Dave Cain: Welcome to unsuitable on Rea Radio, the award-winning financial services and business advisory podcast that challenges your old school business practices in their traditional business suit culture. Our guests are industry professionals and experts who will challenge you to think beyond the suit and tie, while offering you meaningful modern solutions to help enhance your company’s growth. I’m your host Dave Cain.
We hear a lot of talk about the different generations of people today. But one thing is certain, each generation is unique. That refers to their financial and tax goals as well as their social goals. Cindy Kula, a tax planning specialist in Rea’s Cleveland office is here with us again on unsuitable to talk about tax planning strategies for different generations in life. Financial and tax planning strategies are essential, particularly among the younger generations. Welcome back to unsuitable, Cindy.
Cindy Kula: Thanks, Dave.
Dave: The last time we got together was shortly after the Tax Act had passed. You remember that?
Cindy: I remember that.
Dave: That was a great conversation. You gave a great presentation, and we talked on that show about winners and losers of the new Tax Act. You said you’re going to come back because you’re going to keep track of who the winners and losers are. You remember that conversation?
Cindy: I did.
Dave: Let’s talk about the winners.
Cindy: Okay.
Dave: And then we’ll talk about the losers. Who won?
Cindy: Who won? Actually, on the individual side, it’s going to be the families with children under 17. I just did a return with someone that has two children, and to me makes quite a bit of money, let’s say 250, 300,000. Next year, if nothing changes and his 17 incomes is exactly the same, he’s going to have $10,000 of more of a refund. To me, he wins.
Dave: Winner, winner, winner.
Cindy: He wins. And now I have elderly people who don’t have that same benefit who were having some additional, they paid their state and local taxes, or they had more of a itemized deductions and because of limitations, they’re not going to come out ahead as much as some other people are. So, we’re going to see people who just barely made the amount for the new limits for standard deductions of you know the 12,000 and the 24,000. Some of those might come out ahead, but basically the winners are the people that have the pass-through entity deduction, having … . LLCS, partnerships, even the sole practitioner, the S-corpse, the self-employed business owners. So, those are going to be winners too.
But overall, nobody was, to me when I ran the projections, got impacted a great deal like they didn’t … It’s not going to cost them an additional 10,000. But there are savings out there. So, overall, I think people are saving.
Dave: Right. And there were some neutral things and no impact.
Cindy: I agree. Yeah. A couple hundred dollars here or there.
Dave: Yeah. So, as a seasoned professional strategy, certified financial planners, CPA, big picture, you’re pretty happy with where the tax law ended up or?
Cindy: I know I got hurt, but, yeah, I guess overall, it’s probably something that-
Dave: It’s tough to be wealthy, isn’t it?
Cindy: Yeah, right. Just being single is the problem, and not getting the $24,000 itemized standard deduction. But no, I think overall, I think it’s going to be a win for people. The only thing people are going to have to realize is that their withholdings may not be properly … Because they did adjust withholding tables. Hopefully, they’re going to make sure they’re monitoring their withholdings.
Dave: Just going to take a little bit of time for this thing to level off but again, kind of what you preach to to the Rea team is planning now more than ever is very, very critical. No matter what stage of life you’re in.
Cindy: Correct.
Dave: And again, I first saw you present at a seminar on generational tax planning for the Ohio Society CPAs, and I was very impressed with your presentation. We’d promised each other we were going to get back together, do another podcast on generational tax planning. And so, we have a lot of material today and we’re not going to be able to cover it all. So, you’re going to have to come down here again. Have to make that long drive down route 71.
Cindy: No, you make it easy, Dave.
Dave: What do you listen to on the way from Cleveland to Columbus?
Cindy: Wow. I’m on the phone.
Dave: You’re on the phone. Talking to clients.
Cindy: Yeah.
Dave: Okay. Good. Hands free, voice activating?
Cindy: Hands free. Yes.
Dave: Can’t violate-
Cindy: Bluetooth, right.
Dave: There you go. Perfect. Let’s talk about generational tax planning. One of the things you mentioned to me was, children learn what they live. Let’s talk about maybe the younger listeners on the podcast, and talk about some tax planning or financial planning. It’s just not tax planning, its financial planning.
