The 5 D’s of a Financial Reset with Sharon Epps

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Technology solves problems and creates new ones. How do you keep up? Hi, I'm Rob West. Among so many other things today, maybe you've noticed that managing your finances is increasingly complicated and involves more than balancing a checkbook. Sharon Epps joins us today with some much needed advice, the five D's of a financial reset. And then it's on to your calls at 800-525-7000.

That's 800-525-7000. This is faith and finance, biblical wisdom for your financial journey. Well, I always love when Sharon Epps stops by. She's president of Kingdom Advisors.

And let me explain what that means. Part of her job is to advise the Christian financial advisors who give you advice. Sharon, great to have you back.

Glad to be back. I think we can all agree that managing our finances can be a challenge sometimes. Financial problems seem overwhelming, and so I'm looking forward to you sharing some thoughts on what we can do about it. Well, whether we're struggling with our finances, they're stable, or we even have a surplus, sometimes we just need a financial reset.

Just like our computers need resetting occasionally to clear the cash and run more optimally, our finances can drift or creep out of order. The reset recenters our minds and helps us focus on the spiritual priorities, and they're really the key to getting back on track. In fact, Romans 8-5 tells us exactly what our spiritual priorities should be. It reads, For those who live according to the flesh set their minds on the things of the flesh, but those who live according to the Spirit set their minds on the things of the Spirit. So we want to live according to the Spirit rather than the flesh, and to do so we need a mindset of surrender to God's ways, including how we handle our money.

That is so well said, Sharon. So let's unpack these five D's of financial reset. Where do we start? The first D is Define.

What does that mean? You should write out a standard of living statement. Define how you should live. What's your why? Your motivation must be deeper than just financial health.

That's too vague. What about the motivation of life and peace? In fact, John 10 says, The thief comes only to steal and kill and destroy. I came that they may have life and have it abundantly. And then 1 Timothy 6, 17-19 reads, As for the rich in this present age, charge them not to be haughty, nor set their hopes on the uncertainty of riches, but on God, who richly provides us with everything to enjoy. They are to do good, to be rich in good deeds, to be generous and ready to share. Thus, storing up treasure for themselves is a good foundation for the future, so that they may take hold of that which is truly life.

That's a powerful verse and that is a great foundation. Alright, the second D of our financial reset. Let's try Declutter. Not just your desk area, but the whole house. Spend a weekend going room to room asking, Have I used this in the last year?

Is it still helpful to me? If not, sell it or better, give it away. Decluttering your house goes a long way to decluttering your life.

Now third is Delay. Make what you might call an impulse list. Things that you want to buy, put the day's date on them and commit to waiting 30 days before buying an item. You'll probably discover you didn't really need or want the item after all.

I love it. Declutter is my love language, not necessarily Delay as you might imagine. Alright, I see the next D of our financial reset also involves 30 days. Tell us about it.

Yes, it's Detect. Create a 30-day record of your spending and review your expenses. Now that's one thing that's gotten easier with technology since we rarely spend cash.

Just take a look at your bank and your credit card statements, all probably online. What would you change? And I have to give a shout out here for the FaithFi app. It combines all of our accounts in one place so Joel and I can use a single source to say on the same page about our money.

I couldn't agree more. Julie and I use it the same way. Alright, what is the last D in our financial reset, Sharon?

Well, that would be Decide. This is where you draw up or overhaul your spending and giving plans. Revamping your budget is a powerful reset experience. Check your priorities and decide where your money will go. And be sure you make giving an important part of your plan as well.

Where can you make adjustments so that you can be generous with your church or other ministries that you're passionate about? Oh, this is so good, Sharon. You know, we all need a financial reset from time to time and you've given us some practical steps to do that. By the way, folks, you mentioned the FaithFi app.

It has a powerful feature where with one click of a button, you can reset the system and start over if you haven't been in in a few months. Sharon, thanks for stopping by. Always glad to be here. Alright, folks, your calls are next. The number 800-525-7000. That's 800-525-7000. I'm Rob West and we'll be right back.

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Great to have you with us today on Faith and Finance. We're taking your calls and questions today. 800-525-7000. Whatever's on your mind financially speaking, call right now. Sandy taking our calls today, and she's ready for you. 800-525-7000. Call right now. Let's begin today. We're going to dive in.

