December 9, 2025 • 42 mins
New tax laws are on the horizon—and they could change the way you give. The new One Big Beautiful Bill Act introduces shifts that could influence your charitable strategy both now and in the years to come. On the next Faith & Finance Live, Rob West and Bruce McKee help us understand what is changing and how to respond wisely. Then, it’s on to your calls. That’s Faith and Finance Live . . . biblical wisdom for your financial decisions. That’s weekdays at 4pm Eastern/3pm Central on Moody Radio.
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Episode Transcript
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S1 (00:08):
New tax law is on the horizon and they could
change the way you give. Hi, I'm Rob West. The
new one, Big Beautiful Bill act, introduces shifts that could
influence your charitable strategy both now and in the years
to come. Today, Bruce McKee is here to help us
understand what's changing and how to respond wisely. Then it's
on to your calls at 800 525 7000. That's 800
(00:32):
525 7000. This is faith and finance. Live. Biblical wisdom
for your financial decisions. Well, our guest today is my
friend Bruce McKee, attorney and senior vice president of Complex
gifts at the National Christian Foundation. A valued underwriter of
this program. Bruce, great to have you with us.
S2 (00:53):
Thanks, Rob. It's wonderful to be here.
S1 (00:55):
Bruce. This new law, the one big, beautiful Bill act
sounds cheerful by name, but it carries some serious implications
for givers. So why don't we start with just a
quick overview of what it actually does?
S2 (01:08):
Sure. Well, beauty is in the eye of the beholder
for sure. And that applies to this bill as well,
which I'll refer to just as the Oba. Okay. It
had a whole lot of provisions in it, many of
them even beyond just tax. And depending on your perspective,
whether it's tax provisions or not, some of those provisions
looked beautiful and some didn't. But but I'd say the
(01:31):
biggest thing it did was to make permanent many provisions
that were scheduled to sunset at the end of 2025
under the last tax act, that 2017 Tax Cuts and
Jobs Act. So a couple of those, uh, are keeping
the increased standard deduction and estate tax exclusions, uh, both
(01:52):
of which can affect giving strategies. Uh, and then the
Oba also introduced introduce new deduction floors for charitable gifts
and a new limit for itemized deductions. And then it
extended certain deductions and also set some new rules for
university endowment taxes.
S1 (02:10):
Interesting. Well, there's a lot there. Let's begin with the
update to the standard deduction. Because this is what affects
probably 90% of taxpayers. So what changed. And what could
it mean for charitable givers specifically.
S2 (02:22):
Sure. This is a provision that was subject to that sunset.
So it was going to drop back down to a
lower amount at the end of this year. But the
Oba made it permanent and even actually boosted it for
even this year's taxes. So for this tax year 2025
for filing, the individuals will do. By this coming April,
(02:42):
the standard deduction increases to $15,750 for individuals and then
31,500 for joint filers. So the result of this higher
standard deduction, continuing on at that higher level and even
a little boosted. Uh, fewer taxpayers will just itemize. We
saw this after that 2017 bill. It really pushed the
(03:05):
percentage of taxpayers itemizing, uh, down very significantly. So what
that means then, of course, is that fewer people are itemizing,
so fewer people can deduct charitable gifts since those are
itemized deductions. Yeah. Um, and of course, people make their
charitable gifts not just for a tax deduction. Sure, but
the deduction is what Congress has included to create greater
(03:28):
incentives for giving. It means that you can give more
than you would otherwise be able to. So givers who
use the standard deduction after that 2017 act this came
out and this will continue. They may want to use
a strategy that we call bunching, which is grouping multiple
years of gifts into one year in order to push
(03:51):
you up above, beyond, Beyond that standard deduction. So that
you itemize deductions in that year but then not the others.
And if you if you do that for us at
NCF especially this can be paired with opening a giving fund. Yeah.
To ultimately manage those gifts so that you can make
your grants out to various charities over those intervening years.
S1 (04:15):
Yeah. Boy, I can't underscore that enough, folks. Open your
giving fund when you head to faith. It's like a
charitable checking account, a fabulous tool for giving and using
this bunching strategy. Also for giving appreciated assets. Uh, we
can't underscore that enough, Bruce. Just the wisdom and the
(04:35):
effectiveness of this tool called a donor advised fund. So
many uses. Right?
S2 (04:39):
Yes. Oh, absolutely. It's it really is a powerful tool. Um,
and a lot of people are continuing to see how
powerful it is.
S1 (04:48):
Yeah. And when you put those funds in there, I mean,
of course, the big idea is to get it out
into kingdom advancing causes. But while it's there, especially if
you use a bunching strategy, you can even invest it
and the returns go right back into the account, and
then you can grant them out to those ministries, your
church or charities that you select. Bruce McKee is here today,
Bruce's attorney and senior vice president of complex gifts at
(05:11):
the National Christian Foundation. We're talking about the one big,
beautiful bill and what it means for you and your giving.
Much more to come just around the corner. Stick around.
(05:35):
Tax laws may change, but the call to give faithfully
never does. We want you to plan wisely, act intentionally,
and trust God to multiply every gift for his kingdom.
You know, the one big, beautiful bill is now in place.
It's the law. We want to help you understand what
that means for your taxes and specifically your giving. To
(05:56):
help us do that today is Bruce McKee. Bruce's attorney
and senior vice president of complex gifts at the National
Christian Foundation. A valued underwriter of this program. If you'd
like to learn more or open your giving fund today,
that's a donor advised fund, which we've said is a
powerful giving tool. Just go to faith. That's faith. Bruce,
(06:21):
before the break, we were talking about some of the changes,
starting with the update to the standard deduction. Now I understand,
and you mentioned this, that the the one big beautiful
Bill act, the law introduces new floors for charitable giving.
So what exactly are those and when do they take effect.
S2 (06:38):
Yeah. Let me start by defining a term here. Defining
adjusted gross income okay. And without without getting into all
the details of it, adjusted gross income or what we
call AGI. Is all of your income reduced by all
of your above the line deductions? Things like student loan interest,
retirement contributions, or health savings account contributions made during the year.
(07:00):
So this includes your wages. It includes investments. It includes
business income, all of that less a few of these deductions.
But then after that your itemized deductions come out later.
