Halal Money Matters Podcast

Episode 23: Basics of Financial Planning with Haitham Al-Sayed

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Narrator:
The thoughts and opinions expressed on Halal Money Matters do not necessarily reflect the views of Saturna Capital, Amana Mutual Funds, or their affiliates.

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Monem Salam:
Welcome to Halal Money Matters, brought to you by Saturna Capital. I’m Monem Salam and my co-host Scott St. Clair is actually on vacation, so I thought I’d do this episode on my own. We have with us Haitham Al-Sayed. So Haitham has been with the Saturna Capital for six years. He initially started off in the community sales group. He used to go around the country and and talk to different Muslim communities and talk to clients, the Amana shareholders, those type of things. And then recently has joined the investment Advisory Services Group and is running wealth management for Saturna Capital. And this leads us into the topic that we have today, which is on financial planning, which is something also Haitham has a lot of experience with. So, Haitham, welcome to the show.

Haitham Al-Sayed:
Thank you. Glad to be here.

Monem Salam:
So let’s talk a little about your background in financial planning. Because I know you’ve done that for quite a while now.

Haitham Al-Sayed:
So back in my—I’m not going to give my age—but back in the day when I was building my book of business at large banking institution, global institution, I was exposed to the financial planning world and the tools available and resources. And, you know, when you first try something new, you’re always hesitant about the outcome. But over time, over experience and good mentoring and coaching, I got to be comfortable with the tools and the resources and it allowed me to ask, you know, some really in-depth questions with clients and prospects to understand their financial picture, what their goals are, and put it together and with that, I feel like it’s a necessary tool. A lot of people think they don’t need it because only for the rich or high net worth. But in fact we all need it. And it’s never too late. So it’s a great thing to have and be able to take advantage of.

Monem Salam:
So let’s talk a little about need, because you ask my parents or my grandparents, say, did you have a financial plan? They said yes: my kids. Right. My kids were the ones who are going to be paying for my retirement and or, you know, they had land and that’s all they needed. Why do you think it’s important specifically in Muslim community for financial planning?

Haitham Al-Sayed:
You mentioned about parents leaning on their kids. It’s called the sandwich generation, where they have to take care of their parents but also take care of their kids. There’s a quote I’m trying to remember. If you plan to fail, you fail to plan...

Monem Salam:
Nobody plans to fail. They fail to plan.

Haitham Al-Sayed:
Correct. And so it’s it’s important to kind of do your homework. And as you do your homework and you understand the material, you have a better sense. It’s never going to be exact. It’s never going to be perfect. But without a plan, you’re just kind of going at it like, Insha’Allah (if God wills it). But there are things that we could take advantage of just to have a good picture. It’s a high level, 40,000 level view, as I call it, of what the future might look like and what we can do now to make things a little bit more comfortable later. And there’s conversations that you’re going to have with family about what’s going to happen and the what ifs. And these are difficult conversations, they’re uncomfortable conversations, but it’s to make things comfortable later.

Monem Salam:
On any situation. So, for example, it doesn’t have to be retirement, it can be...

Haitham Al-Sayed:
Education planning...

Monem Salam:
How do you take care of your parents...

Haitham Al-Sayed:
Correct. Health care, what Social Security is going to look like. I mean, a lot of people don’t even go to ssa.gov just to see what their estimated benefit is.

Monem Salam:
Yeah, I’ll be honest. I’ve never been there either.

Haitham Al-Sayed:
So highly suggest doing that. They’re strategies with how you take out Social Security when you retire.

Monem Salam:
Mm hmm. Mm hmm. Good. That kind of sets up the idea of maybe why it’s important, but I’m sure there’s a lot of work involved in creating the plan, on my side, if I’m doing the plan, because I might not have all my finances, all detailed out everywhere in one specific spreadsheet, that type of thing. So what does it take?

