Transcript

Wiser Financial Advisor – Year End Tax Planning Strategies 2023

Hi everyone, welcome to the Wiser Financial Advisor show with Josh Nelson, where we get real, we get honest and we get clear about the financial world and your money. This is Josh Nelson, founder and CEO of Keystone Financial Services. Let the financial fun begin!

Josh: Welcome to the Keystone Financial Studios. You’ve got myself, Josh Nelson, and Jeremy Bush here. We are Certified Financial Planners, which means we know a lot of financial stuff. We’ve had a lot of experience; we’ve passed a lot of difficult exams.

Jim Collins, in his book Good to Great talked about expertise and how it takes about 10,000 hours to master anything and for most people that takes about 10 years if you really work at anything. Just so happens that we have that experience; we have those 10,000 hours in. So you can learn from us, not only from our own knowledge, but also from all the client situations that we run across.

The topic that we’re covering today applies to everybody, so it doesn’t matter how much income you’ve got or don’t have. Everybody is going to have some level of tax planning that they’re gonna need to be doing.

Jeremy: There are so many different things attached to your financial planning and how it all works out over time that we have to look at. Today, we’re going to do a lot of focusing on losses, credits, things of that nature. But that’s just one of the many things that we like to look when we do your financial planning. Josh: Those of you listening to the Wiser Financial Advisor podcast, this is a resource that we’re able to send out to you so feel free to ask us for a PDF copy. You can e-mail us directly at communications@kedystonefinancial.com.

We endeavor to make the complex simple. Well, this is a complex world financially. Not only because it’s designed that way, but also because it changes constantly. The rules change almost every year, right? They change as far as what you can do and what you can’t do. So it’s something that you really have to keep up on.

Jeremy: You’ll probably hear us say that a couple of times throughout this presentation.

Josh: Which brings us to the disclaimer, which was written by some really smart attorneys. Basically, everything we’re talking about today is just our thoughts. These are our opinions. We are not tax advisors. So you need to talk to your own tax advisor to get an authority. Because although we spend a lot of time doing tax planning with clients, it’s a topic that impacts everybody and whether your focus is on retirement planning or your employee benefits, your investments taxes are gonna fit into that and affect your situation. I think we bring up a lot of good things to consider. on year end.

When we’re meeting with clients and prospective clients, we go through and put together financial statements. One of those would be the balance sheet. The other one would be the cash flow statement. Jeremy will describe those.

Jeremy: So your basic balance sheet is really just assets and liabilities. It’s a snapshot in time. It’s a Where am I today statement, and it’s usually pretty easy to pull together because you can look at bank statements. You can look at any other kind of statements and say, “This is the value of this account at this time.” Whereas cash flow tends to look more along the lines of income and expenses and then project out into the future, like telling a s about what is the plan right now; this is what we’re thinking. But we know those can change on a whim; they can change all the time, sometimes a lot. That’s why we call it financial planning as opposed to a financial plan. The days of getting a three ring binder full of your financial plan are pretty much dead and gone. And just because it is a.

Josh: That’s because it’s a moving target. It’s funny, though. Back in the day, that’s what you would do, right? If you wanted a financial plan, you would go to a financial planner and pay them a bunch of money and they would produce a bunch of paper, and then they’d look at that paper with you. But soon it wouldn’t be relevant anymore. Because the market changed and Congress made changes, and you changed jobs or decided to retire early or whatever. Then the information became irrelevant very quickly. It’s an evolving story because it’s your story. It’s your situation and you are reacting to the financial world and those many things changing around you. So those are the things we spend a lot of time with people about.

As you’re reviewing the end of the year and trying to figure out, “Well, how do I wrap my arms around this as far as figuring out what are some things I might be able to do or not do toward the end of the year?” When reviewing those sources of income, you’ll be looking at where you got income throughout the year, whether it be from dividends, your job, or maybe you’re self-employed. You’ll look at whatever sources of income you’ve got, and you’ll compile the expenses and then optimize your taxes. Especially if you have really high taxable income, sometimes there are opportunities to defer the taxes on that. For example, let’s say that we were thinking about selling stock, and you had very high taxable income this year and we’re already into December. Well, maybe you wait until January to sell that stock, so that you don’t create more taxable income this year. Or maybe you have the opportunity to defer other income like 401K contributions. We’ll get into that.

Sometimes we’ll take losses on purpose. We call that tax loss harvesting. That’s where we get involved with clients looking at these things in your basket of assets, liabilities, income and expenses. There are different tools to handle them, and sometimes we have the ability to defer or to accelerate income and expenses. We want to take a look at those things.

