Finding yourself between jobs can be frustrating—whether you were fired, laid off, or just had to step away of your own choosing. But it can also present some opportunities. Let’s discuss some of the challenges and opportunities that you need to consider if you’re between jobs.
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Transcript Of Today's Show:
Speaker 1: Back here for another edition of the podcast. It's Planned With The Tax Man with Tony Mauro and myself. And we're going to talk about planning considerations if you find yourself between jobs for whatever reason that might be, whether it's being fired, laid off, had to step away of your own choosing. We've seen this great resignation over the last year, lots of people just choosing to leave jobs or look for something different. And when it comes to getting closer to retirement, how might this affect things? So let's say 50 plus, some people are doing this. They have walked away or are being forced to walk away or whatever the case is. So we're going to talk about some challenges and opportunities that you might want to consider if you find yourself with a gap between jobs, again of your own choosing or not of your choosing.
Speaker 1: So Tony, what's going on, my friend? How are you?
Tony Mauro: I'm doing great. Just back off the road from a little vacation out in Napa.
Speaker 1: Well you probably ran into some of this then because service industry for sure is very, very volatile, lots of people moving constantly.
Tony Mauro: I was. And it's fun to talk to people around different parts of the country and just kind of hear their stories. But from out there what I did tend to see is there's a lot of people 50 and over, like you were saying, that have left tech jobs in the Bay area and San Jose and this and that, just kind of got out of the rat race for whatever reason.
Speaker 1: Right. Burn out, whatever. Right.
Tony Mauro: Yeah. Just sick of it. Were making good money and now all of a sudden they're pouring wine and they're just talking to people and [crosstalk 00:01:35].
Speaker 1: But they may not have the stress.
Tony Mauro: Yeah. They don't have the stress.
Speaker 1: Yep.
Tony Mauro: And of course the money's not the same, but I think this going on all over the country.
Speaker 1: Definitely.
Tony Mauro: I mean, we see it here in the Midwest where it's hard to find employees. Hospitality industry is really hurting. And so I thought it would be fun to talk about a little bit from that standpoint.
Speaker 1: Yeah, absolutely. Well, that's a great place to start. Is it time for a new career? Are you burnt out? Again, whether you wanted to leave or they wanted you to leave, either way maybe it's a chance, an opportunity, to get into something that is less stressful. Maybe it's a whole new field. Like you said, maybe you've been in tech and you're like, "Heck with that, man." I just want to, whatever. I just want to work at a dog grooming place and just pet dogs all day. Whatever, right?
Tony Mauro: Yeah. I mean, when I was in the corporate world, it's been a long time because I've been out on my own a long time, but I think you should always have this in the back of your pocket. Always be thinking a little bit, if they asked me to leave or I was laid off, what am I going to do rather than facing it when it happens. Hopefully you've got an emergency fund, but that's another conversation. But, yeah. I mean, for a lot of people, again just talking to people last week, it really was just "I'm going to go do something else." In their case, burnt out, they're getting a little older, COVID is got them thinking about longevity and things and they seemed very happy. I think on the big picture though, everybody's doing that. Nobody could find any employees, but.
Speaker 1: There's a downside. Yeah, and I want to talk about some of those. You mentioned the emergency fund. If you are making a change, hopefully COVID did teach us if you got laid off for a while or whatever the case is, you've got to have some funds available to sustain yourself in between there.
Tony Mauro: Yeah. You absolutely have to. It's one of the first things we talk about with clients is that, assuming they're in the workforce, work with them to try to build that even as they go. Because in the corporate world, you never know. And even for people like me in business for yourself, I still think you need one because you don't know when your business is all of a sudden not going to be attractive.
Speaker 1: Or have a dry spell. Yeah, exactly.
Tony Mauro: Yeah, or people don't want your product or service anymore and then you're out too.