Haitham Al-Sayed:
Well, it takes data and good data, because the better data input, the better output someone can provide. Working with an advisor or professionals, certified financial planner, is going to give you that confidence and credibility that you know, the person has put their time to pass an extensive test and examination, but also understands the material because there’s different parts of the financial plan. Just it’s not like retirement, like you mentioned. There’s retirement, there’s education, there’s health care, there’s Social Security, that I mean, you could focus more on the Islamic wills, trust, asset protection. So it encompasses the whole gamut and it takes time in the front to do it right the first time. To gather all this information, to have these conversations. But once it’s in the system, once it’s in a plan, then all it needs is updates either annually or life changes events. It’s all in the system. And we just look at, well, this changed. So what’s going to happen? Are we on track or not?

Monem Salam:
But you can do it online too, right?

Haitham Al-Sayed:
There is plenty of tools, they’re kind of in silos. You have like a retirement calculator. You might have like a will, but you just have to understand the background of these and how they’re composed, because not everything out there is, you know, accurate or sourced correctly. So it’s good to have kind of like, you know, when you go to a doctor, get a second opinion.

Monem Salam:
They do ask you things that are so far in the future that sometimes you’re like, I have no idea. For example, I’m so young right now in my twenties right now, and I’m thinking about I think I’m going to retire at 60. Are you going to need a new car then? I don’t know if I’m going to need a new car. I don’t even know if I’ll be alive 40 years from now. So how do you think about these issues?

Haitham Al-Sayed:
I tell clients, you know what is your lifestyle you’re accustomed to right now? And with inflation and today’s dollar is not the same as tomorrow’s dollar, it’s the same gallon of gas, but it’s just going to cost you more in 20 years. Right? So we work the numbers backwards, and that’s what the planning tool allows, is to look at the numbers backwards and say, okay, if we want to maintain this lifestyle, what do we need to have now? What we’re saving, what we’re putting in, to be able to be at least close, right? I personally like to take a more conservative approach with my clients when I do these plans. What I mean by conservative is like, I like to have a buffer zone. If the return on the portfolio is estimated at a certain percentage, I might put it down two percentage, just to be sure that there’s that cushion, if that makes sense.

Monem Salam:
If I’m thinking about retirement, is there any rules of thumb that I should keep in mind but just as napkin calculations, like what should I be thinking about?

Haitham Al-Sayed:
Obviously, there’s a couple rules of thumb. Number one is if you currently have a 401(k) through your employer, you want to try to maximize or at least do the match. So doing that and having a habitual disciplined process to make sure that you’re putting money in every time, whether it’s a 401(k) if you don’t have 401(k) you know even an IRA or any of these qualified types of accounts that has tax advantages, that’s number one.

Monem Salam:
Yeah. You know, when I was growing up, I took a class on home economics and then back then they used to teach you how to write checks, here’s a blank check, you know, how do you write it? It’s really funny, but one of the things that the teacher told me, and I still remember it to this day is that she said, every month when you’re sitting down and doing all your bills, before you start doing your bills, pay yourself first. But I still remember that philosophy. Pay yourself first.

Haitham Al-Sayed:
I know some people are, you know, living paycheck to paycheck. Some people are, you know, Mashallah (God has willed it), blessed and what have you. But everybody can do something. When you say I’m going to contribute, you know, 3% of my salary, try next month to do five, is that going to affect your life that much? Most likely, maybe not. I always tell clients to challenge themselves to up it a little bit. Right? And again, that’s remember, it’s just an automatic savings coming out of your debit or checking account, going into retirement account for the long term, it’s like paying yourself an annuity.

Monem Salam:
And the other thing that I’m a big believer in, a lot of us get either annual bonuses or maybe even an annual salary bump, right? So if you’re comfortable with the lifestyle you’re at, take that bump in salary and just put it away or take the bonus that you have and put that away. Whatever you do earlier, the better.

Haitham Al-Sayed:
Earlier, the better. It’s never too late to start.

Monem Salam:
What do you think about inflation? Like how much should be. Yeah, it should be there.

Haitham Al-Sayed:
Well, if you talk about last year, this year it’s quite high. So it’s it’s hitting everybody hard, right, in all levels. If it’s not at least getting 9%, you’re losing money to inflation. And if you think about college, college goes as high as six, 7% every year growth of their expenses. So you have to have your money grow in some type of vehicle.