Chicago, Illinois is where Michael is located. Go right ahead. Yeah, thanks so much. So I pretty straightforward question here. So I have a pension fund that I'm no longer contributing to and I have the option of rolling it over into either a Roth IRA or a conventional traditional IRA.

My question is, which one should I roll it over into where I would have the least tax burden? Yeah. So you said your age was 37. Is that right? Yeah, I'm 37. Yeah.

Okay. So the way to determine the tax burden is really impossible because we'd have to know what the tax rates are going to be out when you get to retirement. So let's say that's 30 years down the road that God redirects you away from paid work and at that point you're starting to live off of this. Who knows what the tax code is going to look like? Are rates going to be the same? Are they going to be much higher? Are they going to be somewhat lower?

We just don't know. What we do know though is that if you have the ability to pay the tax now, and that's a big if depending on how much you have that you're rolling out of the Chicago's teachers union fund, you know, whatever portion you do not put into a traditional IRA and you elect to put into a traditional and then convert it to a Roth. Well, at that point all the tax is going to be due so it'll be added to your taxable income for the year in which you convert it to a Roth and that could be a pretty substantial bill. So I think the first question is, do you have the funds separate and aside from what's in your retirement account, your pension, that you could write that check and pay that tax liability for whatever portion it is. If you do, great, then it's at least worth considering.

If you don't, I would say that's probably a showstopper. Now, in terms of the benefit, because you're young and you've got time on your side, I really like the Roth option. Again, if you have the money to pay the tax bill because now the tax has been paid and then let's say you have 30 years of compounded growth at which point you pull that money out, all the growth between now and retirement and you get all of that tax free.

That's a really powerful tool and it's why I like the Roth so much, but it's going to be fairly expensive on the front end for whatever portion you convert. And again, it's going to come down to whether the money is available to do that. Does that make sense? Yeah, that makes a lot of sense. Definitely.

Okay. Now it doesn't have to be an all or none. I mean, I think the other option is to say, you know, maybe we convert a portion of it. At the very least, what you may want to do is say, I'm going to do it over several years. So what you could do is say, I'm going to convert a third of it this year and then I'm going to do a third next year and then a third the year after that. You know, when we thought the Tax Cuts and Jobs Act was going to be expiring and then potentially tax rates were going up, there was somewhat of an urgency because that happens at the end of next year. Now with the Trump administration, especially with Republican control of the Congress, you know, the House and Senate, we're likely going to see either those tax cuts made permanent, possible to see a slight reduction, probably not going to see tax rates go higher.

So there's a little less urgency than there was. So I think that would allow you to say maybe spread it out over three years. The other thing that would do, Michael, is to ensure that, and you could work with your CPA on this, again, if you decided to do it, you could ensure that you only convert enough that you don't kick any of it up into a higher tax bracket.

And so you could really be thoughtful about how much you convert in any one year moving forward so that you're not paying any more tax than you would otherwise. So hopefully that helps you. We appreciate your call today. If we can serve you in any other way in the future, give us a buzz. Let's go to Louisiana. John, how can I help you? Hey, Rob. I love your show. I listen just about every day. Awesome.

Thank you. My question is, if I made contributions to a traditional IRA, is there a waiting period or something before I can do a backdoor Roth? There really isn't. Now, you'd have a five-year rule before you can withdraw it without incurring a 10% penalty if you're under 59 and a half, but with regard to the conversion, there is no waiting period and there's no limit of any kind. So you can convert as much as you want from a traditional IRA to a Roth, and the number of conversions you can make in a single year is not capped. The only consideration is maybe a tax year rule where conversions have to be completed by December 31st of the calendar year to count for that tax year. They can't be attributed to the previous year, even if they're done before the tax filing deadline, which is something that you can do on contributions, but that doesn't apply to conversions.

But apart from that, there really is no limit or timing issue. Okay, so I think you just answered this, but just to be absolutely sure, so if I do a conversion now, will that in any way affect my contribution limit for 2025? No, the conversion does not apply to a new contribution limit. Okay, good. Would it make a difference, I don't think it would, but would it make a difference if the traditional IRA funds that I have now got there by recharacterization because I overcontributed in the previous year? I see.

No, as long as it's in that traditional, you have the option of the backdoor Roth to be able to move that money so long as you meet the income requirements. Okay. All right. Well, thank you. I appreciate it. All right. Thanks for your call today.