And those are where charitable deductions happen. So this is
the new floor that they've introduced. Beginning with charitable gifts
(07:23):
made in 2026. Only the amount of gifts above a
half a percent, 0.5% of your adjusted gross income, your
AGI for individuals is deductible. So if your AGI for
a given year just to use a round number, if
your AGI is 200,000, that would mean that the floor
(07:45):
applies to the first $1,000 of your charitable giving. So
whether you gave 20,000 or 40,000 of charitable giving that year,
you would lose 1000 of that amount from a deductibility standpoint. Okay.
So for corporations that give in addition to right, we've
got two floors really one for individuals, the other for corporations.
(08:08):
And that floor is 1% of their taxable income. So
it just means that that slice for either of those
the half a percent slice for individuals or the 1%
slice for corporations is just no longer deductible. Okay. So
since it starts in 2026, although it's not a massive percentage,
it's really quite small. But if you are thinking about giving,
(08:32):
especially if your AGI is going to be large next year, right.
We'd really encourage you to make those gifts before the
end of this year, before the end of 2025. Since
the floor doesn't apply at all to gifts made this
year and then in future years, we'd strongly recommend that
you meet with your financial advisor, who may suggest looking
ahead to see what years might be higher AGI years,
(08:55):
whether you have the sale of a business or something
like that, so that you can then get your gifts
in earlier years to minimize the effect of that floor.
So interestingly, since the Tax Cuts and Jobs Act, we've
had bunching for the item Non-itemizers. But now even itemizing
(09:17):
donors may benefit from sort of strategic bunching in alternate years,
depending on what their AGI is going to be.
S1 (09:25):
Yeah, bunching again is if you have the capacity to
do all of your giving in one year, let's say
into a donor advised fund, you do that and then
you give it out over time, or grant it out
over time and maximize the tax benefits available to you.
All right. For those high capacity givers. Bruce, what about
deduction limits where they're really wanting to give a maximum
(09:48):
amount of their income away. Are we seeing changes there
as well?
S2 (09:52):
Yeah, we sure are. Um, one I'll say, thankfully, the
Oba made the 60% of AGI limit for cash gifts
now permanent. Rather than letting that one sunset back to
the 50% total limit that existed before. So. So that's
a good thing. But there's a new limit that was
introduced as well. And this is on itemized deductions. Generally
(10:14):
this isn't just on charitable gifts but that aggregate of
all of your itemized deductions, including things like state and
local taxes and mortgage interest deductions. Uh, so a quick
explanation here of what's going on. The highest tax bracket
is the 37% bracket that would have that would have
sunsetted before and and put us back into a higher bracket.
(10:35):
But that was made permanent. So that's the highest permanent bracket.
So any income over a certain amount every year that
amount changes is in that 37% bracket. Itemized deductions then
offset that highest bracket income first. So it means that
those deductions are worth $0.37 for every dollar, since that
(10:58):
would have otherwise been the tax cost. Yeah. This new
limit on itemized deductions, what I call the 237 haircut, uh,
reduces the reduces that effect so that those deductions in
that highest bracket of income are now worth only $0.35
for every dollar. Again, like the floors, it's not a
(11:19):
huge amount, but it results in a slightly higher tax bill.
And like the floors, this haircut also goes into effect
for tax year 2026. So that's just one more reason
to give this year. If you're trying to decide between
a gift this year or next, and in the future,
it will require some additional planning between givers and their advisors,
(11:41):
especially for high income donors.
S1 (11:42):
Yeah, that makes a lot of sense. Great reason to
really make sure you're thoughtful about your giving here before
we close the books on 2025. Now, you also mentioned,
Bruce that the law touches estate and gift taxes. This
is always a really important question for folks. So what
are the key changes there?
S2 (12:01):
Yeah, the estate and gift tax exemption is the amount
of an individual's estate that can be transferred to their
heirs tax free. That exemption amount rises under the Oba
to 15 million for individuals and 30 million for married couples,
again primarily making permanent what had been scheduled to sunset
(12:21):
back to about half that amount as of 2026. Under
that Tax Cuts and Jobs Act. So now long term
estate planning can really proceed with more confidence due to
these permanent thresholds. But there I will make one note
as well on permanence. Write the laws, of course, can
be changed, but the old law that had been passed
(12:43):
in 2017 had those sunsets built in. Yeah, we call
these permanent now because it requires an affirmative vote to
change these amounts rather than simply allowing them to expire.
Back to the earlier levels. And we found that when
individuals settle their estate planning, it often helps them focus
(13:04):
where their hearts are called by God to give, which
then often encourages them to, in the words of Ron Blue,
start giving while they're living, so they're knowing where it's going, right?
And within that, estate planning, charitable trusts and family foundations
can also benefit from this greater predictability.
S1 (13:21):
That's really helpful. Just about a minute left, Bruce, for
listeners who don't itemize their deductions, the above the line
charitable deduction is returning. How does that work this time around?
S2 (13:32):
Yeah, this time it'll be $1,000 for an individual, $2,000
for couples, for non-itemizers for their cash gifts to churches
and public charities, which is a great thing to bring
those folks in for more incentive for giving.
S1 (13:47):
Yeah, boy, that was so helpful. We covered a lot
of ground today. Bruce. Really appreciate your time.
S2 (13:51):
Thank you. Rob. We at NCF are always happy to
join you.
S1 (13:54):
Well we love our partnership. That's Bruce McKee, attorney, senior
vice president of complex gifts at the National Christian Foundation. Folks,
let me encourage you. If you're planning your year end
giving a giving fund with NCF can help you maximize
your generosity and steward God's provision wisely. Open one today.
It'll only take three minutes. Go to faith. Com that's faith.
(14:22):
We'll be right back with much more. Stay with us.
S3 (14:31):
The opinions offered during this program represent the personal or
professional opinions of the participants, given for informational purposes only.
Any information provided is not intended to replace advice from
a financial, medical, legal, or other professional who understands your
specific situation.
S1 (14:55):
So thankful to have you with us today on Faith
and finance. Live. I'm Rob West. Well looking forward to
taking your calls and questions. The calls have started coming in,
but we've got room for you. That number to call
800 525 7000. Again, that's 800 525 7000 at the moment.