Monem Salam:
You talk a little bit about savings and investing and how much we should be doing, which is the minimum you said would be whatever the company’s matching you. But what if the company doesn’t match? Is there a good rule of thumb for how much?

Haitham Al-Sayed:
I mean, usually the consensus on the street is about 10% savings from your income is kind of like for savings for retirement. Now, obviously, this is after you have something for emergency funds. So the number one thing is to keep aside for cash for emergency, God forbid, at least six months to probably 12 months. I’ve also had the conversation with clients where maybe that figure is too big. So you don’t need that much money sitting in the bank, maybe do half of it and the rest do it something conservative, but it’s still an emergency fund. And then whatever extra that 10% range can be saved up is probably a good, good place to think about.

Monem Salam:
And then when you’re thinking about their savings, which you can put into a bank that is investing, which you can put into the market, but there’s other things you can do as well, right? What about like your own house or...

Haitham Al-Sayed:
Correct. I just had a conversation yesterday with a prospect who has, you know, several rental properties and they’re not putting as much in the 401(k), so we had the conversation. Well, that’s part of your retirement plan. If you’re planning to keep it and get rental income, that’s a good thing. So you just have to, you know, study it well and see what type of return versus how much you’re putting into the house, the taxes and maintenance, HOAs, versus putting it in the market. It’s not apples to apples, but you have to just weigh it. But as a strategy, it’s a different asset class. So yeah, that could be something to think about.

Monem Salam:
Okay. A lot of people ask this question because everybody wants to know what’s that magic number, right? And the magic number means, what is that number that, I if I have this much money, I’m going to reduce my hours of work, I’m going to go part time, I’ll retire. Do all of those things. Is there an easy way to calculate that or is it more complicated?

Haitham Al-Sayed:
There’s no one number because everyone’s different, obviously. The way I look at it and I tell clients to look at it is, okay, if this is in your stage of life, what you’re accustomed to and you like this lifestyle, work the number backwards, meaning if your yearly expenses, let’s say, for example, is 100,000. Okay, well, in order to have 100,000 coming in, I look at the gap. Where is the gap? So if we look at our Social Security, obviously the average check is what, 15 hundred, 16 hundred. So it’s not much. But if you look at your estimated benefit and obviously take it a little bit down to make it more conservative and you say, okay, I need 5000 a month or 8000 a month to get me that number I need yearly. Minus my Social Security. And remember, you have to pay taxes, Social Security, ordinary income taxes. So minus that percentage.

Monem Salam:
And by the way, if you’re from a state that has income tax, you get state tax and you get federal tax on it.

Haitham Al-Sayed:
So it’s not actually, you know, 2500, it’s going to be less. So where does is that gap from 2500, I need, you know, 8000 a month to maintain the lifestyle. Well, where is that going to come from? Then you go and say, okay, what am I putting in investments and how much is that is going to grow and using a financial plan or a tool. Let’s say you have at the end of the day, $1,000,000 being invested on an average 10% return before taxes. You’re looking at 100,000 of growth, right? So and you minus 20% for capital gains, what have you, if it’s in a taxable account or if it’s in a retirement. There’s ordinary income tax. Anyway. I’m not a tax advisor, but you know, consult your tax advisor. What I’m trying to say is you can work the numbers backwards and say, this is my end goal. What do I need to invest? What’s coming in? And then put it together.

Monem Salam:
So, you know, I like to use a 5% rule. On a net basis. That will take into account your capital gains taxes, maybe even zakat, even, for that matter.

Haitham Al-Sayed:
Yeah, that’s a good one.

Monem Salam:
So the five percent. So if that 100,000 level, you’re working yourself back in 5%, that becomes 2 million, right? So then your magic number, quote unquote, is 2 million. That will automatically kind of adjust for inflation along the way, because whenever you calculate it, you just calculate it 5% and then you’ll be able to do that. So that’s typically, you know, what what is a good way to kind of say, you know, ballpark it. But, you know, obviously you need more than a ballpark to do it. And again, things change in your life. And so one of the things that people think about, it’s not one and done right. You really do have to keep up with it.