Jeremy: And then, capital gains and capital losses is one that just about everybody hits at some point. There is a capital gain or loss anytime you sell something inside of a taxable account. That includes if you’re doing stock options at work. You get a capital gain, capital loss. They do net against each other. So like Josh is saying, this is one we look at every year. Depending on what’s happening in the market, loss harvesting can or cannot be a thing; it just depends on where it goes. Last year we did a lot of loss harvesting because the market was down so we could save some people money on their taxes. This year, who knows? We’re in the middle of October as of this recording, and we’ll see where it ends up between now and then.

Josh: Yeah, it’s been a tale of two markets. During 2021, basically everything went up. It was really hard not to make money that year. 2022 was just the opposite. Obviously, we can’t control that. But sometimes there are ways you can take advantage of what’s happening. Jeremy: Absolutely, no matter up or down.

Josh: And it may not even be investments in an account we’re looking at. It could be real estate. You could select capital gains or losses from selling real estate. It could be other types of assets. Maybe physical gold or other assets that don’t show up in a traditional broker. So it’s important to understand the rules. And as far as that netting effect period, you can carry those net losses forward until they’re used up. But the net loss you can take right now is $3000 per year. So, let’s say that somebody you know sold a bunch of stock and had a bunch of other stock. Some was a gain, some was a loss thatended up at $6000. You can only use 3000 of it this year and then carry the other 3000 for the next year.

Jeremy: So, gains and losses net out throughout the year, but what Josh is talking about is 3000 a year against ordinary income. So if you had $20,000 in capital gains and $20,000 in capital losses for the year, no matter whether short term or long term, that would net out to zero. You would have no capital gains or losses for the year. When the losses are higher than the gains, you get 3000 per year. If you have a bigger than $3000 capital loss net last year, you can carry some of that forward to this year and use it against your ordinary income up to $3000.

Josh: Keep in mind too, the holding period of long term versus short term, long term meaning you need to hold for over 365 days on an asset to have the long term capital gains taxation rate, which is a substantially lower rate than the short term rate for people, because that short term rate is your ordinary income bracket. So, don’t make the mistake where people end up selling something one day short. We have seen that. Let’s say you bought like NVIDIA or something like that this year, where it’s just skyrocketed, and you end up selling it in under that 365 days. Your tax rate could very well double from what it would have been if you had just waited until after that year. So just be aware of the rules and how those work. We spend a lot of time on that.

However, you don’t ever want to make decisions just because of taxes. Investment reasons should come first and tax reasons second. We have seen a lot of cases where people will defer gains and defer gains and defer gains, and accumulate one company stock just because they’re afraid to pay the taxes. And of course something happens eventually, because it will happen to every company. The stock plummets all of a sudden and then people wish they could have gone back and paid those taxes and realized the gains from selling soooner.

Jeremy: And then, of course, retirement contributions can directly affect you as far as what kind of things you count as deductions. Your 401K is low hanging fruit. Contributing to your 401K, if it’s pre-tax might fit into your situation. Most 401Ks now offer Roth IRAs as well, and depending on what percentage you’re paying in will directly affect what you’re paying in in taxes as it goes along.

Josh: Yeah, absolutely, and the differential there too is huge because you’re electing when you choose whether to do a traditional IRA or Roth, and we get that question a lot. There’s no right or wrong answer there because we can’t predict the future as far as what is gonna happen to tax rates after this year. All we know is what they’re going to be this year. And Congress could even change that if they wanted to by the end of the year that likely. You’re making a bet on whether your tax rates are going to be higher now or later. If you think that your tax rates will go down in the future, know that most people aren’t saying that. Most are saying, I think tax rates are going up to pay $31 trillion of debt, and underfunded Social Security, Medicare and so forth. Tax rates are probably going up in the future so the person that does the Roth IRA is making the conscious decision to forego the tax benefit now in the hopes that down the road they’ll get these tax free distributions. Going with the traditional IRA is taking the tax advantage today.

You actually could do both contributions. You could split the difference because you don’t know what’s going to happen with the tax rate. Either one of those is fine. Sometimes you might not have a 401K, or you might have a 403B or a 457 or something else through your employer. If you’re in the government, you have the thrift savings plan. There are all these different things, but the bottom line is that you probably have both a Roth and a traditional option.

Jeremy: It depends on who you work for. Do you work for a municipality? With a lot of the nonprofits like school districts, you can contribute to a 403B or 457, a great opportunity to plow away a lot of tax-free money.