We've got some room for you. We'd love to hear
from you today. We'll dive into those questions here in
(15:16):
just a moment. But first, in the news today, the
IRS has released new guidance on how workers can claim
recently enacted federal deductions for tips and overtime pay. Beginning
this year and running through 2028, eligible employees may deduct
up to $25,000 in qualified tips, with the benefit phasing
(15:36):
out for individuals earning more than 150,000, or married couples
earning more than 300,000. A separate deduction allows workers to
claim up to 12,500 of eligible overtime pay, or 25,000
for joint filers with the same income limits. Now, experts
warn that workers may still face confusion at tax time.
(15:59):
Employers are encouraged but not required, to report these earnings
on information returns in 2025, which could make filing more complicated.
About 6 million workers report tipped wages annually and many
more receive overtime pay. The IRS also issued temporary transition relief,
(16:20):
allowing certain service industry workers to claim the tip deduction
in 2025, though this eligibility may change in future years.
For now, taxpayers are encouraged to track income carefully and
stay alert for updates. With the rules still developing, clear
records and early preparation will help ensure a smoother filing season.
(16:43):
So if you fall in that category, overtime pay or tips,
that's helpful information for you. All right. We're ready to
dive into these questions today. We're going to begin in Indianapolis.
Alan go ahead.
S4 (16:55):
Hi, Rob. I appreciate your ministry. You're doing a great thing.
S1 (16:58):
Well thank you, sir.
S4 (17:00):
Oh you're welcome. Yeah. So, um, I have a 401
K through my employer. It's a Roth. I have $403,000,
and it's just in a target date portfolio. And that's
what it's been in since I opened it. Um, I'm 59.
I'm looking to retire in about five and a half years.
I keep getting emails from Vanguard, um, to consider using
(17:22):
a human advisor. Um, they're saying it would be about
$30 for every $10,000, so 0.30%. And I just don't
know if I should do it or not if it's
worth the cost of doing that. We do have other investments.
I don't know if it would be helpful to know
that information before you answer my question, but that's my
(17:44):
question today. Rob.
S1 (17:45):
Well, it's a good one, Alan, I appreciate you asking. Yeah.
Tell me a little bit about the other investments that
you have and how you're selecting them.
S4 (17:53):
Okay. Um, we have a Roth through Schwab, which we
contribute $200 a month to, and it's got about 76,000
in it. Um, my wife retired. She's really conservative. So
we opened an annuity, a fixed indexed annuity, um, about
seven years ago, and it has about 280,000 in it.
(18:16):
And then we have, um, my wife got an inheritance
and again, we put it in a money market. It's
got 34,000. In it we have an emergency fund with
30 in it, and we have one other annuity, a
small one with about 50,000 in it.
S1 (18:34):
Okay, excellent. Well, listen, you guys are doing great and
I can understand, you know, you have different kind of
risk profiles, if you will. And the good thing is
you can have a variety of investments that when you
put it all together, you know, is appropriate for each
of your ages and risk tolerance and then jointly for
your goals and objectives. As you think about the fourth
quarter of life and what God might have for you,
(18:56):
you know, the the need potentially to transition away from
paid work to whatever God has as you stay productive
in service to our Lord, but using your time, talent,
and treasure for his glory that may or may not
involve pay. And so the ability to convert these assets,
which you know, you've accumulated quite a nest egg here,
which is great to be able to convert these to
(19:18):
income is going to be really important. I don't think
there's anything wrong with having that guaranteed fixed annuity as
a part of this. I mean, I'm seeing here, you know,
as much as, uh, you know, 800,000 plus somewhere between
8 and 900,000 all in and, you know, with a
guaranteed fixed annuity is 280 of that. And then you've got, uh,
you know, the 134 invested really conservatively as well. Um,
(19:42):
you know, I like the idea of you using an advisor, uh,
for this nest egg, even if it didn't include, you know,
some of this. I mean, maybe the the inheritance you
still keep, you know, in a, in a fairly conservative,
even somewhat liquid posture, if that, you know, gives your
wife more peace of mind. Uh, the annuity is certainly
(20:02):
in a fixed environment, but you'll be able to access, uh,
I imagine a portion of that every year. But taking
the roughly 500,000 between the 401 K and the Roth
and having an advisor manage those, I think makes a
lot of sense. I probably wouldn't pay the 30 basis points.
Just so you have a human that you can call
in a call center. I'd rather you spend if you're
(20:24):
going to use an advisor. Um, you know, more like 1%,
even though, you know, that's 4000 a year on a
$400,000 portfolio. The idea would be that you've got somebody that,
as you move beyond the target date fund and think
about generating more income, protecting what you have, but also
maximizing that yield. Maybe in the fixed income portion, it's
(20:46):
a mix of bonds and some treasuries, maybe even some CDs. And, uh,
you know, maybe you have a little bit of gold
in there. And then for a smaller portion of the portfolio,
still keeping some stock exposure so you can outpace inflation.
I mean, that's the kind of thing that an advisor
would do alongside probably some comprehensive planning, making sure you
have your estate in order, making sure you're mitigating taxes
(21:09):
once you have required minimums, that you do that in
a tax efficient way, and somebody who understands your values
and can guide you in the most effective ways to
give as well. So that would be the way that
I would go. And I would reach out to a
certified Kingdom advisor, maybe interview 2 or 3 in Indianapolis.
You could go to find a. Com to find who's
(21:30):
in your area. There's some great ones there in Indy,
but let's do this. I want to get your thoughts
on that and just see if you have any follow
up questions. So if you don't mind, Alan, I'm going
to ask you to stay there through the break. I'll
come right back to you and we'll pick up this conversation,
and then we'll head to Iowa, talk to Renee and
out to Washington State. John's waiting patiently there as well.
This is faith and finance live. We'll be right back.
(21:59):
Great to have you with us today on Faith and
Finance live. I'm Rob West. Before the break we were
talking to Alan in Indianapolis. He's got multiple accounts. He's
got a 401 K through his employer. He's been in
a target date fund, about 400,000. He's wondering if he
should move that over to an advisor, either a low
cost advisor at Vanguard that would be just available, I suspect,
(22:22):
for phone calls or some other situation. He's also got
several other accounts. Uh, he's planning to retire in five
and a half years. And, um, you know, is is
just wondering the best option here. Uh, you know, you
can't al and roll this out to an IRA and
have a full discretionary account until you separate from your employer.
