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 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 bringing you today’s show. Another wet one, it’s raining again overnight and seems to have been the theme so far this summer. Usually, this time of year we’re starting to look at yards and look at how brown they are and saying, “Well, it looks like we’re not going to have to mow again,” but we are probably still in a time where it is two to three times a week getting on your yard, or else you’re going to have to bail it. So I guess we’ll take what we can get. The weekend’s supposed to be nice, so I guess we will take that and not complain too much. So again, you don’t have to water your yard, don’t have to water your flowers as much. Mother Nature is taking care of that for you.
But again, it is hard to believe that we are today, last day of July, August starts tomorrow and officially in the month where we are back to school, which I know for many kids, teachers definitely not looking forward to that. Parents maybe, on the other hand, have that date circled to get the kids back into the routine and all that entails with that. So that will be here before we know it. So enjoy the next couple weeks of summer, I guess, before they have to go back to school.
This time of year, it is a busy time. Got Olympics going on for the next couple of weeks, and then following along with your favorite event that’s going on there. Baseball, we just had the trade deadline. We’ll see how that pushes into the playoffs. And again, I think I saw where there is a NFL preseason exhibition game coming up. So we will now start having football on TV for the next six, seven months. So again, a good time of the year, crazy time of the year. But again, when we start looking at it from a timing standpoint, there’s a lot that we can take from it from our own personal and financial matters of what we’re looking at doing at this time of the year.
I know last week, Mike Stegerwald and I were on, we kind of talked social security a little bit, claiming strategies, how it fits into the big picture. But again, when we’re starting to get into August, it is a great time to start looking at our finances and see where we’re at. I know in the springtime we always talk spring-cleaning and then look at your finances for that one. In the fall, it’s a great time as well because again, we still have four or five months left in the year to be able to make any changes to our savings rate, our tax withholding, things along those lines where we can still do that and still have enough time left in the year to be able to have it impact our overall situation as far as what we’re looking at doing.
So again, when we look at our savings rate, again, are we maximizing what it is that we are doing? If we got a raise throughout the course of the year, is it time to maybe bump up our percentage a little bit? If we were withholding 6% of our paycheck, do we want to maybe look at, and are we able to bump that up to 7% and just kind of continue to keep increasing that? I know some of the plans, especially some of the more recent ones, if you’ve just got enrolled in a 401(k) plan, they automatically do a 1% increase each year unless you opt out of that, which is different than what it used to be, you had to literally opt in to say, I want to increase this one year. Well, a lot of plans have switched that where, again, if you don’t opt out of it is going to increase your percent that you are putting into your 401(k), to your 403(b) or your retirement plan by a percent each year until you basically cap out or max out.
So again, understanding is that going to change from you and, again, if that is going to happen, how is that going to change your taxes at all? Again, if you are putting pre-tax money in, so you are putting $1 in before taxes are taken out of your wages, that is lowering your taxable income by the amount that you are putting it in. So again, if that increases your percentage of what you are saving it is going to again increase your tax deferred amount, which again is going to then increase your deduction that you’re getting by lowering your income by that bigger amount. So understanding how that’s going to change your taxes when that happens, or if you do raise it, what is that going to look like.
Or are you saving in the after tax or the Roth world? Again, with the Roth world, you don’t get the deduction for putting it in, it’s already been taxed. The benefit is the tax deferral and tax-free status, as long as you take it out under certain guidelines. Basis that you put in, is always able to be taken out without tax, without penalty as long as the account is open for longer than five years and you are over 59 1/2, money coming out of a Roth IRA, you do not pay taxes on the gains as well. So again, you start looking at differences between saving between the two of them again, how impactful is that deduction in the current year versus the trade-off of having to pay taxes on it when it comes out on the backside?