Keep in mind that there are contribution limits and they’re always moving. For instance, this year, 2023, if you’re under 50, you can put up to $22,500 into your 401K. If you’re over 50, you can put an additional $7500 in there as a catch-up contribution. IRAs were at $6500 this year under 50 and an additional $1000 catch-up. But those have income limits, depending on how you file taxes and if you file single or head of household or if you’re married filing jointly. If you make too much income, the IRA contributions might very well be phased out. Traditional IRA contributions and Roth IRA contribution phase-out limits are not the same.

One thing to note too is if you’re self-employed, there’s a whole other world. We could do a whole presentation on retirement plans for self-employed individuals. So if you’re in that situation; say you’re a contract worker or you’ve got your own business, there are special plans for you and they can be really good. You have your own special version of that stuff that will probably allow you to do a lot more than if you work for a company.

Jeremy: So, charitable giving.This is a good one, especially if you’re already in the habit of giving and you have specific charities in mind. This would be any kind of 501C3 organization. Charitable giving can be done a number of different ways, but they all have some tax implications. This is one of the changes with the tax code. With the last big tax update, you are either claiming the standard deduction, or if you want to do charitable deductions, you itemize. Sometimes you give to a charity but you’re still going to take the standard deduction, and so you don’t really get the benefit tax-wise. This year, the standard deduction if you’re married filing jointly is at $28,700, which is a great thing. Ninety percent plus of people now take the standard deduction, which makes taxes a lot easier.

So charitable giving could be one where if you find yourself in a really high income earning year it might make sense to contribute a bunch more and take advantage of that kind of help tax-wise. You could dole it out through things like donor advised funds. If you have a lot of stock with a really low basis and you don’t want to realize the capital gains but you would like to still give to charity, there are ways of giving where you don’t have to realize the capital gains on it but you still get the charitable deduction.

Josh: If the standard deduction is X amount depending on your filing status, look at the tax charges on that. Those are easily searchable. Then let’s say that somebody is in the habit of giving $5000 a year in charitable contributions well. That’s great and that’s really good of you to do that. And hopefully you’re benefiting some organization and helping people by doing that, but you’re really not gaining a tax advantage because it’s below that $28,700 deduction. So instead if you’re planning over the next 10 years to give $5000 a year, that’s $50,000. What if I took $50,000 and just threw it all in one year? You might say, yeah, but I don’t like to give that way;I like $5000 a year. Well, this allows you to have your cake and eat it too, because you could put $50,000 into the donor advised fund. If you got the money in there now, you get a $50,000 deduction this year, $50,000 instead of the $28,700 standard deduction. You could be divvying that money up because you’re in control of how that’s distributed to the charity. So, they’re still gaining their $5000 a year; but you’re going through the donor advised fund to do it so. Jeremy: And then it depends on whether you’re contributing real estate to this or old stock that I have, or cash. The tax code has different percentages that you can count for each of those, and so it’s important to know that there are distinctions and different thresholds between them. There are plenty of ways to take advantage of it. You just have to know the proper ways to go.

Josh: Yeah, know the rules. For example, the carryover period. . There’s only a five year carry forward on it, so you want to be careful, because you could end up losing some of the tax advantages simply because you ran out of time. This comes down to how every individual is a little different. Which is what makes our job fun, because it’s everybody’s a different puzzle; every situation is different, and the rules are always changing.

That’s why our 10,000 hours plus of experience comes in handy. And then, we’re doing this every day, so you know that it’s not just your stuff we’re managing. We’re managing other people, situations; we can be creative and work through your own planning.

Jeremy: If we turn to Health Savings Accounts (HSAs) and Flexible Savings Accounts (FSAs), they also have specific rules for each, and they are not created equally. The more popular option nowadays is the HSA. In the current year you can do $7,750 as a family contribution to this. This one has an age 55 and older catch up. So if you’re over 55, you can put an additional $1000 to an HSA. These are fantastic plans if you don’t already have one. They do have some rules as to who qualifies. You have to have a high deductible medical insurance.

You get a lot of tax benefit for contributing. No matter your income level, you can pretty much always contribute to an HSA as of now.

And you get the tax deduction so long as you use the money in the HAS for medical expenses. Now, if you have it long enough and you don’t need to use it, once you get to 65, it’s almost like another retirement account. So it’s pretty beneficial. As far as FSA’s, they do have some benefits as well, but one thing that we don’t kind of like about FSA’s is that they’re not flexible. They’re called flexible spending accounts, but they are not. Now, if you are anywhere near Medicare age, you want to be careful with your HSA contributions because there are some specific rules regarding that in the six months leading up to Medicare. It’s definitely worth talking to a financial professional about that if you’re trying to maximize your HSA but you’re getting near Medicare age.