(22:42):
So I would say, you know, if that target date
has been doing well, I'd probably just leave it there
for now. I don't think you get a lot of
benefit out of the the 30 basis points for the advisor,
and then just be ready to move over to an
advisor that can take full discretion at retirement. And if
you need some financial planning now, you know, I'd reach
(23:03):
out to an advisor to establish a relationship with. But
apart from that, you know, I don't think there's any
issue with staying with this target date fund. But give
me your thoughts on all that.
S4 (23:14):
Okay. Well, um, that that sounds good to me. Honestly. Um,
I would definitely, you know, maybe six months before I retire,
start interviewing, um, some advisors, but it's been doing really well. And, uh,
you know, I realize that, um, to get professional advice,
(23:37):
you know, I'm a novice. I'm going to need help.
So I wasn't sure if I should go ahead and
pay that fee through Vanguard. Um, for the next five
and a half years until I retire. But, um, if
you suggest, I realize, Rob, ultimately, it's mine and my
wife's decision. But if you suggest that we just ride
the target date, that that definitely, uh, will be a
(23:58):
factor in our decision making.
S1 (24:00):
Yeah. I mean, I don't like I don't have any
problem with that at all. I mean, especially it's been
doing well, those are going to, you know, that's going
to continue to get more conservative. Um, you know, you
may want to look and just see kind of what
the mix is of that target date fund. Uh, you know,
because what is your age right now?
S4 (24:20):
I'm 59. I'll be 60 in April. And I looked
on Sunday, and it's like 60% stock and 40% bonds
right now.
S1 (24:27):
Okay. Yeah. So that's a little more aggressive than you
would typically be, which I don't have any problem with
just given the assets you have. And you all are
living modestly. I mean normally we'd say at 60 you'd
be 5050. Um, but I think being a little bit
more aggressive than that is not a problem for me.
It's certainly not, you know, out of balance whatsoever. I mean,
(24:47):
if you wanted to pull back to a different target
date fund, that is a little, you know, sooner and
where it gets more like 5050. Um, you know, I
think that would be fine, especially given how the market's
done and the fact that a lot of economists think
we're headed into a period where we're not going to
see these kinds of returns. Um, but again, if even
(25:07):
if you stayed right there, I wouldn't have any problem
with it. I'm just not sure with the kind of
relationship you're describing here, uh, at Vanguard for the 30
basis points, I'm not sure you're going to get a
whole lot out of that. That's worth the expense.
S4 (25:21):
Right. Okay. All right. Rob. Well, I appreciate your advice
and your time. It helps us greatly.
S1 (25:27):
Anytime, Alan. Hey, stay on the line. I'm going to
send you a copy of our latest edition of Faithful Steward,
our magazine. Just as a thanks for calling in today.
I think you'll enjoy it. God bless you, sir. Uh,
let's go to Iowa. Hi, Renee. How can I help?
S5 (25:38):
Hi, Rob. Thank you for taking my call. I really
appreciate your program.
S1 (25:42):
Of course. Thank you.
S5 (25:44):
Um, I'm, uh, 54 and still working. I still have about.
I'm still planning on working another 8 or 9 years.
My husband is 62 and he's retired. He's taking he
gets Social Security and he has two 401 s, um,
that are like 40,000 apiece. Um, so we were just
(26:06):
considering wondering if it would be a good idea to
cash those two in and then pay off our mortgage.
And we have a car payment. Our mortgage is 40,
our balance about 40,000. Um, and then his, our truck, um,
we owe about 10,000 on that.
S1 (26:26):
Okay. Yeah. And what is the interest rate on that?
S5 (26:30):
Uh, the interest rate on the mortgage is 3%, and
the truck is like, um, maybe nine.
S1 (26:35):
Okay. Yeah. Uh, yeah. You know, I mean, I think
I appreciate what you're trying to do here. At the
same time, you know, the cashing out that 401 K
is going to trigger trigger taxes. So, you know, there's
no 10% penalty at, uh, at 62 if we're talking
about his account. But the entire withdrawal uh, would be
(26:56):
taxable in one year. So that could push a portion
of that into a higher tax bracket. Um, you know,
that 3% mortgage is what you might consider cheap debt.
I mean, you know, that's a fabulous interest rate that
a lot of people would love to have today doesn't
mean you shouldn't pursue being debt free, even though it's, quote,
cheap debt. I still like the idea of you getting
(27:17):
out of debt completely, but from a financial standpoint, and
that's all it is. There's more to finances than just the,
you know, the numbers. But from a financial standpoint, it's
almost always better to keep the mortgage and leave the
401 K alone. You know, paying off that 3% mortgage
is not a high return move. Any diversified retirement portfolio
(27:38):
is likely to earn more than a 3% long term return,
especially if you're going to need those funds for retirement
income down the road. Um, liquidity matters at your age.
So once you put not saying you're old at all,
I'm just saying as we age, liquidity gets more and
more important. So once you put retirement money into the house,
(27:58):
it becomes illiquid unless you get something like a reverse mortgage.
So if something goes wrong, you know, medical home repair car,
you can't get that money back without debt. Uh, and
the payment is manageable. It sounds like. So I think
bottom line is just, you know, to be able to
continue to keep that growing on a tax deferred basis,
(28:19):
which is a significant value, um, you know, without the
taxes being a drag on the investments, keeping that, you know,
compounding for the future so you can convert it to
an income stream. And just given that you're not telling
me your budget's tight and the interest rate is so low,
I'd probably just, you know, continue to pay this off monthly. Now,
(28:39):
what would kind of trump all of that, if you will,
is if you said, Rob, we really feel a conviction
from the Lord to be debt free immediately. And I'd say, great,
go ahead and don't look back. But apart from that,
I'd probably let this ride.
S5 (28:52):
Okay. All right. I was just wondering what you thought
about it.
S1 (28:56):
Excellent. Well, I appreciate you checking in. If I can
help with anything else along the way. Don't hesitate to call.
Lord bless you. 800 525 7000 is the number to call.
Let's go out to Washington state. John. Go ahead.