Speaker 1: Any stage, in any I guess decade of life maybe is a good thing. Whether you're 20, 30, 40, 50, you got to have some money set aside, a little bit, something to help yourself out in the event that happens. Well, you mentioned working for yourself. That is what has definitely happened for many people since COVID. Some have said, again we're trying to look at this through the lens of 50 plus, okay? So you know what it, yeah. I don't want to go back to the office. I don't want to be exposed to potentially whatever, or I'm using an excuse because I'm just tired. I'm finally tired of the rat race and I've always wanted to have my own thing. You said you were in the corporate world, but you've been working for yourself for a number of years.
Tony Mauro: I have. For me, it was always, well, I always could do it better and I think that's what a lot of entrepreneurs end up doing, but.
Speaker 1: You got to have the right spirit, the mindset for sure.
Tony Mauro: You got to have the right mindset. But at 50 plus especially, you probably do have, in certain cases if you're willing to work at it a little bit, a skillset to do things that 25, 30 year olds may not have and [crosstalk 00:04:50] consulting.
Speaker 1: It could be a blessing in disguise. Could be consulting. Yeah, very good.
Tony Mauro: All kinds of things. It could be just something that's been a hobby for you or maybe even a side hustle that you are making a little bit of money on that you want to take full time. I think in today's economy, especially in the gig type of economy and I just told my son this, that 25 years ago, 30 years ago when I was doing it, brick-and-mortar locations and things like that were hopping. Now, I think that's hard, hard to do in today's economy. Not impossible, but I think something you got to think about before you leap into that full time.
Tony Mauro: But again, a lot of 50 pluser's I'm seeing are going to work in less stressful jobs. But the ones that go out on their own, they want to do service type stuff where they're not a lot of overhead, a lot of inventory to keep track of, complex dealings. But that certainly would be something to talk to your advisor, go out and get some advice on before you make that leap I would say full time. Because so many people come into my office of all gamuts and I have what I call discovery calls with them all the time and they've thought about it and they're under capitalized. They have no plan. And we try to talk to them through some of this and they don't have it. And nobody's teaching this.
Speaker 1: Well, that's true too.
Tony Mauro: So I would definitely get some advice on that but it is fun to think about.
Speaker 1: Well, those are a couple of, I guess, the mental or emotional angles to ponder in this conversation on the podcast. Let's look at some of the financial ones. We touched on the emergency fund for sure, having some sort of a base to bounce from, if you will. But what are you going to do about health insurance? Okay, so if you find yourself walked out the door or you walked out the door, if they were covering your health insurance, Tony, what's your options now?
Tony Mauro: Yeah. Now what? Because you don't want to go without this.
Speaker 1: Again, 50 plus conversation, right? You got a long way to go to get the Medicare.
Tony Mauro: You got a long way to go. So you're going to have Cobra until you find something new for a while, that could be expensive but at least you've got some options there. You've got the marketplace as well, which is the government program. If your spouse is working, they might be able to get you on their plan.
Speaker 1: That's a good point.
Tony Mauro: If not, then you've got to go out and buy some health insurance. It's going to be expensive. And the coverage probably isn't going to be very good, but at least probably would cover some major medical, but definitely [crosstalk 00:07:16].
Speaker 1: And that comes back to that emergency fund. Right? Because if you're paying for this yourself, that's going to be dipping into this whatever funds that you may have. Maybe it's going to be dipping into some retirement accounts you've built. So maybe a conversation then, Tony, is this a good time to roll that 401k over? It probably is whether you left or were walked out the door, should be no reason to leave that money behind.
Tony Mauro: Yeah. I would say most of the time we talk to clients about moving it into and rolling it into an IRA. It's going to give you a lot more control, a lot more flexibility, meaning that your investment pool has expanded greatly other than just that company's batch of mutual funds. And it could be a lot of things as well, could be might not be that efficient, in other words, the expenses are kind of high.
Speaker 1: Right, yeah.
Tony Mauro: And you can't really, like I say to me, I want to have more control over it about what comes in, what comes out. Maybe you want to buy some stocks or bonds at some point, so generally we advise that. But we want to take a look because maybe it's worth leaving there, but you got to look at that.