We appreciate it. 800-525-7000. That's 800-525-7000. You know, this is a often under appreciated strategy, which is this idea of being able to put money into a traditional IRA. And if you aren't able to make a contribution to a Roth because of your income limit, you can do a non-deductible traditional IRA contribution and then convert that money to a Roth IRA. And so they call this a backdoor Roth. And it is somewhat of a loophole in the tax code. It's completely permissible and happens all the time. But you have to pay, of course, the taxes on the amount converted. And if you've made, you know, non-deductible contributions to your traditional IRA for the reasons I mentioned, part of the conversion will be tax free.

But it's a great strategy. You may want to mention to your CPA or financial planner as you think about funding retirement, especially if you're trying to catch up to Ohio. Christina, go ahead.

Hi, thank you for taking my call. So my situation is I've been a stay at home mom for a long time. I have my own business and I have a couple hundred dollars that I would like to invest somewhere. And I want to, you know, every once in a while I need to, you know, I want to be able to put money into it.

But I don't know exactly where to start or where to put that money. Yeah, I love that. And so let me ask you a couple of questions. Do you have an emergency savings yet that's separate from this? We do. Okay.

And you've got somewhere between three and six months? That part we're still working on. Okay. I think that should be your first goal. Now, apart from that, did you say you're self-employed? Yes.

Okay. And so you wouldn't have access to a company plan. So I think a great next option for you, assuming you're thinking long-term investments where you're not going to touch it for, you know, until you get to retirement, would be a Roth IRA. And you could open that at Charles Schwab and perhaps use their Schwab Intelligent Portfolios, which is a real simple, low-cost way to invest because they're going to take all the guesswork out of it. They're going to use what are called index funds. Actually, they'll use ETFs, very low cost, very broadly diversified. And then every time you add money to it, it would automatically be reinvested.

So let's fully fund that emergency fund, but then open a Roth IRA at the Schwab Intelligent Portfolios. And I think that'll get you going in the right direction. Thanks for your call, Christina. We'll be right back.

Stick around. We are grateful for support from Crossmark Global Investments. They are a faith-based firm with a goal of offering values-based investments to help align financial choices and faith, ensuring a portfolio that reflects what matters most. Crossmark does this through investment solutions that span the capital market spectrum from large cap to small cap strategies, including equity, fixed income and balance strategies. They are led by industry veteran Bob Doll, CFA, a regular guest on the faith and finance program.

More information is available at crossmarkglobal.com. Great to have you with us today on faith and finance. I'm Rob West. Hey, do you enjoy the program? Well, here at the end of the year, we'd like to invite you to invest in the Ministry of Faith. We're listener supported, which means a large part of our ministry budget comes from your generous support. And this is a great time to give because we're closing out our listener support portion of our budget between now and December 31st.

And we're not quite there. We're a little more than $100,000 away. The good news is every gift is doubled until December 31st up to that limit that we're solving for. So every gift right now at faithfi.com, when you click Give, it's going to be automatically doubled. And we've got some generous donors that have come alongside us and said we'll match every gift until December 31st. So would you prayerfully consider a gift of any amount, large or small? We're going to need some 50 and $100 gifts. We're going to need a few at $1,000 and $5,000.

Perhaps you could even do a bit more than that. And we'd certainly be grateful. Here's our promise to you to stretch every dollar to put it to good use to equip God's people to integrate faith and financial decisions for His glory, ultimately, so we can realize our vision that every Christian would see God as their ultimate treasure. That's what we're all about here at FaithFi, and we got a lot of exciting things coming next year. A new version of the app that's just going to blow your mind what we'll be able to do. Our new publication comes out in January, Faithful Steward. Can't wait for you to get your hands on it. It's beautiful, and it's full of articles that will just encourage and equip you in your stewardship journey. You'll support all of that with your gift at faithfi.com. Just click Give, and again, all gifts doubled between now and December 31st.

Thanks in advance. All right, let's head back to the phones. By the way, we have some lines open today. You can call right now.

800-525-7000 to Fort Myers. Hi, Mark. Go ahead. Hey, Rob, thank you for taking my call.

I tried to get you yesterday, but I drew the short straw and didn't make it. I want to run a plan by you. I'm 67 years old.