S6 (29:08):
Yes, sir. How are you doing?
S1 (29:10):
I'm doing great. Thank you.
S6 (29:13):
Hey, um, as I shared, uh, we are looking at
possibly selling a piece of property that we've had probably
for around 6 or 7 years. Uh, purchase price was 220,000. Uh,
we owe nothing. Uh, selling price. Asking price will be
probably around 400, 440,000 based on, uh, comparable properties.
S1 (29:41):
Yeah. Okay. And so what what's the main thing you're
wondering about?
S6 (29:49):
Main thing that I'm wondering about is I'm on Social Security. Okay. Um,
approximately 36,000 annual. Their, um, retirement accounts drawing approximately 21,000
out of that annually, and my wife is working at
a self-employed approximately 16,000 annual. So a total gross around 73,000. Uh,
(30:15):
so not certain how this is going to affect things
the next year as far as taxes and, uh, my
Social Security.
S1 (30:25):
Got it. Okay. Yeah, that's really helpful background information, John.
So here's what we're going to do. I'm going to
take my final break. As soon as I come back
I've got all these details. We'll talk about you being
prepared for, uh, something called Irma. Uh, income related monthly
adjustment amount. Uh, also, perhaps more taxable income on Social
Security and capital gains. Stay right there. We'll be right back. Hey,
(30:53):
I'm so glad you're joining us today on Faith and finance.
Live here on a Tuesday afternoon. Maybe you have a
financial question you've been wrestling with. Well, now's is a
great time to call. I've got some lines open and
here in our final segment we're going to get to
a few more phone calls. So, uh, beyond those holding,
if you have a question, go ahead and call right
now 800 525 7000. We'll try to get you on quickly.
(31:14):
800 525 7000. With any financial questions? Uh, before the break,
we were talking to John in Washington state. Uh, he
bought a piece of property. It's not a personal residence.
6 or 7 years ago for about 220,000. They paid
it off. They're thinking of selling it. They think based
on the comps in the area, it's worth about 400,000.
He's 70 retired, collecting Social Security. Just wondering how this
(31:38):
might affect affect his taxes and Social Security. Uh, John, yes,
I'm glad you're thinking about this, because you're not going
to want to let this catch you by surprise. Um, so,
you know, a few things. This is going to affect
first capital gains because it's not your primary residence. You
don't get the home sale exclusion. So if you sold
it for 400 cost basis was 220, You'll have roughly
(32:00):
180,000 and a taxable long term capital gain. It's your
income level. I think you mentioned about 73,000 in combined
income plus the capital gain that gets added to it.
That's going to put you probably in the 15% long
term capital gain rate. So just by way of estimate
that could be 27,000 in capital gains. So that'd be
(32:22):
the first thing you want to be ready for. Um,
you could also see your income jump or you will
because of the gain, the IRS will count that toward
your combined income. And that will cause 85% of your
Social Security to become taxable. It doesn't reduce the benefit.
It just means more taxes. So, you know, let's say
(32:42):
I'm just estimating here. Let's say you receive 2000 a month,
24,000 a year. Um, if now 85% is taxable, that
means 20,400 would be added to your taxable income. In
my example, if you're at the marginal tax rate of 12%.
That'd be, you know, a $2,500 in additional tax if
(33:03):
you're at the 22% marginal rate, could be 4400. So
that's the second thing. The third thing to be aware
of would be any trigger to Irma, which is a
higher Medicare premium. They look at your modified adjusted gross
income from two years ago. So this wouldn't be immediate.
But adding to that 180,000 of gain to your usual
(33:24):
73,000 will push you, you know, above that Irma threshold. Now,
that's two years after the sale where your Medicare Part
B and D will increase for one year due to
that spike in income. How much will that be? Um,
you know, it could be, uh, it could be a
couple of hundred dollars more, 230 to $360 more per
(33:48):
month for that year on part D and somewhere between
25 and 50, I would guess. Um, so that could
be between 5 and 10,000 for the year and extra
Medicare costs that you need to be aware of. So
those would be the main issues. I know that's not
great news, but better to be ready for it, you know.
S6 (34:07):
Yes, sir.
S1 (34:09):
Is that all make sense?
S6 (34:13):
Yes, I think uh, other than, um, I'll have to
research the, uh, Irma that you were talking about and, uh,
become more educated in that fact. Yeah.
S1 (34:26):
Yeah. Irma is basically they look at your income to
determine if you go over a certain threshold, they add
additional premium to your Medicare Part B and D. And
so anytime someone has a spike in income and a
capital gain would be included in that, it's just going
to push you above that threshold, and it's just going
(34:46):
to make those premiums more expensive. And and so it's
only temporary. And then the next year when they do
the look back, they'll see your income drop back down
to its normal level and they would drop your premium.
But for that, that one year, a couple of years
from the sale, you are going to have that spike.
So you just need to be ready for it.
S6 (35:06):
Okay. So it's just one year.
S1 (35:08):
That's right. Yeah. But it's based on your modified AGI
two years prior. And then they set the premium for
the year. And then they'll take a look at it
the following year and see that. Wait a minute. The
end comes back down and is an obvious reason for it.
It's because it was only up due to that sale.
S6 (35:26):
Well, thank God it's only one year.
S1 (35:29):
Yes, sir. Hey, thanks for your call, John. We appreciate
you being on the program, sir.
S6 (35:34):
Yes, sir. Thank you for your your faithfulness.
S1 (35:37):
Well, I appreciate that. It's a it's a joy and
a pleasure. Lord bless you. Uh, let's go to Florida. Hi, Dee.
Go ahead.
S7 (35:43):
Hi. Thank you. I really love your show. Thank you.
I thank you. No. Thank you. I have, um, been
helping friends, and it's sort of turned into a side business,
which wasn't anticipated per se, but I've had cash payments
made throughout the summer months, and, um, I have a
(36:07):
full time job as well. I'm just not sure from
a tax perspective how I have to treat that. If
there's a special schedule or how you know how much
is considered just friends or income after, you know, a
certain threshold. Um, beyond that, I also was just given
(36:30):
my performance review, and I believe I'm getting a raise.
I have not been able to do very well with
my retirement. Um, you know, adding to it, um, in
many cases I've had to detract from it. So I'd
like to be strategic about perhaps where I put that
increase and wondered what you think.