Josh: Right. You get disqualified from contributing to an HSA after you hit Medicare age. The silver lining is that you can use it almost as a retirement account at that point, and we’ve got a lot of clients maxing out their HSA every year. They have no intention of using it for medical expenses as they go along. They’re just accumulating it and they’re going to use it for retirement income. Once you’re 65, you can start pulling it out for non-medical expenses. It can just be used for whatever you want to spend that money on.

FSA is one we don’t see as much anymore. Another version of that is the dependent care savings account. The reason they’re so inflexible is the use it or lose it rule. You can’t carry over from year to year. For example, we had a client that was planning to get Lasik surgery she had elected for her employer to max out her FSA so that when the expense came up, she would use the money to pay for the LASIK. Turns out she went for the consultation, and the doctor checked out her eye and said she wasn’t a candidate for Lasik. So then she was frantically going to Walgreens and just trying to buy stuff, anything that could qualify because otherwise you just lose the money right after December 31st. So you want to be careful with that.

We like HSAs a lot better. They’re truly a flexible spending account. And you don’t have to do an HSA through your employer; you can do that separately.

Opportunity. So we beat that one to death. The business deductions, that’s another one at the end of the year, a lot of businesses from the smallest businesses. All the way up to Fortune 500 companies. You know Apple, they’ve got a whole, you know, staff of people, that this is all they do, right is is kind of control income and expenses and the timing of all that. So that’s really what we’re referring to here in business deductions. First of all, deductible business expense is anything that is deductible usually what’s what businesses are trying to do as they get to the end of the year. As they’re trying to kind of accelerate expenses, they’re trying to get as many expenses as they can in by the end of the year, other words, sometimes they’ll even prepay things as you could prepay January. Is rent, you know, companies will do that. They’ll kind of pay ahead. In other words, for expenses. If they’re really not quite on using until the next tax year or that the next calendar year, but they’re able to take the deduction in that year or before their fiscal year. I guess it depends on on how they’re doing their accounting, but that’s something that most companies especially smaller. Companies are on a calendar year basis for accounting and and and certainly from an income perspective what they’re trying to do is kick income like we talked about before, kick income into the next year if possible, record keeping requirements are really important. Some of this stuff, if I if I take Jeremy out for a business lunch today, that’s a deductible business expense, yeah. But as far as record keeping requirements, I need to keep the receipt. They most CPA say at least three years. A safer option would be 7 years. Seven years is kind of the standard answer that that people will give. CPA’s will give as far as how long you should keep your tax returns your other documents. And of course. These days you can keep it electronic.

Speaker 2

A lot of good. Things that you can do tax wise from a business owner standpoint that flow through to your. Personal income taxes as well, right? So that each one of those is different. So that’s definitely one worth worth kind. Of talking about.

Speaker 1

Let’s say yeah, good distinction. You have to kind of look at what type of business you are. Your C Corp and S Corp and LLC, a partnership. There’s all kinds of different entities and different tax implications there as well. So again that’s a whole other seminar. One last thing here is the qualified.

Speaker

And select.

Speaker 1

Business income deduction. That is something that came out of the. 2017 tax cuts and jobs. Fact, by the way, well, one thing to be aware of before we forget is that a lot of the things from the tax cuts and JOBS Act actually are due to expire in 2025 or at the. End of 2025 and. 2025 so we need to. Be aware of that that all the. Rules we’re talking about right now, many of them end up changing after that year. And that’s if Congress does nothing. But if Congress doesn’t do anything and they don’t extend on some of these tax cuts and limits and things like that, the world will change, right? A lot of these rules will changes, so expect a lot of talk. Certainly probably more talk than action, but expect a lot of talk the next couple of years. You know, in in Congress about a lot of these deductions and limits and credits and things like that, the whole landscape may end up changing. The whole point going the qualified business income deduction is if you qualify for it. And there are phase outs here as well. You go over certain income limits. These do phase out for businesses, but it’s up to up to a 20% income tax deduction. On business income, so be aware of that. I think it’s $372,000 if I’m correct for this year. Once you go over that limit for a married filing jointly, that does phase out and you pretty limited or won’t wouldn’t be able to claim that at all. So truly we’re we’re talking about smaller businesses. But there are some exemptions. It depends on what industry you’re in. There’s certain you know, industries that are kind of exempt, that could be higher amounts and so forth. Again, way beyond the scope of what we can get into today. But just be aware of that. Be aware that you may qualify for that and some of the tax moves that you would make could make a difference there. RMD is.

