Announcer:
It is time now on KROS for Financial Focus, brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research Incorporated, a broker-dealer, member FINRA, SIPC. Investment advisor representative, Cambridge Investment Research Advisors incorporated. A registered investment advisor, Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now here’s today’s Financial Focus program.
Nate Kreinbrink:
Good morning and welcome to this week’s Financial Focus, brought to you each and every Wednesday morning right here on KROS. Well, this is Nate Kreinbrink at Mike Steigerwald here with me, NelsonCorp Wealth Management. First day of school in the area. I know some of the schools across the river there in Illinois got started either yesterday or potentially last week. I know, but for a lot of the area schools on the Iowa side, today is the first day of school.
Mike Steigerwald:
It’s a hot one.
Nate Kreinbrink:
Yeah. The Facebook page is going to be inundated with first day of school photos. The notorious going into this grade, this grade, this grade.
Mike Steigerwald:
Yep. Got a few texts like that from family members today. Yeah, it’s officially here.
Nate Kreinbrink:
It is here. Want to wish all the students, staff, bus drivers, faculty, whatever it is with a great year, make it the best. It’s a down here slide from now. The countdown has begun to summer again.
Mike Steigerwald:
That’s right.
Nate Kreinbrink:
It’s going to be a warm one again though. Back to school when it gets hot, and opening week for football here in Iowa. Of course, temperature wise has to heat up and stay cool out there. I think triple digits I saw.
Mike Steigerwald:
Oh, yeah. No doubt. I think the next couple days, a lot of precautions being taken by the athletic events. I know practices move to morning time and just making sure everybody’s going to stay safe.
Nate Kreinbrink:
It is. And I won’t spend a lot of time on it, but you were joking or kind of filled me in a little bit on the way up here. Mike’s a big White Sox fan and they’re cleaning house, man.
Mike Steigerwald:
Yeah. I mean, I never thought I’d see the day. We talked about on the way here, but I mean the executive vice president that was released yesterday, been there 38 out of the last 41 years with that organization. It kind of seemed like he was in that role for life, but apparently not. Clean house and time to find the next person to lead the charge and hopefully they pick the right one.
Nate Kreinbrink:
And if it stays in Chicago.
Mike Steigerwald:
That’s true too.
Nate Kreinbrink:
Today’s program, I know we had Andy Ferguson with NelsonCorp Tax Solutions on last week. Third Wednesday of every month. We always talk taxes with either him or Mike VanZuden. Andy kind of filled us in on some of the topics he got back from a tax conference in Washington DC. Kind of hit on some of the key topics. I know we spent a lot of time last week talking about how income from PayPal accounts and Venmo and all these type of things are going to actually have to be accounted for on your tax return this year. And you’re going to have to essentially prove if that was income, if it was a reimbursement or what type of transaction that was. The limit as far as what you had to report in years past was really high. They’ve dropped that down to about $600.
If you have transactions that are at or above $600, you’re going to have to prove that those were either a reimbursement or if it was income for a sale of a good or a property or a service that you provided that got paid for it, you’re going to have to essentially pay taxes on that. That’s going to be a big change with tax season this year. Obviously the first time you do it, there’s going to be a lot of people that obviously don’t have that information. You will be getting a tax form directly from those, whatever entity it is that you use, letting them know as far as the transaction amounts. But again, a big topic, something that everybody uses these days as far as to, again, reimburse people, send money, pay, times are changing, but now it’s going to have to be accounted for on the tax return.
Mike Steigerwald:
Yeah. Really all those platforms have completely grown in popularity over the last three to five years. I’d be shocked to find people that aren’t using them now.
Nate Kreinbrink:
Right. Again, looking at that way. For today, just wanted to continue on the tax topic, and I know Mike in our office and a lot of us have done financial planning. We talk, planning is essential to basically any decision that we make. When we make a decision, whether it’s investments or what type of account to go to or where to put money or when are we going to choose to pay taxes. It all fits into that plan and looking to maximize the pile that we have. We say, it’s not what you have, it’s what you keep. And again, if we can choose and willingly pay taxes in a lower bracket rather than being forced to pay taxes at a higher bracket later on, again, more money in your pocket, less money to the IRS. Have not met anybody that has said, no, I don’t want to do that.
Mike Steigerwald:
Right.
Nate Kreinbrink:
Again, when you start looking at the tax planning and you getting into financial planning yourself there, there’s big topics to look at. And the first one to start is, again, if people are saving money, where are they saving at and discussing the different types of accounts that they have.
Mike Steigerwald:
Sure. I mean, clearly not every account and not every place that you can have money is taxed equally. Not every account is treated the same on both an investment standpoint and tax wise. We always say that every decision that’s made on your investments and where you have money and where you take money from will impact your taxes, whether that’s today or tomorrow, it’s going to happen. Really developing a plan and having a strategy to unwind this. Something that we see a lot from our clients is, okay, I have this pile of money, this pile of money, this pile of money, this pile of money. Now what’s the best way and most efficient and effective way to unwind it to minimize my tax liability?
