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. Inc, a broker-dealer member FINRA SIPC, investment advisor representative Cambridge Investment Research Advisors Inc, 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. I have Andy Ferguson with NelsonCorp Tax Solutions joining me today third Wednesday of every month. The month flew by. We are already mid-May. Seniors are getting close to their last week of school I think. You see a lot of graduation planning parties starting. Kids, other ones are getting antsy. Teachers are getting antsy. It’s getting close to summer.
Andy Fergurson:
Yeah, yeah. And I have a graduating senior this year. I have a graduating senior every other year for the next hundred years, I don’t know.
Nate Kreinbrink:
Save your decorations.
Andy Fergurson:
Yeah, yeah. It’s grad party season for sure. So yeah, we got to go find somewhere where we can buy bulk graduation cards and all that stuff. But it’s a fun time to do all that stuff, watch them start their lives and make choices and go out into the world. And now we just got to go through that process.
Nate Kreinbrink:
It is. Is is a fun time. Weather’s starting to finally cooperate. Summer sports season, softball, baseball, well underway from that standpoint. A lot of area athletes heading out to the blue oval probably today to get going for state track coming up here Thursday, Friday, Saturday. So want to extend to the best of luck to all the area athletes. It always seems we have a nice little representation from this side of the state heading out that way.
Andy Fergurson:
Yeah, good for them.
Nate Kreinbrink:
Good for them. And we wish them well as they compete. So again, getting into today’s program, it is the third Wednesday. And Andy and I always sit down on Tuesday before we head out for the evening and just kind of go over what we want to talk about. And by the time he comes in, he has eight pages of notes to go over. And I remind him it’s only a abbreviated show.
Andy Fergurson:
Well, the tax code Nate is 1200 pages long. We can’t cover it in 10 minutes.
Nate Kreinbrink:
I know. Which is great because again, it’s a lot of times where there’s questions on a lot of this stuff that comes up and what’s relevant and what’s in the news and everything. And obviously with us just getting through tax season, federal, and then the state of Iowa with their deadline passing, it is kind of letter season you call it.
Andy Fergurson:
Yeah.
Nate Kreinbrink:
And again, whether it’s the IRS or whether it’s the state of Iowa or state of Illinois, sending out letters as far as questions and all that. So it’s not uncommon for someone to maybe get that in the mail.
Andy Fergurson:
Yeah. You’ll get letters from the Fed or the state requesting you verify pieces of information. You’ll get letters that say they changed your return, they’re going to do this or they’re going to do that. And one of the things I would encourage you to do is to not just take their word for it. Don’t just pay whatever they say to pay or accept whatever they’ve changed. They may not be right. I mean, I’ve had people come in before with a letter from the state that says, “Hey, we changed your return. You owe us a little bit more money or we reduced your refund.” And they’re wrong. They shouldn’t have done that. And so let somebody look at it, let your preparer look at it, make sure that they’re doing the right thing because they have some leeway to just make changes. And there’s been times before where we’ve had to go back to them and say, “Please look at this again. You should not have changed this return.”
But some people get those letters and they’re like, “Oh, you know what? It’s $85. I don’t want to mess with it. I don’t want to get anybody excited and have them look further into my return. So I’m just going to pay the $85 and be done with it.” And that’s your prerogative. But I would tell you that’s not necessarily the best course of action. I would also add that because it’s letter season or because it’s the time that the IRS and the states are reviewing returns, it’s also scam season. So remember that the IRS is not going to call you. The IRS is not going to call you and say that they reviewed your return and that you owe them money. The very first thing that they’re going to do is send you a letter. And so if you are not expecting a call from the IRS, they’re not going to call you out of the blue and say, “We reviewed you return and you owe us a couple dollars.”
Nate Kreinbrink:
By the end of the day and put pressure on you to… Urgencies.
Andy Fergurson:
Yeah. “Go get some Amazon gift cards and send them to us.” That is a scam. The IRS is not going to call you first. They’re going to send you a letter first. If nothing else they are reliably slow in that process. So that’s part of it as well. You mentioned the Iowa deadline. That’s another thing that I would tell you. I remember the Iowa deadline’s two weeks behind the federal deadline.
Nate Kreinbrink:
Yes.
Andy Fergurson:
And so this last couple of weeks, we’ve had people calling and saying, “Hey, I had this set up to be direct debited. I haven’t seen the money come out, what’s going on?” And sometimes it takes them a little while to pull the money out. Most of that should be done now. Most money should be pulled by this point. But Iowa wasn’t scheduled to pull probably until the 30th of April where the federal was scheduled to pull money from your account on the 15th of April. So those deadlines are different, and that changes the timing of things.
Nate Kreinbrink:
And I think too with that deadlines, and again going back to the letter portion of it, I mean those letters are automated. There’s not someone that’s sitting there typing a specific letter to you directly to send that, something in your file or your account there at the IRS or at the state level, flag them to initiate this letter, which then is automatically sent out to you. So if it’s saying that you owe something and you’ve already sent that check in, it’s probably not taken into account that you’ve already sent that. They’ve crossed in the mail or it’s been received, just not processed before that letter was sent out. Again, just because you get that, again, you want to make sure that it is accurate and that it still applies to what it’s requesting.