Speaker 2

Remedies talk about a moving to. Yeah. So this one has literally moved over the last couple of years just about each year. Technically, it’s not really done moving. So for a long, long, long time it was 70 1/2 years old. Why they got the half in there, who knows. And then they changed it last year to age 72 and then they said, you know what, we should have just said 73.

Speaker

Right.

Speaker 2

So the rule this year for 2023 is if you turned 73 during this year, then this is basically your first year of required minimum district. Now the end goal. And so this is going to depend if you have not yet turned 73, but you are going to turn 73 or sometime over the next five years, your required minimum distribution age could be anywhere from 7374 all the. Way up to 70. 5 and so there is basically this. Number of years of the next couple of years where it’s going to steadily be increasing to age 75 in a really all this is is when RMD age is really just when the IRS says, alright, you’ve been hanging on to your Traditional IRA, your 401K money too long and you haven’t used enough of. It yet and so we want to get our tax. They have a calculation that they do where they basically enter your age in. They have mortality tables that they use that say if you’re this age, this is how long you. Should live and. It basically comes out to a percentage of your Traditional IRA or that pre tax money in total that you have that you need to take out.

Speaker 1

Each year, so that changes. Every year, and if you’re acquired of ours. We figured that out for you. And we hope you plan ahead. Certainly that’s something we want to make sure you don’t get penalized because if you don’t take it out, it’s a 25% penalty. Used to be a 50% penalty. Actually, they were so gracious to lower to 25%, but for somebody. Who just wasn’t. Aware of the rule right. And they they they didn’t do it, you know? And they didn’t get the money out. It’s 25% penalty. And that’s on top of the taxes. That’s just the penalty. So you stopped paying income taxes so you could actually have most of your you go away to taxes and penalties if you didn’t take. It out just.

Speaker 2

The government, the other tricky part of this too, is the new rules surrounding inherited IRA. So inherited IRA’s have literally their own rules on required minimum distributions and the real fun part is that they’re not exactly clear yet. So that’s all this stuff kind of plays in together, right, like. You don’t want to pay any penalties that you don’t have to. You got to take distributions on this stuff, but how much when to take it, et cetera. And it really is dependent. On so many things. So it’s if you have any of these or any of these are ringing bells and saying, Oh yeah, I need to do that or. Oh, yeah, I have one of those. Please check with us, check with some financial professional because it’s not worth paying. The penalties on.

Speaker 1

It again, lots of gotchas, estate and gift planning that fits right into that because in the past. Especially for people who have large 401K IRA’s and we’re talking about the non Roth. In other words, we’re talking about traditional pre tax plans. Oftentimes what people would say is, oh, you know, just give it to the kids and they can spread it out over their lifetime. That used to be the rule up until 2017. Like Jeremy said, still up for interpretation, but basically the the end goal or the the end result is that people have taken out by the end of that 10th year following that person’s death, except if it’s a spouse. Spouse does have an exemption, they can continue to kick it forward, but if you’re a non spouse, any non it doesn’t matter if you’re a kid or whoever, right. By the end of that 10th year, so especially if you’ve got a lot of this tax deferred income, you might actually, this is where a lot of our conversations get into with clients about maybe we should start. Doing some Roth convert. Versions kind of prepaying the taxes, especially if we’ve got some runway here. We’ve got, you know, some years to go that can give us some. Really good you. Know kind of flexibility, right to do planning for each person and try to diversify tax wise.

Speaker 2

It does, and that’s one way that I think we kind of, you know your financial planning, tax planning is a bit different from say what your CPA might tell you, right. So obviously we’re going to do what we can to lower your taxes in any year and say this is what you’re looking at during this year and what you can do to avoid this stuff. But we also take that longer view and say, well, if you, you know, hang on to this stuff. And by the time you get to R&D and you’re going to be taking $300,000 RMD’s every year, yeah, going to put you in X amount of tax bracket. You know, how do we eat away with that? But if you don’t really. Need that much living? In retirement. So kind of doing that future. You’re planning. Maybe it’s 5/10/15 years. Out, but there’s. Still, tax planning that can be done now. To avoid tax situations in the future.