I'm still working, plan on working for the next three to five years. I turned on my Social Security this year, and I have a traditional IRA that I want to fund. And part of my plan is once I turn, I guess, seven and a half, I want to use that traditional IRA for QCD. But also, I've been encouraged to perhaps put that money into a Roth IRA instead.

So I wanted to see what you thought about that. Yeah, so give me a breakdown of what you have today. Okay, I've got my retirement money pretty much set aside. This particular traditional IRA is about only about $25,000. And like I said, I want to fund that with my Social Security money, and I know I can put $8,000 into that this year. I've got security money set aside as far as, you know, emergency money and that sort of thing. But I just want to know if it's a good idea to put that into the traditional instead of a Roth with the intention of using it for QCD down the road.

Yeah, yeah, I like that. Yeah, if that's your intention, and you still have that earned income, which would allow you to make the contribution to the to the traditional IRA, because in any IRA, you've got to have earned income up to the amount you're putting in. And it caps out with the max, which to your point for 2024 is 8,000. If you're age 50 or older, if your ultimate plan for that money is to be a qualified charitable distribution, then yes, it would behoove you to go ahead and put that in the traditional and not the Roth. You see, the Roth is going to be an after tax contribution that grows tax free. But when you're using the traditional with the plan to use the QCD, the qualified charitable distribution, you kind of get the double dip because you're going to get the tax deduction when the money goes in. So it will be excluded from your taxable income. And then when it comes out, you don't pay any tax, because as long as you're age 70 and a half, and by the way, there is no waiting period on that for a qualified charitable distribution.

So as long as you're 70 and a half, that money can go out and you don't pay tax on it then either, because it's going straight to a ministry. So I would say if if that's the plan that is by far going to be the better option. Okay, great. I've been paying attention throughout the year. So you're teaching us well. All right, you passed the test. I'll take that. Okay, great. All right. Thank you very much, Rob. Absolutely.

Mark, Lord bless you. You know, one of the questions we get often here on the program is when I have the option and this usually shows up with a 401k, when I have the option to contribute to either a traditional 401k or a Roth, should I do one or the other or both? And it's a great question. And two University of Arizona researchers looked at this and studied literally 1000s of actual people and looked at where they would come up with the optimal amount in traditional versus Roth. And they came up with a rule that they say, quote, produces near ideal results in quote, and the rule of thumb is to simply add the number 20 to your age and put that percentage in a traditional IRA with the rest going into the Roth. So let's say you were 55, you would add 20 to it, 75% would go in the traditional, you get the tax deduction on it, 25% in the Roth.

Here's the idea. The younger you are, the more you want going into the Roth, the older you are, the more you can usually benefit from that tax deduction. And they say is that the common advice that older workers should be funneling all of their money into traditional doesn't consider the risks of tax rates increasing and that investing some of the contributions into a Roth eliminates some of that risk. Now that risk is lower, at least in the near term because of the Trump presidency. Nevertheless, when we look out 10 or 20 years down the road, we have no idea where tax rates are going to be.

That's where this rule of thumb to add 20 to your age to put that percentage into traditional accounts, the rest into the Roth, at least based on the work of these University of Arizona researchers might come up with the sweet spot for you in terms of maximizing both opportunities. Take that for what it's worth. Well, as we round out the broadcast today, let me finish by reminding you the five principles of money management that we find in God's word. You know, after we recognize that God owns it all and that we're stewards or managers of God's resources, the next question is, well, how do I faithfully manage those resources? And that's where these five wise principles come in. Number one, spend less than you are. That's the key to every financial success. Number two, avoid the use of debt because debt mortgages the future.

Number three, have some liquidity or some margin in your financial life, something left over at the end of the month. That's the only way that you'll ultimately be able to accomplish your longer term goals and objectives, whether that's paying down your debt or increasing your giving or saving for the future. Fourth, have long term goals. You see the longer term your perspective, the better the decision you'll make today. And number five is give generously because giving breaks the grip of money over our lives.

I hope those five principles are an encouragement to you and will be helpful to you along the way. Well, a big thanks to my team today. We certainly couldn't do this without them. We're grateful for Jim Henry, Taylor Standridge, Chad Clark and Amy Rios and everybody here at Faith Vibe. We hope you'll come back and join us next time. And until then, may God bless you. Bye bye. Faith and Finance is provided by Faith Vibe and listeners like you.