Haitham Al-Sayed:
Just like an annual checkup with a doctor, like, you know, imagine you don’t go to a doctor for five years, things come up, right? And you might not know it’s happening in your body, but if you have the exam or the blood tests, they’ll tell you. The same thing with the financial plan. Just have it reviewed.

Monem Salam:
You know. In your experience, do people have all of this information consolidated to be able to come up with the plan?

Haitham Al-Sayed:
No, because majority of the time everyone’s focusing on their career and their family. So they you know, they worked at one company, they built the 401(k), they left. It’s either there or they rolled it over. They have another account they open, so. But eventually you want to kind of think about, for peace of mind, having it all in one place to manage it. If you are in a traditional or pre-tax type of account, you’re going to have required minimum distributions that you have to take out every year.

Monem Salam:
So that number for a required minimum distribution is what?

Haitham Al-Sayed:
73. So think about it. It’s your responsibility as investor to take out money from all these places. And if you don’t, you could be penalized up to 50% of that. One of my biggest clients in my previous firm’s was just asked, can I see your beneficiaries? And it had ex-spouse, and I’m like, hey, you know, if something happens... And so he’s like, I didn’t know, I didn’t realize. And he decided to move all his relationships just because of that. And so, yes, you might have had a spouse you might have had a charity, a trust that has changed, so that beneficiary form is very important. The beneficiary form trumps all these trusts and documents. So that’s really important to have that updated and actually to reach out to estate planning attorneys if you need to incorporate into your trust.

Monem Salam:
A lot of people have multiple different accounts, multiple places, and one spouse or another doesn’t know where they are or what they have or like an inventory of assets.

Haitham Al-Sayed:
Not only that, they could have two mutual funds. One is buying Microsoft, one is selling Microsoft. Like, you know, it just you just have to take a deeper dive of what’s what’s out there.

Monem Salam:
So the financial plan gives you one source of all your inventory...

Haitham Al-Sayed:
Correct. And it does, for lack of a better word, a deconstruction of your portfolio. Plus it puts your portfolio in a stress test. So what it does, it does a Monte Carlo simulation, which means it runs it through a thousand trials of up markets, down markets, high interest rates, low interest rates, geopolitical, everything, and says what is the probability of this portfolio surviving these type of conditions. And I’ve done this for so many years and so many different high net worth client levels and people just starting out. And what I found out, it’s not really the return on the investments that’s biggest impact. That there is some some of that in there, that factor, but it’s mostly about what age you want to retire and how much you’re going to spend in retirement or would like to spend. And if you play with those two factors, there’s a huge impact on the results of success.

Monem Salam:
So it’s not even the contribution?

Haitham Al-Sayed:
Not as much. It’s still the player, but not as much as those two.

Monem Salam:
Interesting. We were talking about rules of thumb. In your experience, what are some common mistakes that you’re seeing people make while they’re in their accumulation phase?

Haitham Al-Sayed:
One is lack of education. So number one, I always tell people to study it and understand it and...

Monem Salam:
Understand what?

Haitham Al-Sayed:
And understand the concept of investing early. If they’re comfortable managing themselves, great. But if they’re not professionals in it, you know, seek out, you know, professional help. Number two, I know these days that people are allowed to take money out of their 401(k) or their IRA and obviously there’s some penalties and some conditions for penalties. Sometimes it’s a necessity. The goal of the account is for retirement. So you’re not supposed to touch it until after 59 and a half. You know, there are some unintended consequences by taking money out from these type of accounts. The other thing to avoid is not thinking long term. They invest in something and they see their value go down. Like, let’s say last year, if someone started last year, the market went down. So they have this fear and they pull money out. And then when the market goes back up, they want to go back in. And so they’ve sold low, bought high. Retirement should be a long term investment. Specifically, any investment should be long term, and that’s how they should keep that mindset.

Monem Salam:
When you’re younger and you’re saving or investing for anything, you tend to be much more aggressive with it, right? You’re going to buy the thing that your best friend told you about, whether it be a meme stock or something along those lines. They aren’t the right decisions to make. And partly it’s because you’re young and you’re want to be risky, and part of it is because the money is very small to be able to be messed with. But, the same time as you’re getting close to retirement, people start making the mistake of again, micromanaging. Either they go too aggressive or too conservative. But really kind of people have to think about as maybe just like set it and forget it.

