they’re super happy with Blue Cross, Blue Shield focus, and I gotta say, a lot of people really like Blue Cross, Blue Shield that we’re not dogging on, even though your dog smells, we’re not dogging on Blue Cross, right? It’s a good plan.

Tammy Flanagan  27:10

I think focus, well I know that’s the least expensive of the Blue Crossplans, and I’m happen to have the 2025 ret sheet in front of me. Focus, here we go, Blue Cross Focus for self only, it’s 128 a month next year, for self and family, it’s 303, that’s pretty cheap for family plans.

Micah Shilanski  27:34

That’s really cheap for family plan, nice.

Tammy Flanagan  27:36

And for two people 275, so yeah ou can’t beat the price, what you’re going to find with some of the lower cost plans, like the value plans, the focus plan, some of the lower option plans, you’ll have more out of pocket expenses, but if you’re still in good health, you don’t have any chronic illnesses, you’re treating any big surgeries coming up, stay in it for a few years, until something goes wrong, then you can switch plans, but yes, take advantage of it, while you can it’s still Blue Cross, you still gonna go see those preferred providers, which are everywhere in the world, overseas, so yeah, definitely something to look at. 

Micah Shilanski  28:13

Perfect, Tammy, we had one more question come in, TC writes in and they want to know if we can go over how a back door Roth IRA works. I love this concept, so this is the aspect that if you make quote, too much money, by the way, it’s like that song, right? I’ve never seen too much money theoretically, it might be there, but make too much money, the IRS says you cannot put money directly into a Roth IRA, you’re prohibited, so back in 2010 is where the law changed that allowed back door Roth IRAs, and the concept with it is, let’s just say I want to make a $7,000 contribution, well, I can’t put that in my Roth IRA, but I can put that in my traditional IRA, but because my income is too high, it’s called a non deductible contribution against reported on form 8606 on your taxes, it’s a $7,000 non deductible contribution. Well, if the only thing I have is that IRA was 7000 in excess of that money in 30 seconds later, I converted to a Roth IRA, and now I got $7,000 going in a Roth IRA, so that’s why it’s called a back door Roth IRA contribution, you put it as a non deductible IRA, it’s been converted things to watch out for, let’s say I have another IRA with any money in it that’s pre-tax, let’s say I had $100,000 in a pre-tax IRA account, and I put $7,000 in after tax, now what happens is, now we have to have proportionate distributions. The math gets a little harder, so before you pull the trugger on that talk with somebody who understands how this works, go through the math and still make sure it makes sense. If you don’t have any other IRAs, what’s kind of a no brainer, great way to stick money inside of a Roth IRA.

Tammy Flanagan  29:52

Yeah, yeah. This sounds underhanded under a Roth, but it’s totally legit.

Micah Shilanski  29:57

 It’s 100%, we only recommend legal things, by the way that needs to be mentioned, everything is above board, it’s 100% legal, and it allowed us again in 2010 to be able to start that so Tammy, thank you so much for making time again, come hell or high water, you’re putting it in there, so thank you for making time to join us today on the podcast, Pray for you guys and everyone down in Florida as this hurricane comes through, and hope it’s all right.

Tammy Flanagan  30:20

Its going to be a big one, but I appreciate the diversion I love to talk about benefits and love you doing this with you because we can balance our bennies and bucks.

Micah Shilanski  30:31

I love it, it’s fantastic. Tammy thank you so much to all of our listeners, till next time, Happy Planning!