Announcer:
It’s 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 representatives, securities offered through Cambridge Investment Research Incorporated. A broker dealer, member of 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 bringing you today’s show. We are in second Wednesday of December already, which seems to be the reoccurring theme so far this winter. Got a nice little snow coming down out there and temperatures are starting to get to the point where getting a little slick out there on the road. So if you’re traveling and heading anywhere, maybe give yourself a little extra time kind of right around or right below that freezing point now and the roads are definitely starting to get a little thick. So again, years moving right along. Hard to believe that we are this far into the month of December. Christmas is what, only a couple weeks away. Those procrastinators with Christmas shopping and prepping for the holiday season, you’re getting tight.
So we are already into Christmas concert, Christmas program, all that kind of fun stuff going around. We had another great two night event up at the Eagle Point Lodge last week for our annual Christmas party up there. It’s always good to kind of showcase what the Symphony of Lights does and that park is truly amazing each year. Obviously the lodge up there is a great event, especially this time of year. We had snow on the ground, which kind of adds to the feeling. So another great event up there and then hopefully everyone is gearing up and then we’ll have a very happy holiday season as it nears it very, very quickly.
And with that, getting to the end of the year, there’s a couple things I wanted to kind of go over today that is again kind of end of the year planning type of things. We kind of talk on concepts of these off and on throughout the course of the year and they’re kind of connected with some of the other topics when we have Andy or Mike VanZuiden on talking taxes and then how that means the tax planning portion of what they do, not just during tax season, but again, the whole year so that the way there’s no kind of unexpected surprises when you go in and file your taxes.
But as we get to this point in time, it’s a good time period to kind of look at what do we need to do and if there is anything for us to do as we get closer to the end of the year. We have a pretty good idea as far as what our income is going to be, any overtime, any extra hours, what it will be. So we can kind of start dialing in where our income is going to fall on the updated tax brackets for 2025. If it applies to you, any of the changes that went into effect on July 4th with the OB3 new tax bill, is that going to impact you? And if so, how much is it going to change what your taxes is? And as we look at that, now is a great time that if you have some room or if you have some opportunity and you’re willing to take on a little bit more taxable income in a year to start looking at some Roth conversions.
We’re really getting to kind of crunch time if you’re looking at doing some of those in the next week, maybe week and a half to do it to make sure they get in and process and transferred over by the end of the year. But again, understanding where your income is, any additional income that you would add, and that would be in the way of moving money from a tax deferred account where you got a tax deduction when you put it in, and then paying tax and converting it over to a tax-free world, which would be the Roth. Again, this is adding taxable income in a year that you would maybe not necessarily have to add that income, but what you are doing is you are controlling what you are paying on tax for any amount that you would move over. And if you’re in a lower tax bracket, if you have a little room before you bump up to a tax bracket, again, if you’re over 65 and you have income less than 150,000, you have extra senior deduction on your tax return as part of that new tax bill.
Maybe that allows you to utilize that by adding some income and paying very little, if any, tax on it, depending on where you fall on the tax bracket scale. So again, the one important thing to keep in mind with those Roth conversions though is that the deadline is December 31st. They have to be done in the calendar year to be taxed in the year that you do that. And again, a lot of people and kind of custodians and back office don’t like to wait until December 30th to do those and probably won’t get processed by the end of the year. So again, if you’re looking at doing that, you have a good idea. You can kind of estimate now for the next couple of weeks what your income’s going to be and then look at adding that.
Along with the conversions is looking at contributions. Again, looking at what your income is. Is it going to be higher this year? Maybe you need to drive your income down a little bit and the last paycheck or two that you get, maybe add a little bit more into the pre-tax portion of any retirement account that you have to drive that income down. Because again, when you get to those contributions, money into retirement accounts have to be done earlier. If you’re still looking and able to make a deductible contribution or a tax-free contribution into a traditional IRA, or I’ll say Roth IRA, those deadlines are actually April 15th, which is the tax deadline. So if you have room to do it and you haven’t already and you’re eligible, you have up until April 15th to make a 2025 contribution into a traditional IRA or a Roth IRA. Now, Roth IRA is not going to change your taxes at all, but maybe you’re just over a threshold for Medicare premiums or some other threshold where you need to drive your income down by a little bit.
