Ep 47 - The Truth About 401Ks From A Retired Financial Wealth Manager

Hey, everybody. Flip and Danny here, founders of the Freedom Real Estate Group family of companies. And welcome to another episode of our.

Podcast called Freedom through Passive Income.

That's right. And today's episode is called the truth about 401ks from a retired financial wealth manager.

And that retired financial wealth manager is not us.

No.

So we are here with Carrie Parrott. She is the guest, the honored guest, the guest of honor, however you want to say it, she's a lot smarter than we are when it comes to this type of stuff because she's been in the business for a very long time. So welcome to our podcast, Carrie.

Yes, welcome.

Thank you, Flip. Thank you, Danny. I appreciate you guys having me.

Oh, absolutely, absolutely.

We're gonna let you take it from here. Pour on your wisdom.

Oh, oh, my goodness. I don't know about wisdom, but I ran a wealth management practice for 20 years and, you know, we worked with a lot of, you know, people that had 401ks. You know, that's a great way to be able to, you know, you know, limit your taxes on your income, you know, as well as, you know, defer money for your retirement. You know, what we found though, and you know, especially with the, in Dayton, Ohio and the surrounding area is that, you know, we, you know, with the 401k, you only have investment choices, you know, that they provide you. You know, the major employers in Dayton, you know, on average have about five funds in their 401. So, you know, you don't have a lot of freedom to invest your money the way that you want. Also the internal expenses within these plans, which doesn't show to the investor. If you're investing in mutual funds, you know, you could be paying, you know, anywhere from, you know, 1% to 4%, depending on the fund. And you'll, you know, you'll never see that, you know, your returns are also affected by, you know, short term capital gains. So, you know, if they're having to pay taxes on it, the fund itself, then, you know, you're going to have a lower return. And what we did for our clients is, you know, we, you know, in a lot of the plan documents for these 401ks, you're able to roll over a portion of that 401k into a self directed IRA. And with that, you know, then you have control. You know, you can, you know, you can control your expenses, your investment choices, you know, make sure that you're diversified, which, you know, a lot of the plants don't get, don't give you that opportunity.

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Yeah. So again, Hulksmash.

Yes, I agree. And one of the things that before we started recording was you were talking about the fact that they also limit how often you can change your investment options. So not only are you limited from the start, but how often you can actually shift and move them.

Right, right, absolutely. And a lot of times there'll be a holding period of 30 days or a quarter that you have to keep the same fund. And then if you, if you sell that fund, you change your allocation within that 401k, then, you know, you're not able to get back into the same fund, you know, right away. You know, it's, it's. I think it's very difficult and especially, you know, if you're, you know, a company under 100 employees, you know, to get a great plan. But, you know, all plan documents, you know, these days provide, you know, where you can, you can roll that money over and then you can invest that how you want, you know, and a lot of people say, you know, how would I invest that? You know, how would I do that? You know, there's, you know, a lot of different ways. And I think that, you know, our company specializes in that, you know, where, you know, freedom, where we can, you know, help people through that process along with, you know, giving them great, you know, investment options.

Absolutely. Real estate, it's one of the best in my opinion, in terms of relative safety. You know, obviously there's always risk with any investment, but real estate is pretty strong in that return and it gives some of the highest returns compared to that limited risk. So I love that. And then we had talked about inflation as well. Right. And the returns that you're getting in these accounts, they are tax deferred, but with inflation, I think right now inflation's at 7%.

Right. And you know, I was reading an article over the weekend. And they were, you know, I wanted to kind of get an idea of, you know, where the smart people, you know, think that, you know, inflation is going and, you know, we're going to be in a higher inflation environment, you know, the highest inflation environment that we've been in since 1982. You know, and the hedge on that, you know, the hedge on inflation and interest rates is real estate as one of them.

Right.

You know, that's something that I have in my individual portfolio. That's what we're recommending for clients, you know, right now, you know, and, you know, we've worked with commercial real estate for a long time. So it's not like, you know, you know, they could, they could, you know, be pretty confident in what we're doing.

Absolutely. And one last question. Is there tax implications? Implications? Did I say implications? I'm making up words literally. Is there any tax implications when you do an in service, in service withdrawal?

No. You know, from the 401k, you will do us. You'll open a self directed IRA account. It will roll over and it will be a tax free event to roll it over.

Excellent. Excellent. Well, I learned a lot. I actually learned a lot when we started talking earlier, before the podcast, I said, you know what, you just need to say all of that because we can learn it, we can, we can regurgitate it. But it's really nice coming from somebody who has been in the business for a, and really understands this space. So thank you so much for being here.

Yeah, it sounds like I appreciate it.

And it sounds like the 401k, before you move it over to that self directed, it sounds like it's a lot of other people in control of your money.

Yes. Instead of you.

Yeah. Well. And you know, also I found where you know, we had, we had clients that loved their 401k. They said, you know, I want to put as much money as I can, you know, into it. I'm putting 15% a year into it. You know, it's reduced, you know, the taxes that I pay. I love it. And then the owner of the company changes for 1K, you know, and you know, they're going for the cheapest, you know, option that they can in most cases. And I'm not criticizing anyone, I'm saying that's business, you know, you know, eliminate their cost too, as far as administration. So, you know, you find something you love and then people change it. Dag on it.

Yes, exactly. Right. Well, I love this episode because it's so powerful because there's trillions of dollars in the retirement account market. And it's people who do know what to do with their money. They're like, oh, this is a good idea. I'm going to save for my retirement. And they have no idea what's going on. They don't know that some of them don't even know that they're paying fees and they certainly don't know that they've got options to go self directed. So I think that this is one of those episodes that we just want to shout from the rooftops. So I hope more and more people reach out and ask you questions.

Absolutely. And if I could add one more thing, you know, the volatility that you're going to face in your 401k over the next couple of years is going to be incredible. And you know, you know, and it's not a big deal unless you're retiring next year. And I had a lot of clients that, you know, they were in their 401k, they wanted to keep their money there. And then, you know, they retire and they have, you know, a third, you know, a third of as much money as they used to have, you know, and that, that affects retirement income, you know, and if you have 30 years, then that's one thing that if you have 10 or less, it's, you know, it could take that long. So.

Yeah. And even if you have 30 years, might as well get a higher return while you're at it.

Well, I have 30 years because I never plan on quitting working.

That's right. That's right.

Love it.

That's what I've been told. Yes. Thank you. Thank you. Well, we hope that you enjoyed today's guest, Kerry and we hope that you enjoyed this episode. Again. Make sure you join our our Facebook groups, facebook.com group freedom through passive Income.

And you're gonna see Carrie in there.

That's right. We're also on LinkedIn, TikTok, Instagram, YouTube, whatever. Get in there like love. Make sure you give us comments, tell us how we're doing, let us know if you have any recommendation. But we always like to end these.

Episodes with invest smart.

Live happy. Bye everybody.

Bye everybody. Thanks again, Carrie.

Thank you.

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