Speaker 1

So the income tax items people think about as state planning and they hear that word estate and they think well that’s just for the ultra wealthy people. But the reality is it’s not everybody has in the state even if you just have stuff, maybe you don’t even have investment accounts, you just got a bunch of stuff you still have in the state. You still have stuff something Yep, so it’s still something that somebody’s gonna have to deal with, right? I mean, if if you’re not here, somebody’s gonna have to deal with that. Yeah. And sometimes those things are organized really well, that’s what we’re talking about with the state plan is just getting really organized and try to. Use the tools at. Our disposal. But for some people, another thing to keep in mind is that. The estate tax could apply again the the tax cuts and JOBS Act. The limit right now. Again, Mary Fallon join was like 23 million that you’d have to get above that point before you’d have any estate tax that comes down a lot. And I I can’t remember what it is but it it’s going to affect a lot more people it’s like it goes down like by. Half, especially if you’re an individual. Now you might be talking about, gosh, you know you have a house and a couple of rental properties, a few investment accounts that could get into a problem area really quickly. So we’ll see. We’ll see if that gets kicked forward or not. So again, for most people, the estate tax isn’t an issue right now for people worried about that in the future worried about those tax. You know, planning things that they need to look at, certainly we want to look at things like gifting, like donor advised funds, using trusts. There are lots of different tools that are disposal again beyond the scope of what we can do today. Keep in mind though that everybody has the ability to do. Gifting and you? Can give to a charity, but every. Year this year at 17,000 and 18. Thousand. Yeah, yeah, yeah. And if you’re married, you know, then you can actually do a split gift, which means you can. Double them. So if if we wanted to to give, you know, a random person $34,000 and Sarah and I could do that, if we wanted to and there wouldn’t be any tax and. Occasions to us or to them. Once you go beyond that point, then there are some special filing requirements. So for that reason, a lot of people, especially if they’re thinking you know what, we’re not gonna spend all this. Money, you know. I think if somebody is retired, then we’re not gonna spend all this money if we do so we want to start giving money to the kids in advance.

Speaker 2

Yeah, and that’s one I think that comes up in conversation a lot too is. But I think we have that conversation a lot with people who come in talking about their elderly parents.

Speaker 1

Hmm. Yeah, they’re having more of those conversations for.

Speaker 2

Yeah, more and. More and and it always comes down to hey. Mom or dad? Or maybe both. Maybe in a Medicaid situation. What makes sense from them to, you know, be gifting stuff? And so gifting can be a really. Great tool, but there. Are very specific rules around it especially. If the person gifting. May be in a Medicaid situation in the future. Where a spend down of their assets might be, you know might might be on the books or something. So really that’s one to you know talk talk to a financial professional about, yeah, it can be done. There are time constraints and look back constraints when it comes to things like Medicaid. And so you just want to be careful about it because you could put yourself in a really bad situation. If you say, hey, I’m going to gift all this stuff and then all of a sudden now you’re in a Medicaid situation and they’re looking back five years and saying, well, what about all this money you’ve gifted five years ago and you’re still on the hook? For that so.

Speaker 1

A lot of people don’t realize that they think, oh, I could just give all my money away and it’s not an. Issue not necessarily.

Speaker 2

That’s not that easy.

Speaker 1

Of course, you want to talk to an attorney. You want to talk to a. Tax advisor. You know that’s why. It’s important you’ve got kind of a whole team in place. And we usually end up being that quarterback on the team because we kind of know where all the. Money is we’re we’re. Kind of coordinating the entire plan, but we’ll certainly pull those people into the mix, right? Especially trust officers, CPA’s, the state attorneys, other people. That would need to get involved and and really kind of like a specialist, right, that you pull in where a doctor may might bring a specialist into the situation. Once it starts getting really cold. Complicated. Finally, you’re in planning tax strategies. A lot of these apply to stock, but for those of you who have employee benefits that revolve around stock options, restricted stock, any other types of benefits that would involve your companies, you know holdings or benefits? Yeah, those are always kind of right for taking a look at as we get to. The end of the year. So we’re not going to go through each one of these specifically, but the timing is kind of key if you have certain benefits that allow you to control the timing as far as when things are sold. Or received and. So forth, there’s a lot of things that we can do to either accelerate or, you know, delay the taxes until. A future year? The alternative minimum tax that doesn’t affect a lot of people anymore. Sometimes it does. If you have incentive stock options. So if you’re in a very high level position within your company, could be that you have those types of benefits. So we do a whole seminar on. That right? Yeah, that’s a whole thing, but.

Speaker 2

If you if you are subject to AM to your alternative minimum tax. You probably already know it. You know it’s. An issue it’s.