S1 (36:51):
Yeah. Well, it's a great question and I appreciate it.
So first part let's deal with that. So even if
the payments come from friends, if you did work for
them and could be anything from, you know, babysitting to,
you know, anything else crafts, whatever it is, the IRS
still treats it as taxable income. And it doesn't matter
who paid or whether it was cash, Venmo or a
(37:11):
gift card. If you were paid for work, it counts
as income. Um, and so it'd be self-employment income. So
what you would need to do with that is you
add up all the cash you earned for the year,
that becomes your side business income. You subtract any legitimate
expenses related to that work supplies or mileage or tools
or materials. Whatever's left is called your net self-employment income.
(37:35):
And you'll owe income tax and self-employment tax, which is,
you know, normally when you get wages, half of your
Social Security and Medicare is covered by your employer. When
you're self-employed, you got to cover both sides. So it's 15.3%.
So you just need to make sure you keep a
list of what you earned and any expenses, and then
(37:58):
plan for that side income, side job income to be
taxed at, you know, roughly 20 to 25% total depending
on your bracket. And then, you know, you'll you'll have
to file that self-employment income. Does that make sense?
S7 (38:15):
It does make sense. Will I be able to do
both on the same, you know, form, um, or is
there a separate schedule like to call myself self-employed? In part.
S1 (38:29):
Yeah. No, you'll you'll be able to handle all of
that in one return. A tax return can handle both
the W-2 wages and the self-employment income. So your W-2
job goes on the 1040 the lines for wages. Your
self-employment income gets reported on a schedule C, as in Charlie,
and then any self-employment tax you owe is on schedule SE,
(38:52):
and then that's going to flow back to the 1040.
So everything will be there. Same form. It all gets
filed together.
S7 (38:58):
Perfect. Thank you for that.
S1 (39:00):
Yep. And then tell me again that second part of
the question.
S7 (39:04):
Yeah. Just thoughts of where I can make up some
ground with a little raise that I'm getting. Um, in
the New year for retirement.
S1 (39:14):
Okay. Got it. Yeah. So do you have a retirement
plan at work? Your current employer?
S7 (39:19):
We do. We're limited as to the percentage that we
can contribute.
S1 (39:25):
Okay. Are you maxing that out currently?
S7 (39:27):
Uh, yes. On one. And then you just made me remember.
I think there's a deferred plan that I could put
the funds to.
S1 (39:35):
Okay. Yeah. You're going to want to get more information
on that, because anything we can do to get you,
you know, uh, into your retirement account is great. Um,
and so if you've got a deferred compensation plan, if
your employer offers what's called a 457 B, uh, or
other deferred comp plan, that's the next best place to save.
(39:56):
So it's going to let you save beyond your 401
K limits or whatever you have. It's going to reduce
your taxable income, and there's no penalties for withdrawal after
separation from service in a 457 plan. So it's a
great tool for catching up if you, you know, have more.
Beyond that, you could open a Roth IRA which would
(40:18):
have tax free growth. But if you're, um, you know,
you'd have to meet the income requirements for that. But
I'd say either of those options could be great.
S7 (40:26):
Wonderful. I appreciate your time today. Thank you so much.
S1 (40:30):
Absolutely. Thanks for listening to the program, D and for
your kind remarks. Lord bless you. We appreciate it. Uh
800 525 7000. Uh, you know, Mary and Victor, unfortunately,
I am out of time today, so I would love
to get you all scheduled to be first up tomorrow. Uh, Mary,
I would love to tackle that. Uh, 529 for your
great grandchild. And Victor, as a question about some credit
(40:53):
card debt and, uh, perhaps a hardship situation. So, uh,
let's see Mary and Victor, if we can get get
you scheduled to be, uh, on the program tomorrow. Uh,
first two callers. Thanks for, uh, for calling today, folks.
I've got two requests for you before we wrap up today.
One is, if you are a client of a certified
Kingdom advisor, I could use your help in a nationwide
(41:14):
survey we're conducting with a research partner. Um, if you'll
just head to Faith B-complex, it's going to take ten minutes,
but it'll be a big favor to me. I need, uh,
according to our latest data, about 175 more surveys completed. Again,
this is for clients of certified Kingdom advisors. This national
(41:36):
study is going to help us better understand the outcomes
of working with a certified Kingdom advisor versus not working
with a certified Kingdom advisor. We're getting some early data.
It's really exciting about how they're helping God's people give
more and invest in a way according to their values,
and think about preparing the next generation. But we need
(41:56):
a full lineup of surveys in order to make this
statistically valid. So if you're a client of a k
faith complications. Now as we head toward year end, we're
getting close to December 31st, but we're not yet there
in meeting our listener support goal. So if you love
the program, you listen regularly and you'd consider being a
(42:18):
part of our funding team. Here's why. It's a great time.
Every gift is doubled between now and December 31st, and
every gift will ensure you get my new devotional. Go
to Faith. Com. Big thanks to Josh Taylor, Omar and Lisa.
Faith and finance lives a partnership between Moody Radio and
Faith by. We'll see you tomorrow. Bye bye.
New tax law is on the horizon and they could
change the way you give. Hi, I'm Rob West. The
new one, Big Beautiful Bill act, introduces shifts that could
influence your charitable strategy both now and in the years
to come. Today, Bruce McKee is here to help us
understand what's changing and how to respond wisely. Then it's
on to your calls at 800 525 7000. That's 800
(00:32):
525 7000. This is faith and finance. Live. Biblical wisdom
for your financial decisions. Well, our guest today is my
friend Bruce McKee, attorney and senior vice president of Complex
gifts at the National Christian Foundation. A valued underwriter of
this program. Bruce, great to have you with us.
S2 (00:53):
Thanks, Rob. It's wonderful to be here.
S1 (00:55):
Bruce. This new law, the one big, beautiful Bill act
sounds cheerful by name, but it carries some serious implications
for givers. So why don't we start with just a
quick overview of what it actually does?