You are able to, again, make those contributions into a traditional IRA up until April 15th and move your income. Now again, you want to do that and make sure that’s accounted for on any tax return you do, because if you do it after the fact or you don’t account for that, then you’re going to have to file that amendment to make sure that it gets done. So again, we’re getting a lot of those time of the year where, again, start understanding, start looking at things because again, you have the bulk of information in front of you from a latest pay stub, knowing what you’re going to do for the next couple of weeks and be able to plan accordingly. Along with that a little bit is, again, looking at doing some tax planning. And this is the biggest thing is looking at your withholding. If you had a big spike in income this year, are you withholding enough?
If you had a decrease in income, are you withholding too much? Again, nobody likes to pay in a big tax bill when it comes to tax time, but again, can we offset that by taking a little bit out each pay period or again, you get that big refund back at tax time, it feels good, it’s whatever. But again, in reality is, and Andy does a great job of explaining to you, we can make that number on your tax return, whatever it is that you want it to be, because it’s literally your own money. You’re either paying too much to the IRS and they’re paying it back to you, or you’re keeping more money into your pocket throughout the year, and then you’re going to just pay them what you owe them at tax time. We can control that by what we withhold on every paycheck.
And the filing status is, again, another key component of that. When you fill out those tax forms for withholding, when it asks you single, married, filing jointly, married separately, all those, everyone thinks that that has to be what their marriage status is, and it doesn’t necessarily have to be. It is solely based off of the withholding or the standard deduction amount that they’re going to use in order to withhold the proper amount of taxes on those tax returns. So if you have, again, multiple jobs is when it really becomes an issue is because if you hit married filing jointly and you have three different jobs, part-time, whatever they may be, and you hit married filing jointly, they are going to withhold according to that is your only job. They’re going to give you the full married filing jointly standard deduction when they do that holding.
Well, if you have three different jobs and you market the same way, they’re going to withhold, assuming then that you get three full married filing jointly standard deductions, which is obviously not true. You only get one standard deduction on your tax return, but they’re going to withhold accordingly based off of all that. So again, when you’re looking at that, understand that what the withholding is, if there is going to be a big issue or a big jump one way or another, make sure that … Again, looking at it for this year is probably not the time to change it, but make sure that gets implemented then for January 1 so you start the new year with where you’re anticipating going to be from an income-wise.
And kind of along with that is, again, as we get to the end of the year, looking at beneficiaries, and this is a topic that a lot of times gets forgotten or overlooked and making sure those accounts that have beneficiary designations to them, retirement accounts at work, IRAs, Roth accounts, annuities, life insurance policies, things like that that, again, you have to list a primary and/or a contingent beneficiaries with those.
Maybe you had a life changing event, you got married and you want to add your spouse as now a beneficiary to it. Again, make sure they get updated. They don’t automatically change. You have to physically, in most cases, either log into your online account and make that change or get in a separate form, fill it out, complete it, and then put that in. Because where we see it a lot of times is if somebody has a life changing event, maybe again, they get married, they want to add a spouse, they get divorced, they want to take a spouse offer, change something. If you had a trust done throughout the course of the year, are we looking at the pros and cons of adding the trust as a possible contingent beneficiary or primary beneficiary? Again, in coordinating what that says, a lot of times people think that they have a will and that’ll take care of it.
Well, your beneficiaries supersede anything that you have listed in your will. So you may have something listed in your will, your beneficiaries say something different from an account that you opened 20 years ago, you’ve never updated it. Well, if you pass away, the beneficiary accounts are going to go by what you have listed in there, not necessarily what you have listed in the will. So again, just a couple things to kind of go over as we get closer to the end of the year, some house cleaning things, just kind of a constant reminder to make sure that we have these type of things updated and current and are truly what we want them to be so that there are no surprises when they would be enacted. So any questions, again, as always, give us a call. I’d be more than happy to kind of go over this with you.
Before I run out of time, I did want to mention that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of December will be donated to the Living Peace 365 Program. Again, this is Nate Kreinbrink with 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 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 of 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.