Cindy: True. Yeah. I had this plaque when my kids were little about children learn what they live. I think it’s true in all aspects of our life. You’re going to see people who are struggling, their parents struggled, and they continue to struggle. They just haven’t set the habits that they need to set. And there are other people who want to dig themselves out. But basically, we learn what we live, and that goes with financial habits too.
If our parents saved and they’ve accumulated some wealth, we have to realize that they did that by saving, and children learn that. It goes back to even just buying things from the grocery store. Kids want, want, want, but maybe what you should say is compare the different items on the cereal aisle and say, “Hey, this is the Kellogg’s brand, but let’s try the other brand and see if there’s any difference.” You’re teaching them how to save even pennies that accumulate.
I also think that having them do things like even recycling, if there’s a way to recycle aluminum cans still. I know my father taught my son’s that, and it was just something that I think that they learned. That’s why even as we go and we get our first job, we should realize that there’s an opportunity to pay ourselves first. And we have to pay ourselves first. Because if we don’t, we won’t build up any wealth. I don’t mean just go ahead and take out money and pay yourself. I mean, put it away. Out it into a savings account, put into your 401(k), maximize that as much as you can before you pay your bills.
Dave: Let’s go back to, and as you were talking about that, I was trying to think of one of the foundational issues of all generations and that’s budgeting. The household budget. That thing has seemed to gone haywire. As we both talk to our clients, there doesn’t seem to be a lot of discussion about well, how’s that budget working out?
Cindy: Budgeting is a habit. I know that I am not a budgeter. I have never lived by a budget in my life, okay? Now, my younger sister is totally opposite of me. She has to have money set aside for every purpose. So, she does budget. I have taught clients on how we sat down and saw what their monthly expenses were, and when they realized they were spending money for things like cable that were above and beyond what they could have saved, they realized they could call up the cable company and they can cut their bill down. Or they may not want the extra channels that they never watch. Some people rely on their cell phone all the time, they don’t need a landline anymore. These are things you can save monthly. So, budgeting gives you a perspective of how you can save money.
Dave: Sure. There you have it, folks. We have a CFP, CPA experienced consultant, and she doesn’t work by a budget. But in her mind, she knows what she spent on, I guarantee you. I just guarantee you. But let’s start with 401(k)’s, you talked about savings.
Cindy: Exactly.
Dave: Throughout our careers, we have both run across our clients, no matter what their age, some have started early, others have not. Give us according to Cindy, what’s your 401(k) must rule?
Cindy: Do it as early.
Dave: Do it early?
Cindy: Even if it’s a child who had his first job, and they can’t get covered by a 401(k), grandparents and parents can step in and perhaps put away into an IRA or even a Roth IRA. I think that that shows them it was important enough to the parents or the grandparent, and the kid’s going to realize that. I think that overall, I think we have to start as early as possible. There is the difference in rules, is if you start earlier, you’re going to have much more wealth than if you waited 15, 20 years. That’s the key, is to start as early as possible.
Dave: These retirement plans we sometimes get away from the benefits are those, but tax deferred compounding of interest, it doesn’t get much better than that.
Cindy: No, it doesn’t.
Dave: You want to talk about an investment, so I think there’s one that you can take off pretty quickly no matter what generation. Look at those retirement accounts pretty quickly.
Cindy: Exactly.
Dave: What’s your opinion on the educational savings accounts, 529’s. Are you seeing more, less, what’s your recommendations in that area?
Cindy: I actually wish I had those kind of opportunities when my sons were younger, but they should do it. Any parent that has a child, and it’s a win-win situation, especially since in Ohio college Advantage Plan now gives you the $4,000 annual deduction per beneficiary per year. So, if I had a child that was even going to a private elementary school, private high school, why not get a $4,000 Ohio deduction by putting it into a 529 Ohio Colleges Advantage fund, and get the deduction, take it out and pay the tuition. It’s a win-win. So, it doesn’t make sense not to take advantage of it.
Dave: Tax deferred, compound interest.
Cindy: It is tax deferred, you get a tax deduction at the state wise. But once again, it has to be an Ohio Plan. I know that grandparents want to give grandchildren things, but maybe giving $1,000 into the 529 plan makes more sense.