Andy Fergurson:
Yeah, they’re bulk letters. So the states and the federal system, they have a computer that generates these letters in bulk. And that means that everybody who falls into a certain category gets that letter on the same day. And so if you owed money and you hadn’t paid it at midnight on a certain day, the letter is generated, it’s mailed out. So I had a client who called me and they said, “I sent the payment in last week. I did it electronically. I got a letter today that said that I owe money.” And I said, “Well, that’s because they got your payment. They cashed your check, but they haven’t applied it to your account yet.” And that can happen. It takes a little bit of time for that process to sort itself out. And so it’s not as immediate as you would think. I mean, even a small state like Iowa is processing 5 million returns. So there’s a lot of volume processing through those computers, and they’re just not always synced up exactly with what has happened already.
Nate Kreinbrink:
So again with that aspect of it, and again another topic that you had mentioned and I think it’s important to kind of go over, a lot has happened over the past month. And most notably for those Iowa residents, we’ve seen an acceleration of the state tax reduction. It’s been on the books and we have discussed it as far as the state of Iowa wanting to phase in to reducing that state tax and getting it down to a flat rate over a couple year span. Since our last show that has been obviously accelerated and will go into effect a lot quicker than we had thought it was going to.
Andy Fergurson:
Yeah. Governor Reynolds had signed into law this past month. It was supposed to be 2026. We were going to see the bottom tier rate at 3.9%, and in this past month they signed a law that said by 2025 we’ll see that bottom rate at 3.8%. So the rate went down a little bit and they moved the timeline up. So that’s good news I guess for those of us that pay tax in Iowa.
Nate Kreinbrink:
And so another part of that that goes into it and has came out since the last show is again, those inheriting IRA accounts. So if you’re a non-spouse and you inherit a retirement account from an individual, from a parent, from a sibling, from a friend, from whoever, as long as it is not a spouse there were certain rules where again, you would have to basically liquidate that account in 10 years. When that new law went into place it was kind of a big discussion as far as the wording in that bill as if you had to take it out a little bit each year by the 10th year or if you could basically defer all of that to year 10 and then take it out at one time.
Again, there was a lot of discussion as far as the wording and a lot of misunderstanding with it. So essentially what happened is they granted it to say that you didn’t have to to take it out every single year, but you had to have it still out by the end of the 10th year. So over the last three years, they basically extended that to whatever. And that was just announced recently, that that was going to be the case again for this year.
Andy Fergurson:
Yeah. So like you said, there’s some ambiguity in the law as far as the required distribution each year for those inherited IRAs. And it’s funny they still haven’t really clarified [inaudible 00:10:37].
Nate Kreinbrink:
No, they just keep extending it and saying-
Andy Fergurson:
We’ve had this law for three years and all three years that it’s been in place they’ve said, “We’re going to go ahead and make it to where you don’t have to take the required minimum distribution each year.” And they’ve already said they’re not doing that for 24. But what’s important to realize about that is that doesn’t change the timeline on the 10-year rule. So you may not have to take a required distribution. You may not have to take a portion of it each year, but you still only have 10 years. So if you inherited an IRA that first year that law came out, you may not have taken anything out of it yet because the IRS has said each year, “Oh, you don’t have to do it.” Well, now you’ve only got six years left to get the rest of that money out because we’re in the fourth year of that process. So we have to remember that that 10-year law hasn’t changed. You still got to get it all out within the 10-year timeframe, but you don’t have to necessarily take a little bit each year.
Nate Kreinbrink:
Right, and I think that’s important to realize too. Because again, depending on the size of the account, I mean that’s a big tax burden that we keep deferring and kicking the can down the road to year nine or 10 where now all of a sudden we’ve got to take it all out in that short amount of time. And from a tax standpoint, what that can change and what that can all impact is definitely something that we need to keep in mind, like you said, throughout those 10 years. And it may make sense to take a little bit year after year even if you don’t need it. So paying that little bit each year and spreading it out as opposed to just getting it all dumped on you at the very end.
Andy Fergurson:
There’s definitely a tax planning opportunity there with those inherited IRAs because you’re choosing when to realize income, right? And so you can realize it a little over time, or it might be you can for you to realize it all at once. So definitely an opportunity. If you come across that you should be talking to somebody and making a plan.
Nate Kreinbrink:
All great stuff. And again as we get rolling, we do run out of time very quickly. Looking over your notes, I’m excited. I’m going to try to get you on again before next month again at this time. We’re going to try to do it.
Andy Fergurson:
You get the other seven and a half pages out of there?
Nate Kreinbrink:
You have energy credits here with home improvement season and all this fun stuff. I think it’s a lot of important stuff that I think would be great to discuss, but we run out of time very quickly. But I do want to mention that every Friday, NelsonCorp Wealth Management and NelsonCorp Tax Solutions are wearing jeans for charity. Money raised in the month of May will be donated to the Speak Out Against Suicide program. Again, Andy Ferguson NelsonCorp Tax Solutions. 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 representatives securities offered through Cambridge Investment Research. Inc, a broker-dealer member FINRA SIPC, investment advisor representative Cambridge Investment Research Advisors Inc, 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.