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.
Nate Kreinbrink:
This is Nate, I got James joining me today. Just your typical mid-March, dreary, rainy, foggy day out there today, which is again, we had kind of got spoiled last week, but again, never knowing March, Iowa never know what you’re going to get.
James Nelson:
Yeah, exactly. Those 70 degree days felt good for a day or two, and now they’re gone.
Nate Kreinbrink:
It was definitely a little tease, and I think it was just something that everyone just is looking forward to get to those normal temperatures. Obviously, again, we always say, if you don’t like the weather this time of year, just blink and it’ll probably change the next day. And hopefully we can get past this and see those warmer temperatures after this next couple day or so as far as maybe back down in the twenties in those areas.
James Nelson:
Yep, yep. But the good news is we’ve got baseball since the last time we were on here.
Nate Kreinbrink:
It has started and it’s good to see those spring training games get on, and again, minor league seasons and then those type of college games and all that are already starting to roll. Obviously you go across the river over to Illinois High School baseball, softball’s already gotten underway. This side track is gone. So spring sports are underway, which only means it’s going to get warmer.
James Nelson:
Yep, that’s right.
Nate Kreinbrink:
So today’s program, I know last week we had Andy Ferguson with NelsonCorp Tax Solutions on, talking taxes, obviously with right in the heart of tax season. Some of the topics that he’s seeing as far as the returns that he’s doing, meeting with clients, as far as some just key ideas to keep in mind with making sure you’re bringing all your documents, things along those lines. We’ve talked kind of current events, inflation, interest rates, Russia, Ukraine, how that’s kind of impacted it today. But we kind of decided today, we’re going to tie that all in together and just, again, reiterate the need for financial planning. And again, how that all ties into it.
Nate Kreinbrink:
And we talk about it a lot, but it really hits home in volatile times like this, when you have people that are just into retirement or into retirement, and they’re taking an income stream from some of those investments, and now we have some of this volatility, it’s really important to make sure we protect those assets and looking at what we can do. But going back to the beginning of that, and far as some of the taxes is, we still have a little under a month yet before the tax deadline, and that does still allow some things to still be done as far as to impact your taxes from 2021. And one of those things are previous year contributions to either an IRA or a Roth IRA.
James Nelson:
Yeah, absolutely. You still have till the tax deadline to make those contributions, and something people should consider. So often we kind of get into a mode where it’s all defer, defer, defer, and the retirement plan at work. And that’s great, but there’s also other buckets of money that people should be looking at. The Roth IRA, probably being one of the bigger ones where we should have some diversification as far as our tax exposure too in a retirement. When you don’t have that after tax bucket or that tax free bucket, you’re really at the mercy of whatever tax rates are doing. So being able to put some contributions away, like Nate said before the tax deadline, if there’s a few extra bucks laying around, not a bad idea to take advantage of that.
Nate Kreinbrink:
Right, and obviously a stipulation is you have to have earned income in 2021 in order to be able to contribute, not make above a certain deadline, and then as far as being able to be eligible to contribute to that. And then I think one of the points that you hit there, James, was key. And it’s what we hit on a lot of times with our clients, is creating those buckets. And essentially those buckets are, they’re just the way the money is taxed when it comes out of it is the difference in the different buckets that you have. and being able to create yourself options in retirement helps you be able to manage what your tax liability is throughout retirement and not be forced to be maybe bumped up to a higher tax bracket, or maybe be forced to pay more for a Medicare premium, should you need an additional funds. We all know life happens and in retirement it’s no different. And yeah, you need a new vehicle, you need home improvements, or just whatever it is that may come up and you need a little influx of cash flow.
Nate Kreinbrink:
If we have to take those out of all those tax deferred accounts, it’s going to bump your income up. And that’s where we see those tax traps, as far as being forced to be up in those higher tax brackets. By doing the work now ahead of time, yes, you’re not going to get the tax deduction for putting money into a Roth in the year that you do it. So yes, we could have had a little bit more of a tax benefit, but that long term tax benefit in retirement to have a bucket that we can pull out tax free, is very powerful and it gives people options.