Dave: Versus the monster truck remote control car.
Cindy: Yeah, or the doll house and everything else.
Dave: Yeah. American Girl doll or whatever.
Cindy: Once again, children learn what they live.
Dave: There you go. So, health savings accounts is another area that we see on the horizon that’s gaining some steam. What’s your opinion on the health savings accounts?
Cindy: If an employee is eligible for a health savings account, because their plan is a high deductible plan, they should definitely take advantage of it. The younger you are, first of all, young people don’t go to doctors. No, they don’t even take advantage of the annual physicals preventive exams. But this is a way once again, to pay yourself first. I look at it as a medical IRA. And eventually later, when I turn 65, I’m going to be able to take out even distributions tax free to pay my Medicare premiums. So, it makes sense to me to eventually use it down the road. May not be that even families can use it for orthodontia. They can use it for a lot of other things. So, it just makes sense that we think of it as the medical IRA that can be used sooner rather than later.
Dave: Sure. While we’re on that topic, let’s talk about health in medical insurance. Always a big topic no matter where you’re at, what you’re doing, but how are each generation … What are some thoughts that you have, again, regardless of generation about taking advantage of opportunities for health insurance cost?
Cindy: It’s getting tough out there. I know that employers are even faced with rising cost for employee health insurance. I think that overall, there are options out there. Once again, you have to make sure that when they first come out of college, kids are usually covered under the parents plans now until 27. So, it’s kind of an easy thing that they don’t go ahead and use that money that … And they might even get money from their employer for not having … to get health insurance. But as we get older, health insurance is going to cost more. Most of the employers now allow us to take a pre-tax, even our contribution to the plan. So, it makes sense to do it. As we age though, Medicare premiums are costly. As a retiree, the people who have accumulated wealth are paying more for their Medicare premiums because it’s all AGI-based.
Dave: Again, as a experienced certified financial planner that you are, I want to throw kind of a zinger question. You know I didn’t talk, so I didn’t give … I’m not following your outline at all, am I? But let me throw one at you. Which generation is the toughest in your opinion to financial plan for? … We can go commercial and come back and you can-
Cindy: No, that’s fine. Actually, each generation has their basket of people if you want to call them that, or group of people that have their unique things they have to overcome. Now you have your younger generation, probably the 30, 40-year-olds that are starting out with the family and they know they have a house to buy. Maybe they’re not in their career exactly where they want to be. So, those are challenging because they want more than they can actually get at the present time. I also have boomers facing retirement that just never saved.
Dave: They can’t do it.
Cindy: They can’t do it, and they want to. They really too. Whether it’s the hectic work life, and they want to know they that by 66 or 65 whatever their retirement age, they can do it and enjoy it. If they haven’t prepared for it, they’re not going to be able to. But I also have the older generation who they did save and now they’re facing higher premiums for Medicare because they saved, and they’re penalized because their adjusted gross income is too high. So, there are opportunities to plan for that section of the population. But once again, the difficulty is the five, six years before retirement, before full retirement, you need to plan. It has to be a multiyear planning approach that you do have to sit down with an advisor and go through those five, six years and where you’re going to be at the age of 66.
Dave: Well, the benefit of sitting down with you as an advisor is, you can set some parameters, some goals, and then you can kind of be my conscious and kick my tail and hold me accountable and asked me why I didn’t do that and, and so forth. So again, I think the benefit of sitting down with advisors twofold. You get the benefit of years of knowledge and experience of yourself and in the wide array of people you’ve worked with, and plus the accountability that you bring to the table.
Cindy: Right. And I think clients have given me sources of examples to use on how we can turn things around. You can turn someone who has nothing to save up and facing Section 8 housing, but realize that it on a budget you can. You can make yourself live your golden years in an affordable lifestyle that is, and you’re still going to be happy.
Dave: I think you hit one of our key takeaways is we need to understand the uniqueness of each generation.
Cindy: Correct.
Dave: And there’s not a cookie cutter approach for either one, but we need to understand that.
Cindy: No. Because not everybody saved the way they were supposed to. And maybe some people save too much. That is a possibility to save too much too. That’s where people are realizing that-
Dave: I’d like to have that problem.