S2 (01:08):
Sure. Well, beauty is in the eye of the beholder
for sure. And that applies to this bill as well,
which I'll refer to just as the Oba. Okay. It
had a whole lot of provisions in it, many of
them even beyond just tax. And depending on your perspective,
whether it's tax provisions or not, some of those provisions
looked beautiful and some didn't. But but I'd say the
(01:31):
biggest thing it did was to make permanent many provisions
that were scheduled to sunset at the end of 2025
under the last tax act, that 2017 Tax Cuts and
Jobs Act. So a couple of those, uh, are keeping
the increased standard deduction and estate tax exclusions, uh, both
(01:52):
of which can affect giving strategies. Uh, and then the
Oba also introduced introduce new deduction floors for charitable gifts
and a new limit for itemized deductions. And then it
extended certain deductions and also set some new rules for
university endowment taxes.
S1 (02:10):
Interesting. Well, there's a lot there. Let's begin with the
update to the standard deduction. Because this is what affects
probably 90% of taxpayers. So what changed. And what could
it mean for charitable givers specifically.
S2 (02:22):
Sure. This is a provision that was subject to that sunset.
So it was going to drop back down to a
lower amount at the end of this year. But the
Oba made it permanent and even actually boosted it for
even this year's taxes. So for this tax year 2025
for filing, the individuals will do. By this coming April,
(02:42):
the standard deduction increases to $15,750 for individuals and then
31,500 for joint filers. So the result of this higher
standard deduction, continuing on at that higher level and even
a little boosted. Uh, fewer taxpayers will just itemize. We
saw this after that 2017 bill. It really pushed the
(03:05):
percentage of taxpayers itemizing, uh, down very significantly. So what
that means then, of course, is that fewer people are itemizing,
so fewer people can deduct charitable gifts since those are
itemized deductions. Yeah. Um, and of course, people make their
charitable gifts not just for a tax deduction. Sure, but
the deduction is what Congress has included to create greater
(03:28):
incentives for giving. It means that you can give more
than you would otherwise be able to. So givers who
use the standard deduction after that 2017 act this came
out and this will continue. They may want to use
a strategy that we call bunching, which is grouping multiple
years of gifts into one year in order to push
(03:51):
you up above, beyond, Beyond that standard deduction. So that
you itemize deductions in that year but then not the others.
And if you if you do that for us at
NCF especially this can be paired with opening a giving fund. Yeah.
To ultimately manage those gifts so that you can make
your grants out to various charities over those intervening years.
S1 (04:15):
Yeah. Boy, I can't underscore that enough, folks. Open your
giving fund when you head to faith. It's like a
charitable checking account, a fabulous tool for giving and using
this bunching strategy. Also for giving appreciated assets. Uh, we
can't underscore that enough, Bruce. Just the wisdom and the
(04:35):
effectiveness of this tool called a donor advised fund. So
many uses. Right?
S2 (04:39):
Yes. Oh, absolutely. It's it really is a powerful tool. Um,
and a lot of people are continuing to see how
powerful it is.
S1 (04:48):
Yeah. And when you put those funds in there, I mean,
of course, the big idea is to get it out
into kingdom advancing causes. But while it's there, especially if
you use a bunching strategy, you can even invest it
and the returns go right back into the account, and
then you can grant them out to those ministries, your
church or charities that you select. Bruce McKee is here today,
Bruce's attorney and senior vice president of complex gifts at
(05:11):
the National Christian Foundation. We're talking about the one big,
beautiful bill and what it means for you and your giving.
Much more to come just around the corner. Stick around.
(05:35):
Tax laws may change, but the call to give faithfully
never does. We want you to plan wisely, act intentionally,
and trust God to multiply every gift for his kingdom.
You know, the one big, beautiful bill is now in place.
It's the law. We want to help you understand what
that means for your taxes and specifically your giving. To
(05:56):
help us do that today is Bruce McKee. Bruce's attorney
and senior vice president of complex gifts at the National
Christian Foundation. A valued underwriter of this program. If you'd
like to learn more or open your giving fund today,
that's a donor advised fund, which we've said is a
powerful giving tool. Just go to faith. That's faith. Bruce,
(06:21):
before the break, we were talking about some of the changes,
starting with the update to the standard deduction. Now I understand,
and you mentioned this, that the the one big beautiful
Bill act, the law introduces new floors for charitable giving.
So what exactly are those and when do they take effect.
S2 (06:38):
Yeah. Let me start by defining a term here. Defining
adjusted gross income okay. And without without getting into all
the details of it, adjusted gross income or what we
call AGI. Is all of your income reduced by all
of your above the line deductions? Things like student loan interest,
retirement contributions, or health savings account contributions made during the year.
(07:00):
So this includes your wages. It includes investments. It includes
business income, all of that less a few of these deductions.
But then after that your itemized deductions come out later.
And those are where charitable deductions happen. So this is
the new floor that they've introduced. Beginning with charitable gifts
(07:23):
made in 2026. Only the amount of gifts above a
half a percent, 0.5% of your adjusted gross income, your
AGI for individuals is deductible. So if your AGI for
a given year just to use a round number, if
your AGI is 200,000, that would mean that the floor
(07:45):
applies to the first $1,000 of your charitable giving. So
whether you gave 20,000 or 40,000 of charitable giving that year,
you would lose 1000 of that amount from a deductibility standpoint. Okay.
So for corporations that give in addition to right, we've
got two floors really one for individuals, the other for corporations.
(08:08):
And that floor is 1% of their taxable income. So
it just means that that slice for either of those
the half a percent slice for individuals or the 1%
slice for corporations is just no longer deductible. Okay. So
since it starts in 2026, although it's not a massive percentage,
it's really quite small. But if you are thinking about giving,
(08:32):
especially if your AGI is going to be large next year, right.
We'd really encourage you to make those gifts before the
end of this year, before the end of 2025. Since
the floor doesn't apply at all to gifts made this
year and then in future years, we'd strongly recommend that
you meet with your financial advisor, who may suggest looking
ahead to see what years might be higher AGI years,
(08:55):
whether you have the sale of a business or something
like that, so that you can then get your gifts
in earlier years to minimize the effect of that floor.
So interestingly, since the Tax Cuts and Jobs Act, we've
had bunching for the item Non-itemizers. But now even itemizing
(09:17):
donors may benefit from sort of strategic bunching in alternate years,
depending on what their AGI is going to be.