Nate Kreinbrink:
Right. And again, if you’re like most people, you’re saving hopefully into a 401K, 403B, whatever your retirement plan is at your employer. Most people, again put it into the pre-tax, tax deferred portion of that, meaning whatever dollar, however many dollars they put in, they’re going to get a tax deduction on their income in the year that they put it. They are essentially deferring taxes. They’re kicking that tax can down the road and paying taxes on it. Again, somebody walks in with a $450,000 401K or a million dollar 401K, they don’t essentially have that amount because they have a lien to the IRS on taxes whenever they take money out of it. Again, not knowing what taxes are going to be like two years from now, let alone 10, 20, and in some cases 30 or 40 years down the road.
Again, you’re pushing that tax liability out to an unknown period of time just to get that immediate tax kind of deduction in the year. Again, is that the best way to go? In some cases, yes. In other cases, we may want to look at if your plan does offer a Roth 401K or a Roth 403B, which has become more and more commonplace in a lot of these company plans, does it make sense for you to maybe put a little bit, a couple percent or whatever into that portion of it? Essentially it’s after tax, so you’re not going to get the tax deduction, but that money is going to grow tax-free. And then when you look to take that out down the road at retirement, you have a bucket of money you’ve already started accumulating and amassing a pile of money that is essentially going to be tax-free.
That gives you more options later on when you get to retirement as far as controlling your taxes. And that is a big part of what we do. And a lot of times when people retire versus the Social Security question, when do I file and all that, there’s opportunities. There’s opportunities to look at what your taxable liability was when you were working versus what it is when you’re not working versus what it is if there’s a pension that’s starting or when we’re going to start Social Security. And the big phrase that I always say is, when you retire and when you take Social Security needs to be two separate decisions. Just because you retire is not a good reason to take your Social Security.
Mike Steigerwald:
Correct.
Nate Kreinbrink:
You want to have a reason as to why you’re doing it and a plan to do it because I think what you’re going to get into now is just the opportunities that may exist by maybe delaying your Social Security a little bit and the tax benefits of maybe doing Roth conversion, some of that type of planning with those tax deferred assets in that time period there.
Mike Steigerwald:
Certainly. I mean, the one thing I can definitely say is that there is no cookie cutter strategy here.
Nate Kreinbrink:
Mm-hmm.
Mike Steigerwald:
I mean, every situation’s going to be different, but just there are times where it makes sense to maybe delay taking that Social Security benefit to further the opportunity to convert some money into that tax-free bucket. And in sense, creating a tax-free bucket for those later years in your retirement to again, as Nate said, have some options. Give yourself some flexibility in terms of where can I take this money from? Something comes up and you could take it out of a tax-free bucket rather than a taxable bucket, again, is going to lessen your tax liability in those later years. There’s definitely opportunity, again, I keep going back to it, but it’s really about developing and creating a plan and sticking to a strategy that makes the most sense to keep more dollars in your pocket than going to Uncle Sam.
Nate Kreinbrink:
Right. And again, we’ve talked, I think in numerous shows as far as Roth conversions, basically converting money from the tax deferred, your IRAs, your traditional, your 401Ks over to a Roth world. We have to pay tax to do that conversion, but we want to start getting that over. But again, we want to start looking at, again, if you are taking your Social Security benefit, okay, how much, and to what extent is that Social Security benefit being taxed? Because sometimes people fall into these tax traps where again, they take a dollar out of their tax deferred, their IRA account, their traditional 401K, and yes, they know they have to pay taxes on that dollar that they take out, but what they don’t realize is that they’re over a threshold where it’s now starting to bring a dollar of Social Security over to become taxable. That $1 that came out essentially made $2 become taxable.
Mike Steigerwald:
Yeah.
Nate Kreinbrink:
Again, now there’s certain opportunities where, okay, it maybe may not make sense to just take a little bit, we have a cliff to say, hey, if we’re going to do this, let’s max this thing out and let’s get a bunch over and then start looking at the benefits of doing that. Again, a lot of stuff to look at. Again, retiring is not easy. Again, you want to work with somebody that has done it before and again, hopefully we only retire once and looking at all the different things that come into it. And again, it’s not as simple as, I have this account, I need to take out this much. Well, what are you going to pay in taxes? And I think that’s something that’s oftentimes overlooked.
Mike Steigerwald:
Right?
Nate Kreinbrink:
Again, if you’ve got questions, give us a call. We’d be happy to sit down with you. Mike, myself, someone else in our office, NelsonCorp Tax Solutions. As far as coordinating the tax side of all this, looking at your tax return and understanding whatever move or whatever decision we decide to do, what is that actually going to look like on your tax return? We don’t want to walk into our tax meeting in March or April and be surprised.
Mike Steigerwald:
Right.
Nate Kreinbrink:
We want to understand, again, any decision that we make, what is it happening? Give us a call. We’d be happy to help. Did want to mention before we run out of time that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of August will be donated to the Duke Slater Memorial Statue and Scholarship Fund. Again, Mike, I appreciate you joining me this morning. Mike Steigerwald and Nate Kreinbrink, NelsonCorp Wealth Management, bringing you this week’s Financial Focus. Thanks for tuning in and have a great rest of your week.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in the show are for general information only, and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly registered representative Securities offered through Cambridge Investment Research Incorporated, a broker dealer member FINRA, SIPC. Investment advisor representative Cambridge Investment Research Advisors Incorporated, a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.nelsoncorp.com.