Cindy: I know. But you get to the point where we are paying yourself first, and people who are pretty diligent about doing that are now facing retirement with maybe too much money, because now they don’t know how to spend it. Maybe they’d never did anything because they worked all their life, and now they don’t know how to face retirement and enjoy things.
Dave: Let’s talk about a life-changing event that happens virtually in every household, every individual. Again, whether it’s a death, a separation or a divorce in marriage, new child, but it’s a chance to reboot I guess. I think I’ve heard you preach that as, “Hey, when there’s a life changing event, it’s time to reboot the thing.”
Cindy: Yeah, right. That’s why sometimes people don’t reboot, and we’re facing a generation, actually the boomers, and whether the divorce rate was so high or whatever, actually women don’t know how to prepare for that. When something does happen, especially in their later lives, a divorce or whatever, they’re not ready. They don’t know how to handle their finances. So, there’s key things that you should look for and be attuned to your finances. Whether you’re a male, female, a child, a young kid, you just be attuned to your finances, so you know where you are. And, you can access resources that can make you on the right track if something happens that are … Whether it’s the death of a spouse who’s always has all the passwords to the computer, what do you do?
Dave: There you go, yeah.
Cindy: Where are they locked up? Can you get someone to break into the computer and access those passwords? These are all key things, especially now.
Dave: That’s, again, a real key I think that you bring out is that, we started talking about tax planning, it’s really not tax planning, it’s financial planning, which includes tax planning among other things. Sometimes we let tax planning drive the conversation, but it’s financial planning.
In the time we have left, Cindy, let’s talk about the businesses. That’s a whole different topic, and we only have a few minutes. But what are some key planning techniques that you can throw down in the next few minutes regarding business planning?
Cindy: Businesses have their own unique thing. Because as they work their way into a business that is substantial, part of their assets and portfolio, they have to realize that there is going to be a time where it’s not going to be there’s anymore, and it’s in transitioning their ownership in that business. It’s difficult. I think that because it’s a part of their life and they’re the ones that built it up and they’re the ones that accumulated it. They also have to realize that they can’t control it when they’re dead. Okay? They just cannot control it.
So, it’s really more of us psychological thing, and each situation’s different. There are successful businesses who have transferred for three to four generation, and that’s great. But not all businesses can do that. I think that what business owners have to realize is that even if they have children, some may be in the business, some may not be in the business and some may just have their own aspirations of doing something different, and we just have to respect that. The key is to communicate during the whole process. Not communicate when you’re 70 and want to get out, it’s some communication process that you should begin when you’re in the 50s and 60s, especially if you have a family member that wants to come in. Or if it’s just transitioning to the employees, there’s opportunities out there. You have to determine who’s going to be in charge.
Dave: What I really admire about your skill level is that with your experience, you can spot a situation and begin to build a plan that meets the individual’s ego or their financial situation, no matter what the generation is. That’s a unique talent, and I commend you on that for being famous with your clients and within Rea & Associates.
Cindy: Yeah. Business owners are so special. They really do have their own needs.
Dave: They hold a special place in your heart, I can tell.
Cindy: Well, they do. I think that it’s overall. They’ve worked so hard to build up something and they’re too busy doing that, that they really don’t take the time to plan.
Dave: Our guest today has been Cindy Kula, talking about generational tax planning and strategies. Cindy is located in Rea & Associates office in Independence, and very, very famous. You can tell. If we need to get in touch with her, we can call Rea & Associates, and we’ll put you in touch with her for a lively conversation. So, thanks again for joining us on unsuitable today, Cindy.
Cindy: Thanks, Dave.
Dave: I already knew there were generational considerations to study. I just never knew the extent specific generational concerns related to tax planning and financial wellness. Very interesting, and thanks for sharing your insight with us today.
Listeners, thank you again for tuning in to this episode of the podcast. If you liked this episode, please leave a comment on YouTube, SoundCloud or iTunes. Speaking of those platforms, please consider subscribing to unsuitable, and share our show with your colleagues and friends too. Until next time, I’m Dave Cain, encouraging you to loosen up your tie and think outside the box.
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