Haitham Al-Sayed:
And I think you have this emotion tied to it. When you have that emotion and that fear or fight, they call it, that’s when you can ruin the plan of your long time projection. The one thing I wanted to mention is, you know, when our grandfathers were alive, the average lifespan was ten years in retirement. But because we’re living ten, 20, 30 years in retirement now, is that we cannot keep that thinking, that only be conservative towards retirement. You have to think of longevity and you have to think of different buckets and how to manage these different buckets for the different time periods in retirement.

Monem Salam:
So let’s talk a little bit about the accumulation phase and maybe some different stages. Right? So let’s supposing I just graduated from college and I’m just starting off. Give me three pieces of advice.

Haitham Al-Sayed:
Well, I’ll tell you my story. When I started, I wasn’t married. Luckily, I told you, I had this mentor at work to start early and I said, okay, I’ll just put the maximum. So I put the maximum. Forward a couple of years. I got married. I cut it in half. The contribution. Forward a couple of years I have kids, I cut it in half. But because obviously I had duties and expenses. That 25, out of college, or in that age period, is try to maximize as much as possible. There’s always going to be things that you want to buy. There’s a difference between want and need. Look at your budget. This is very important. Look at your budget. Make sure you have your needs covered, whether it’s rent or house or whatever it is, gas, medical, food. Then look at your emergency and then whatever is left, maximize all that into some saving vehicle.

Monem Salam:
Okay. So as a youngster, I have to think about marriage. I have to think about kids. I think about my parents and then maybe retirement.

Haitham Al-Sayed:
So put a bucket of a regular taxable savings account, investment account, for those things. For down payment, buying a car, what have you, but still have that bucket for retirement.

Monem Salam:
As we’re talking about the accumulation phase and 20, 25 years old, sometimes I do get the question, you know, should I be investing in a tax deferred account or like a Roth account? Is there a formula or kind of rule of thumb that...

Haitham Al-Sayed:
There’s no specific rule of thumb. But if you think about it just for hypothetical numbers, if you’re putting into a traditional IRA right now and taking the deductions, that benefit may look good today and you say, oh, I got a deduction on my income. Right? But over time and the growth over time being tax deferred versus putting in a Roth because that traditional you might be paying up to like 30% in taxes when you retire. So if you’re right now 30% and below tax bracket, it may be worth to put it in an Roth now and not take the deduction. Again based on time value of money and compounding growth over time, all that growth is tax deferred. And when you take it out, it’s tax free. So it’s just the cost benefit you have to think about.

Monem Salam:
And you can also do it not only in the Roth IRA, but so a lot of companies that offer Roth 401(k)s. So you can still take the deduction off your salary. You just have to pay taxes on it. But it might be beneficial because of that delta between lower tax versus higher tax later on. Okay. So I’ve now starting saving for different buckets, right. Now I’m married and we’re just about to put a down payment on a house. But I see I have some money saved in my 401(k). And you are allowed to take money out of your 401(k), whether you take it out or you borrow money from your 401(k) to do that. Though a lot of people, what they do when they want to be able to put a down payment on a house, a lot of companies will offer you a loan from your 401(k) and then you’re paying yourself back. You can have a debate on what that’s good or not. Some people might say it’s good, some people might say it’s bad. What ends up happening is you’re not able to use that money for growth. You’re only able to use the money to pay back whatever you invested in. So I think unless you’re living in a very expensive area, you’re probably better off trying to save separately for your housing and that type of thing, rather than borrowing it or taking it out of your 401(k). Would you agree with that?

Haitham Al-Sayed:
Yeah. And remember, the goal of the account 401(k) is for retirement. I know they allow you to do things like that, but the goal is to always remember it’s for retirement.

Monem Salam:
You could have another bucket that you’re saving for, like in the Roth IRA.