Again, a lot to go through looking at tax rates now versus tax rates in the future, income now versus income in the future, the impact of having tax-free growth over the length of that account that you are having. Again, a lot of that goes into play when making the decision as to whether you should put it into a traditional pre-tax IRA, 401(k), 403(b), or transition over to the Roth world and the differences between that. So again, if you’re not having those discussions with an advisor with a tax accountant, again, you’re kind of selling yourself short to be able to look at your different options and saying, “Hey, what is the differences and how is this going to impact me if I do it one way versus another, or a combination of the both, and what number are we trying to look at doing from that?”
So again, you look at those from your retirement plan, those contributions have to be in by the end of the year. The IRA and Roth accounts, again, not retirement plans at work, but saving on your own, whether it’s a traditional IRA or a Roth, again, you do have up until the tax deadline to make a prior year contribution. So those deadlines are a little bit extended obviously, than what it would be until your retirement plan at work. So understanding those differences and when you’re looking to put money into it, we want to make sure that we’re doing stuff like that again so we don’t miss any of those deadlines.
Where it comes into play and what we talk a lot of times and where we’re starting to get into the time of the year where we do a lot of meetings, and this is one of our main discussions, is Roth conversions. So taking money from the pre-tax, so from the traditional IRA world where we’ve got the deduction, we had the tax deferral and willingly paying taxes in a year where we wouldn’t have had to have, but looking at converting that over to a Roth IRA. Why do you want to look at doing this is to, again, fill up maybe a tax bracket if you’re in the 12% tax bracket, looking to fill that up so we don’t leave any room left in that at that rate that we could look at doing.
And again, just looking at it, if you’re getting a big refund back, maybe sometimes you want to look at what your refund is going to be and saying, “Well, how much can I convert to basically use that refund up. Again, getting it over a little by little over to the tax-free world. So again, when you look at doing those, those Roth conversions do have to be done by December 31st. So again, it’s not something that applies to the tax deadline, like contributions do, conversions have to be done by 12/31, which is why we start doing that planning as we are in the next couple of months, especially as we get into October, November and the first part of December.
And again, why we wait ’til the end of it again, if we’re going to look at converting money and paying taxes in a year where we would not necessarily have had to, we’re getting to a point where you have a pretty good idea as far as what your income is going to be for the year. You have a decent amount of ideas as far as what overtime, obviously, you have already maybe had or what you may be looking at for the end of the year, and we’re getting closer where, again, if we have an unexpected expense, we can maybe push any larger distributions from retirement accounts over until the following year, into 2025, to make sure that the number that we use to do the Roth conversions and what we thought we were going to pay in tax on converting money is going to be accurate from that.
So again, there’s a lot of planning that happens here in the next couple of months. Again, whether it’s your retirement accounts at work, whether it’s your accounts that you have on the outside. Again, if you just have investment accounts, start looking at some of the ups and the downs that may be different funds or whatever had, do you want to do a little, what we call tax loss harvesting. Looking at gains, looking at losses and offsetting them to reset cost basis with some of those funds that you have. But again, a lot of stuff that can be done here and again, a lot of important stuff that again, over the next couple of months I think will be definitely beneficial as we head to the end of the year because again, it’s hard to believe that we are looking at the end of July today, but it’s going to go fast and obviously, kids get back into school, you’re into Halloween, you’re into Thanksgiving, and then you’re into Christmas, and then we just repeat the cycle over again and it will go extremely fast.
So again, if you have questions on any of that stuff or where to start or hey, I don’t know what I need to look at to see what I’m doing, give us a call. Your future, your retirement is too important to wing and do it blindly to not have someone guiding that ship and making sure you’re on the right track to again, maximize everything that you have. I always say that again, it’s not what you have, it’s what you keep. And if we can keep more in your pocket and less to the IRS in the form of taxes or maximize more so what you have again, I’ve never met anybody that isn’t on board with that, or looking to do it.
So give us a call. I’d be happy to do that. Did want to mention though real quick before I run out of time that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of July will be donated to the Sawmill Museum here in Clinton. 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 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 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 or legal advice. For more information, visit our website at www.nelsoncorp.com.