Speaker 1: I would say most times, is it a fair statement to say, most times it is not beneficial to leave it there just for those number of reasons you've already left?
Tony Mauro: I would say, yeah. Most times it's probably not.
Speaker 1: Well, the options typically in our 401ks through a company, it's whatever the company's set up with the sponsoring plan and they're not going to be nearly as wide as something you can do with your own IRA.
Tony Mauro: Exactly.
Speaker 1: I mean, it's just an infinitely more possibilities. So definitely something else to ponder, make sure that you're rolling that over into something you've got better control over.
Speaker 1: Maybe you get lucky enough, Tony. I just saw a story not long ago about one of these, I believe it's one of these crypto companies out in the California way that was really tired of the negativity. Obviously we've seen a lot of this in our society here lately. There was a lot of, I don't know, it's become fashionable or whatever to brow beat the employers over your ideologies, whatever they may be if you don't feel like your company is treating a certain thing the way you want it to. And this particular gentleman just said, "You know what? I've had enough. So here's what we're going to do. If you're not happy working here for whatever reason about the company's culture," he was offering a severance. He was saying, "I'm going to pay you a severance to leave, go find something else that does make you happy." So whether it's an interesting situation like that again or you've been asked to leave or whatever the case is, you may have a severance option, which is kind of like a pension option. They may say, "Hey, we're going to give you an X amount of money. Here's the door or you can take the monthly payment." So what's the best option? How do you go through that process?
Tony Mauro: Yeah. And it's another thing that you need to get with your advisor, your tax advisor, your financial advisor, or one and the same to talk about it. Here in Des Moines, we have several large employers and this happens a lot. They'll just consolidate departments and say, especially that mid-management, "Okay you're out. We're going to give you a year's worth of pay. Here you go. And out you go." And a lot of times, they're willing to break it up into monthly installments over the year or you can take it all at once, but that money's all going to be taxable. So you've got to decide, A, how I'm going to pay taxes on that? Am I going to use this to live while I'm looking for a job? Which I've seen some people do. They kind of take a year off because, well, they don't need the money. Others, they had to double dip. They say, "Well, I'm going to go out and find something right away. And then this is just extra money for me," which is tremendous. And they could use that somewhere else in their portfolio or whatnot.
Tony Mauro: But it's important to think about this when this comes up. Because if it's large I look at it from a tax standpoint, first of all, and say okay, you got to at least put aside the money for the tax or have them withhold it because that's going to be important. Plus I think what a lot of people don't realize is if it's lump sum it could bump them into a much higher tax bracket all of a sudden, and if they don't withhold the right amount, they're going to be [crosstalk 00:11:25].
Speaker 1: Yeah. And that's a double whammy. Right? So if it bumps you, they don't hold it. They just give you the funds because you're going to have to pay it at the end of the tax year and you don't have a good emergency fund, you wind up spending it and then the tax bill comes due, ouch. So, yeah.
Tony Mauro: Yeah, I've had that happen twice to people with well over a $100,000 dollars and they didn't have them take out the tax. Kind of took the year off, spend it, and then they had a large, large tax bill. Had to go into a payment plan with the IRS because they had no money to pay it and they had no funds set aside to pay it, so important to get with an advisor on that one.
Speaker 1: Very much so, it's a great point there. Thanks Tony, for bringing that up. Glad, I mean, not that happened to the folks, but that real world experience to kind of share. So final one here, taxes, you mentioned it so let's finish on that note. What kind of tax planning should you be doing? Does it make a difference when you're separated, Tony, like calendar wise? Are there tax implications to think of, just even if there wasn't a severance, just from a they let me go ... Okay let me throw out a scenario, I guess. So they let me go in May, let's say. And you now decide to roll over the 401k that you had at the company and maybe even do some conversions on some of that money into a Roth or something because you didn't have one. Would that create a taxable scenario or could it?