Haitham Al-Sayed:
Yeah. So if you’re putting let’s say 10%, the match is five, right. You might down it to seven and put that 3% to that down payment. You’re still putting ten, but it’s different buckets. And you mentioned earlier about the bonuses and stuff, I mean, those are all great vehicles to put octane to the gas if you will.

Monem Salam:
So now my kids are getting older and I’m realizing that most likely that they’re not going to get need based scholarships and Hamdullah, we’re making enough money to be able to support them in college. I did save a little bit of college and and again, I get this temptation. Now my 401(k) balance is even bigger than it was when I was 25 and getting married. What about college? Do you think it’s a good idea to take money out of your 401(k) to pay for college?

Haitham Al-Sayed:
No, again, going to the definition and the goal of the 401(k) you have to tie the goal to the account. I mean I can say, okay, is it right that I have this liquid checking account in the bank, it’s for emergency fund, let’s say. I’m just going to go use it to buy a nice TV because the Super Bowl’s coming. It’s tempting, right? You see the money, you’re like, hey, let’s do it.

Monem Salam:
Now. You’re getting closer to like the idea that when you turn about 55 or so, 50 or 55, you know, most likely for for an average person, their kids have now graduated from college. They are now earning themselves. So you have a lot more discretionary income, right? So, I mean, that is an opportunity for you to really bulk up your investing for retirement. Those are the things.

Haitham Al-Sayed:
Sure. Because the rule of thumb is about that. You’re going to need 70 to 80% of your current income in retirement. Why? Because hopefully the houses are paid, kids are done with school.

Monem Salam:
Do I need to be making adjustments to my investments as far as asset allocation, those type of things?

Haitham Al-Sayed:
It’s always good to have it reviewed, but, you know, not necessarily. Because the plan is to stick to the plan for the long term. So if this bucket of money was for to get you through retirement, the last ten years of retirement, then you should stick to it and not shift it too much.

Monem Salam:
Okay, now I’m about to retire. One of the questions that I always get is at what age that I take my Social Security. So you don’t have to answer specifically, but what are some general rules of you that I should be thinking about?

Haitham Al-Sayed:
You know, it’s a funny, interesting concept when I talk to clients about this, because a full retirement age is 67, but you could delay your Social Security up to age 70. A rough estimate, that’s about a 10,000 difference in estimated benefit per year. Per year, per couple each. Right. It really depends on your circumstances, situation. If you know Allah has blessed you and you have the means, then maybe there is a strategy to delay it. But if you are in need of it, then taking it at full retirement age, or maybe even before full retirement age to cover expenses and needs, then that’s something you’d want to think about as well.

Monem Salam:
Okay. The second thing to consider would be your asset allocation at the point of retirement. Like, you know, you’re just maybe a year or six months away. Should I be making any adjustments?

Haitham Al-Sayed:
It definitely should be reviewed, not necessarily major adjustment. There might be some fine tuning because you have a core allocation for the goal. Then there might be some tactical allocation that you have to shift a little bit here and there. Just because things have changed in your life or income or what have you, your expenses. And one of the thing that a lot of people miss in expenses during retirement they don’t think about is health care cost. So there’s Medicare, all that stuff, but there’s still costs for that. That’s one of the biggest costs is health care. Hopefully we never need it or use it. It’s all about planning. So it’s always thinking about, you know, do I have this? Take advantage of it if I have it. If I don’t, then think about the future. How am I going to pay for health care? Right. No one’s expecting to get sick and have huge bills.

Monem Salam:
But one of the biggest mistakes people make at the point of retirement, because they need the income, they will become too conservative in their asset allocation because they don’t realize that they might be using the money for 25, 30 years.

Haitham Al-Sayed:
And then also long term care like in our community, we think about, okay, are our kids are going to take care of us or someone? Well, if the kid’s a doctor or they’re busy and they can’t have time to take care, who is going to take care? And if you need that, there’s planning for long term care as well. I mean, there’s all these avenues to think about within the health care.