Speaker 1

Probably one of the most irritating taxes I think for for people who are subject to that. But again, you know who you are. So we we can talk about that and how we can help you avoid that in the the future. Lot of year end planning that really I think we could do some thoughtful you know kind of looking at the entire situation and certainly you can on your own. But again think about the 10,000 hours is that 10,000 hours of experienced something that you want to become the financial expert or do you want to hire people who have already done it who are doing it that’s really where we come in. To play, we’ve got a great team. Yeah, of course. We’ve got even people beyond this. We we we do work with a lot of great tax advisors, a lot of great estate. Attorneys, other professionals and our custodians, fidelity and Charles Schwab. We’ve got a lot of resources, in other words, that we’re able to pull in really to make sure that you’re planning is as effective as possible, but and and taxes are a big deal, especially you get the higher and higher tax brackets, it gets more and more expensive than other words. It gets more painful. And and that’s where a lot of people are coming to us saying, hey. I need you to invest my money. But this is also about. You know, trying to to reduce tax taxes, trying to plan for the future, try to get ready for retire. Med figure out when should I draw my Social Security that chart that we had before that services grid with all of our making the complex simple. You might be saying you just made me really confused by this entire presentation. That’s because the fatal world is complicated, and it all depends on your situation. So that’s why we have jobs basically that’s that’s why we have a profession. Because we get to do this every day. So that being said, that’s a lot. We went really quickly, but we do want to open it up to any questions that you’ve got. I can see there. There are a bunch of them queued up right now. So thank you. Well, well, Jeremy is doing our contact information is on the slide josh@keystonefinancial.com jeremy@keystonefinancial.com. And as you can imagine.

Speaker 2

Thanks so.

Speaker 1

The website iskeystonefinancial.com so that is the easiest way to. Like this?

Speaker 2

Here’s a good one. Since we do have. So many clients. That either like came from HP or might still be there, is the HP retirement medical savings account, the same as an HSA. Yeah. And the answer is no. So RSA is that’s a really fabulous. Benefit for anybody that does. Have it, but it is it is not the same necessarily, so that ones basically works as a a reimbursement type thing now. So I think most people that use that end up using it for things like you know, Medicare premiums, health insurance premiums, yeah, it has some rules about what it can be used for. But that is basically just. A savings account that HP gave some of its employees. Once Upon a time. Most of them consist of X amount of dollars that you would get that you could use for the future. Pretty rare. Nowadays there might be one or two companies out there that are still doing things like RSA’s. Yeah, but no, not. HSPA is very much family specific. I could see where there might be confusion because a lot of companies do offer Hsas. Through their benefits. Some of them might actually contribute to them for you as. Well, as an added employee. But but not the same thing at.

Speaker 1

All Jeremy is right, it’s usually a reimbursement account. In fact, you know like cases, they don’t even call it an account because the reality is is it’s kind of a Bank of money that’s set aside for you. So that’s because you probably were we’re retirement eligible, meaning that for a lot of companies it’s age 55 and 15 years of service. Or or something higher than that, but if you’re retirement eligible, you’d have kind of that bucket of money where this came from originally is that a lot of companies used to offer, like a retiree medical program where you actually could stay on their health insurance. After you left and. Most companies said, yeah, it’s probably not a good. Idea. That’s that’s really.

Speaker

Expensive. It’s like.

Speaker 1

This blank check right basically and so a lot of them said, you know what, we’re gonna just develop and Congress allows us, right?

Speaker 2

I can’t. I got.

Speaker 1

The law allows. The retirement medical savings, or sometimes just call the retirement savings account, depending on your company, but it just means that it’s that bucket of money. That you’d be able to draw. From usually again to reimburse Prep. I definitely want to work at the rules on it because some companies do have an age limit where you know you kind of have to use it or lose it. You have to kind of get the money. Out of there. By a certain age or it just goes away so you get lots. Of gotchas depending on your employees benefits.

Speaker 2

The next question. Here’s a good. One what happens to your HSA balance? When you die, what are the tax implications?

Speaker 1

It goes to your beneficiary. So you do name a beneficiary on an HSA, just like you would on an I array. Or a Roth IRA, right? I don’t know the answer to that. I I I would guess that it’s taxable on the earnings portion to beneficiaries.

Speaker 2

So typically think of it as another type.

Speaker 1

Of IRA, we’ve never had it happen.

Speaker 2

Basically, I don’t know anybody that’s passed away with H.

Speaker 1

SA dollars, yeah.

Speaker 2

That’s one I I am gonna look at. Yeah, actually.

Speaker 1

That’s you stopped us.