Tony Mauro: Roth conversions, which I like, it's going to create some sort of tax change if you will. I mean, because basically you're taking pre-tax money, converting it to taxable, paying the tax on it then and then it's tax free of course in the Roth.
Speaker 1: And based on when you left, your income might be lower for that calendar year or higher?
Tony Mauro: Or higher.
Speaker 1: Okay.
Tony Mauro: Depending if you got a severance. So if it's lower then what we try to do is work with the clients to fill up the existing tax rate and not go over that and say, look-
Speaker 1: The steps, right?
Tony Mauro: Let's stop now because otherwise you're going to be wasting tax dollars and then do the rest next year or a little bit next year, a little bit next year type of thing if you're doing rollovers. So there are some strategies out there that you can take advantage of. You have to get some money and pay as little as tax as possible for the opportunity for it to grow tax free forever. And so I think that there's those types of things going, that's one thing. The other thing too, is like I mentioned previously, is if you do get a lump sum, it could throw you into a very high tax bracket which might require some planning and or withholding as well. So definitely want to keep it in mind.
Speaker 1: We should probably do a podcast on the steps of the tax, because you were talking about filing up a certain bracket.
Tony Mauro: You should. Yeah.
Speaker 1: Yeah, because I don't think most of us don't understand that on how it works. Right? So if you're in a 22% tax bracket, it's not necessarily everything you make is at 22% correct?
Tony Mauro: That's right, because it's progressive. And so while it starts low, what we mean by filling up the bracket is in the 22% bracket depending on your filing status, goes from X amount of income up to X amount of income. And so every last dollar earned or taxed is going to be taxed in that bracket, so we try to fill up that bracket but not go over. So in other words, more of your money's going to get taxed at the next highest level.
Speaker 1: Right.
Tony Mauro: And so we want to kind of keep that to a minimum to save taxes, but it's better shown than talked about. It's a lot easier when we put it on a screen.
Speaker 1: That's true. It is tougher to maybe do it on a podcast where we're trying to walk through it because it can get a little convoluted there, so it might be a little tougher to do. But we'll work on trying to break something down that makes a little sense from the audio standpoint.
Speaker 1: All right, well there you go. So there is some things to ponder. If you find yourself between jobs, for whatever case, whatever the case might be, whether you choose to or they choose to or whatever. And a lot of people have been doing that. We've had a lot of folks, crazy numbers over the last 18 months, walking away from jobs and doing different things. Multiple reasons why obviously since the pandemic. So if you need a little help, if you need a little planning, if you find yourself or you're thinking about, "Hey, I'm thinking about stopping the rat race at 52 or 50 or something but I can't retire yet, but I want to go into business for myself or I want to see if I can step down to a less stressful job," make sure that you're working with a qualified professional, like Tony and his team at Tax Doctor, Inc, so they can help you through some of these questions, some of these conversations, looking at some of this stuff. Especially if we can get some planning in place, it's going to go a long way. He is an EA and a CFP of 20 plus years, like 25 years about now, somewhere now in that neighborhood now, right?
Tony Mauro: Yeah. 25. Yeah.
Speaker 1: Yeah. So been doing this a while. So, if you need some help folks reach out to Tony Mauro at Tax Doctor Inc. Find him online at yourplanningpros.com. That is yourplanningpros.com. And don't forget to subscribe to the podcast. You can find that info there as well, Apple, Google, Spotify, iHeart, Stitcher, all that good stuff. Tony, thanks for hanging out. Good conversation. Thanks for sharing some good tips. I appreciate it.
Tony Mauro: All right, we'll talk to you next time.
Speaker 1: We'll catch you next time here on Plan With The Tax Man with Tony Mauro.
Disclaimer: Securities offered through Avantax Investment ServicesSM. Member FINRA, S.I.P.C. Investment advisory services offered through Avantax Advisory Services. Insurance services offered through an Avantax affiliated insurance agency.
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