Monem Salam:
You know, one of the things I think about for long term care and relying on my kids is that for a lot of us that are older, not me, of course, but a lot of us that are older, you know, we left our parents in our home countries and we came here. Who’s taking care of them? We’re not. So why are we expecting our kids to take care of us when we couldn’t even take care of our own parents? Maybe they will. But if they don’t, don’t get upset because you didn’t do it for your parents. You know, that type of things is really important to kind of think about also. Okay, so now, I was early in making a financial plan, so I have all of these vehicles that I’ve saved or invested in, whether it be my Roth IRA for my spouse, I have a 401(k), all of these different things. So now that I’m in retirement, is there a rule of thumb that talks about, like where I should draw from first?

Haitham Al-Sayed:
Yeah. When you start retirement, technically your income drops and so your tax bracket drops, right? So the rule of thumb is you start taking from your taxable accounts, your brokerage accounts, your investment accounts, because when you sell, you’re going to have lower capital gains on. Second, you take it from your tax-deferred or pre-tax. Those are your traditional IRAs, traditional 401(k) contributions. Again, when you take money out because you got a deduction, when you put it in, it grew tax deferred. Now you have to pay ordinary income taxes on it, but it will be at a lower bracket depending on how much you take out. The last bucket you want to use is your tax free, so your Roth contributions or your Roth IRA. Roth 401(k). Having said that, there are also strategies. I’ve talked to clients where they really don’t need the income from their IRAs or the money in the IRAs and their goal is to give it to their kids or to charities. And there’s a window early in stages of retirement, typically, where you could actually convert some of this balances depending on how much. And you don’t have to do it all at once because, remember, you have to pay conversion tax. And instead of doing one lump sum, you can break it down five or six years depending on that window. And you know, again, consult your CPA tax advisor. But instead of let’s say there’s 300,000 you want to give from the traditional IRA. Well, if you keep it in traditional IRA, the beneficiaries, whether it’s kids or charity, charities don’t have to pay taxes, but the kids are going to have not the 300,000. They have 300,000 minus taxes. So it’s going to be, you know, say 250. Versus if you take the 300,000, pay the taxes on it now, you’re going to have a lower tax bracket on the conversion. It will grow over time. At least you’re going to have more, it’s going to be tax free.

Monem Salam:
And there’s no RMD or requirement of distribution on the Roth, you can keep...

Haitham Al-Sayed:
On the Roth, there is not. Correct.

Monem Salam:
So once you’ve converted it, it can last longer for you as well. Now you’ve gone into the retirement phase and you’re doing that. We talked about this idea of RMD, required minimum distribution, but some people may work past 70 or 72 or 73. Do you still have to take money out even though you’re working and that type of thing?

Haitham Al-Sayed:
Yeah. If you have any traditional or pretax type of account, you are required to take out, it’s a formula. There’s a there’s a federal rate that’s calculated. Most institutions will calculate it for you and let you know what that RMD is and amounts and that has to be taken out. Now, you have a choice. Obviously, if you don’t need it, you can do a couple of things. You can gift it, charity, you can re-invest it for future needs. I mean, there’s a lot of things you can do with that.

Monem Salam:
Yeah. You know, one thing you reminded me of as far as taking money out and the taxes concerned, people tell me how much their balance in their 401(k) or the IRA is, I always tell them to minus that by 30%, because that’s the tax. That’s always something to keep in the back of your mind is that what you see is not what you have. It’s always a little bit less than that.

Haitham Al-Sayed:
In the early stages for the younger folks, I’m going to pay 30% taxes on any traditional later in life. Well, if you’re below 30% tax bracket now, it’s probably better not to take the deduction if you would do it in a traditional IRA or 401(k).

Monem Salam:
All right. Thank you very much for your time. Is there any final thoughts you want to leave us with as we’re closing?

Haitham Al-Sayed:
Yeah, I mean, even doing this interview and having done this for so many clients, it’s always like, well, what did I miss in my plan? Like always, there’s something. Did I capture everything? And you have to really make it a priority. Just like you have your doctor, you have your mechanic, you should have an investment professional as your center of influence and guidance and mentor to help you through this. It’s a lot.

Monem Salam:
Thank you so much for your time, Haitham.

Haitham Al-Sayed:
Hamdullah. Thank you.

Monem Salam:
Alright, take care.

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