Speaker 2

Because now I’m curious. Yeah, I’m really curious on that one.

Speaker 1

Yeah. I would guess though, it’s going to probably revert to those same rules. And yeah, we’ll get and we know who asked the question, so we’ll, we’ll we’ll get an answer back to you. But I would guess that it’s gonna revert back to the same rules as kind of that age 65 rule where you can start draw. It out, but the earnings end up being taxable to you as you draw it out. In other words, it’s not completely tax free unless it’s used for medical expenses. So in some cases really just as people get older too, naturally we’re going to have more health stuff come up. Sometimes people will keep that HSA balance even after they reach age 65 because there’s a lot of stuff that Medicare doesn’t cover. Yeah. For example, Medicare doesn’t cover like anything for dental or vision, for example.

Speaker 2

Yeah. I mean, if you think about it logically, it’s it’s largely just, you know, tax advantage account really. So I I would figure if you know, we’ll get your answer for sure, but it should work very much like a Traditional IRA. I don’t think there’ll be any kind of RMD things, but we’ll find out and we’ll let.

Speaker 1

You know that is a great question.

Speaker 2

Last question, does 401K IRA traditional? Roth partial conversions offset the R&D.

Speaker 1

Amount. Unfortunately, the answer is no. The order of it is that your RMDS to come. Out first, that’s. The way the IRS looks at it, in other words, so if you’re supposed to take $10,000 out this year, if you took a $20,000 withdrawal right now, then you know the 1st 10 of that. Use your RMD. In other words, that would be awesome if you could just convert the entire thing into Roth, but you can’t.

Speaker 2

Yeah. So and kind of to to simplify that, I guess a little bit, so. As you’re working, anything that you’re putting into Roth as opposed to if you do 100% contribution to your traditional 401K, yes, ultimately because you’re basically not adding as much to that pre tax amount, which is ultimately going to cause what your R. And D is. Going to be. Before required minimum. Distribution age. Any Roth conversions that you do prior to that, yes, those would directly impact your RMD amount because you are literally converting pre tax to post tax. You just have to, you know, prepay the tax basically each year. But yes, that’s a lot of the reason why we do rough conversions is that if you’re in a position where that RMD down the road looks ridiculously high or something, it might make a lot of sense to do rough conversions before you get to that age. But as Josh was saying, once you hit that required minimum. Distribution age. It doesn’t mean that you can’t do raw conversions, it just you have to take the RMD first and then you can. For beyond that dollar.

Speaker 1

Amount one thing to throw. Out as a bonus for those of you who hung on to the end here is that you actually can. Make a qualified charitable. Transfer so that would be one way to offset that. Let’s say that that back to my $10,000 RMD requirement today throughout there, hypothetically, you actually could say well, but I give to the the United way. Anyway, right or whatever, right? Then you. Could actually say. Well, $10,000, but it’s gonna. Go from the traditional. IRA straight to the United Way no taxes because they’re a charity. Satisfied the. And then and now.

Speaker 2

Against your RMD, you don’t have to pay taxes. They don’t have to pay taxes because.

Speaker 1

They’re a charity. Yeah. And then you could say and and now I’m gonna do. I’m gonna do a route conversion for $20,000, and you wouldn’t have to. Worry about that initial 10, so yeah.

Speaker 2

Yep. And to throw things a little bit more crazy is that you only have to be 70. And 1/2 years of. Age to do it you. CD because they didn’t change that to go with.

Speaker 1

R&D. Yeah, they should. But they didn’t. You can tell a lot of legislation has put together. Piece meal and. By people who are not necessarily financial experts, so sometimes we end up with some really goofy rules, and sometimes those work. In your favor, right? So right, that’s. That’s definitely how we want to look at it. Thank you for listening today. Thank you for viewing. Certainly appreciate your business. Appreciate the trust that you put in. Our team, which we are an awesome team, but we we care about our clients and we’re very well qualified at that $10,000 again that. Really is something. We don’t take lightly the fact that you put your confidence in us. So with that, we will sign off for today and have a wonderful week and God bless.

We certainly appreciate any feedback you have. We can be reached at www.keystonefinancial.com or www.wiserfinancialadvisor.com .

Have a wonderful week and God bless.

The opinions voiced on the Wiser Financial Advisor show with host Josh Nelson are for general information only, and are not intended to provide specific advice or recommendations for any individual. To determine what may be appropriate for you, consult your attorney, accountant, financial or tax advisor prior to investing. Investment advisory services offered through Keystone Financial Services, an SEC registered investment advisor.