James Nelson:
Absolutely. The other thing that kind of goes hand in hand with that is Roth conversions. And we talk about that a fair amount. Now, that has to be completed by the end of the year. You don’t have until the tax deadline to make a conversion and claim it for the prior year. But I’m bringing it up because there’s a lot of people that only see their accountant maybe once a year. Maybe they only think about taxes once, twice a year when they’re actually doing their return. So having that conversation maybe with an accountant, maybe having taxes on top of mind here recently presents that opportunity to maybe discuss that, and maybe look at that a little bit further for this year, 2022. If you’re in a fairly low income tax bracket or you’re recently retired and your income is way down, you should definitely be looking at a Roth conversion. And that would be voluntarily taking some money out of an IRA, paying the tax, hopefully at a low rate, if you fall into that category, and then move it to a Roth and that money grows and comes out tax free later on.
James Nelson:
So, again, I just bring it up because oftentimes people are thinking about taxes just this time of year, and they may, again, only meet with the accountant once a year. This would be a worthwhile conversation, especially if you’ve had a big change in income on the downside because of retirement, or for whatever reason. Maybe worth looking at a Roth conversion as well.
Nate Kreinbrink:
And also another thing that it benefits too, is down the road when those individuals hit that magical age of 72, is the year that they have to start taking money out of those tax deferred or those IRA accounts. So by doing Roth conversion systematically up until that point, you’re lowering the amount that’s in those tax deferred accounts, essentially lowering the amount that you have to take out later on at 72. And again, it just gives you options and then options are good, especially, and again, different volatile times that we have. We have different legislations that come in that change tax rates. Well, now we look at it a little bit differently, but we have options to be able to pull from should we need a different, and again, all with the tax implications in mind, knowing what we’re going to pay on every dollar that we pull out of these accounts.
James Nelson:
Yeah, and it’s not an all or nothing proposition.
Nate Kreinbrink:
Exactly.
James Nelson:
It doesn’t have to be convert your entire traditional IRA. But if you can put a decent dent in it to, again, get that required distribution down, like Nate just mentioned, that could be significant down the road. It’s also nice to have some money left in that pre-tax bucket in case there is a long-term care expense. You can take that money out of the traditional IRA and not pay as much in the way of taxes, because you’ve got that offsetting deduction for medical care or a long term care expense.
James Nelson:
So again, it’s not bleed the IRA, traditional IRA, down to zero and convert the whole thing in a short amount of time generally. Yes, there’s some people that’ll do that, but generally, what Nate just said, having a few different buckets, the pre-tax bucket, the after-tax bucket and the Roth bucket, really opens up some very good planning down the line.
Nate Kreinbrink:
And again, for those individuals that are charity inclined, and then to hit that age 72, there are some ways as current law states, that you can direct money from those tax deferred accounts to the charities that you’re already giving to. And from a tax standpoint, there’s some benefits that go along with that. So again, there’s a lot of planning things that kind of go into some of these, but again, it’s having those options, knowing what your options are, I think, is one of the most important things in navigating through it. Because it all goes back to that one adage that we always say, it’s not what you have, it’s what you keep. And if we can do some planning now to have more stay in your pocket versus again, being paid to the IRS, I haven’t really met anybody that’s going to be objected to that. And that’s the planning that goes into it that needs to be done, and the earlier you start, the better off you’re going to be.
James Nelson:
Well, that charitable contribution coming from the IRA makes a lot of sense for those people that are 72 and older and having to take that required distribution. Very few people are really itemizing anymore. So, they’re not able to take advantage of that charitable contribution unless it comes directly from the traditional IRA. If it comes from the checkbook, chances are you’re not able to deduct that and it’ not helping you as far as taxes go.
James Nelson:
So again, if you’ve got a traditional IRA, you’re age 72 or above, you should really strongly consider making those contributions directly from the IRA. It could be meaningful on the tax return as well.
Nate Kreinbrink:
It’s all good stuff. And again, if you have questions or if what you’re doing currently, you have questions on whether it’s the right thing to do, give us a call. We’d be more than happy to sit down with you, give you a second opinion and make sure that you’re on the correct path and go from there with things.
Nate Kreinbrink:
Before we 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 March will be donated to the Northeast Elementary PTO, all inclusive playground project.
Nate Kreinbrink:
James, always appreciate you joining me this Wednesday morning.
James Nelson:
No problem.
Nate Kreinbrink:
Again, Nate and James with NelsonCorp Wealth Management, bringing you this week’s Financial Focus. Thanks again 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.
Announcer:
Any indices mentioned are unmanaged and cannot be invested into directly. Registered representatives, 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.
Announcer:
For more information, visit our website at www.nelsoncorp.com.