S1 (09:25):
Yeah, bunching again is if you have the capacity to
do all of your giving in one year, let's say
into a donor advised fund, you do that and then
you give it out over time, or grant it out
over time and maximize the tax benefits available to you.
All right. For those high capacity givers. Bruce, what about
deduction limits where they're really wanting to give a maximum
(09:48):
amount of their income away. Are we seeing changes there
as well?
S2 (09:52):
Yeah, we sure are. Um, one I'll say, thankfully, the
Oba made the 60% of AGI limit for cash gifts
now permanent. Rather than letting that one sunset back to
the 50% total limit that existed before. So. So that's
a good thing. But there's a new limit that was
introduced as well. And this is on itemized deductions. Generally
(10:14):
this isn't just on charitable gifts but that aggregate of
all of your itemized deductions, including things like state and
local taxes and mortgage interest deductions. Uh, so a quick
explanation here of what's going on. The highest tax bracket
is the 37% bracket that would have that would have
sunsetted before and and put us back into a higher bracket.
(10:35):
But that was made permanent. So that's the highest permanent bracket.
So any income over a certain amount every year that
amount changes is in that 37% bracket. Itemized deductions then
offset that highest bracket income first. So it means that
those deductions are worth $0.37 for every dollar, since that
(10:58):
would have otherwise been the tax cost. Yeah. This new
limit on itemized deductions, what I call the 237 haircut, uh,
reduces the reduces that effect so that those deductions in
that highest bracket of income are now worth only $0.35
for every dollar. Again, like the floors, it's not a
(11:19):
huge amount, but it results in a slightly higher tax bill.
And like the floors, this haircut also goes into effect
for tax year 2026. So that's just one more reason
to give this year. If you're trying to decide between
a gift this year or next, and in the future,
it will require some additional planning between givers and their advisors,
(11:41):
especially for high income donors.
S1 (11:42):
Yeah, that makes a lot of sense. Great reason to
really make sure you're thoughtful about your giving here before
we close the books on 2025. Now, you also mentioned,
Bruce that the law touches estate and gift taxes. This
is always a really important question for folks. So what
are the key changes there?
S2 (12:01):
Yeah, the estate and gift tax exemption is the amount
of an individual's estate that can be transferred to their
heirs tax free. That exemption amount rises under the Oba
to 15 million for individuals and 30 million for married couples,
again primarily making permanent what had been scheduled to sunset
(12:21):
back to about half that amount as of 2026. Under
that Tax Cuts and Jobs Act. So now long term
estate planning can really proceed with more confidence due to
these permanent thresholds. But there I will make one note
as well on permanence. Write the laws, of course, can
be changed, but the old law that had been passed
(12:43):
in 2017 had those sunsets built in. Yeah, we call
these permanent now because it requires an affirmative vote to
change these amounts rather than simply allowing them to expire.
Back to the earlier levels. And we found that when
individuals settle their estate planning, it often helps them focus
(13:04):
where their hearts are called by God to give, which
then often encourages them to, in the words of Ron Blue,
start giving while they're living, so they're knowing where it's going, right?
And within that, estate planning, charitable trusts and family foundations
can also benefit from this greater predictability.
S1 (13:21):
That's really helpful. Just about a minute left, Bruce, for
listeners who don't itemize their deductions, the above the line
charitable deduction is returning. How does that work this time around?
S2 (13:32):
Yeah, this time it'll be $1,000 for an individual, $2,000
for couples, for non-itemizers for their cash gifts to churches
and public charities, which is a great thing to bring
those folks in for more incentive for giving.
S1 (13:47):
Yeah, boy, that was so helpful. We covered a lot
of ground today. Bruce. Really appreciate your time.
S2 (13:51):
Thank you. Rob. We at NCF are always happy to
join you.
S1 (13:54):
Well we love our partnership. That's Bruce McKee, attorney, senior
vice president of complex gifts at the National Christian Foundation. Folks,
let me encourage you. If you're planning your year end
giving a giving fund with NCF can help you maximize
your generosity and steward God's provision wisely. Open one today.
It'll only take three minutes. Go to faith. Com that's faith.
(14:22):
We'll be right back with much more. Stay with us.
S3 (14:31):
The opinions offered during this program represent the personal or
professional opinions of the participants, given for informational purposes only.
Any information provided is not intended to replace advice from
a financial, medical, legal, or other professional who understands your
specific situation.
S1 (14:55):
So thankful to have you with us today on Faith
and finance. Live. I'm Rob West. Well looking forward to
taking your calls and questions. The calls have started coming in,
but we've got room for you. That number to call
800 525 7000. Again, that's 800 525 7000 at the moment.
We've got some room for you. We'd love to hear
from you today. We'll dive into those questions here in
(15:16):
just a moment. But first, in the news today, the
IRS has released new guidance on how workers can claim
recently enacted federal deductions for tips and overtime pay. Beginning
this year and running through 2028, eligible employees may deduct
up to $25,000 in qualified tips, with the benefit phasing
(15:36):
out for individuals earning more than 150,000, or married couples
earning more than 300,000. A separate deduction allows workers to
claim up to 12,500 of eligible overtime pay, or 25,000
for joint filers with the same income limits. Now, experts
warn that workers may still face confusion at tax time.
(15:59):
Employers are encouraged but not required, to report these earnings
on information returns in 2025, which could make filing more complicated.
About 6 million workers report tipped wages annually and many
more receive overtime pay. The IRS also issued temporary transition relief,
(16:20):
allowing certain service industry workers to claim the tip deduction
in 2025, though this eligibility may change in future years.
For now, taxpayers are encouraged to track income carefully and
stay alert for updates. With the rules still developing, clear
records and early preparation will help ensure a smoother filing season.
(16:43):
So if you fall in that category, overtime pay or tips,
that's helpful information for you. All right. We're ready to
dive into these questions today. We're going to begin in Indianapolis.
Alan go ahead.
S4 (16:55):
Hi, Rob. I appreciate your ministry. You're doing a great thing.
S1 (16:58):
Well thank you, sir.
S4 (17:00):
Oh you're welcome. Yeah. So, um, I have a 401
K through my employer. It's a Roth. I have $403,000,
and it's just in a target date portfolio. And that's
what it's been in since I opened it. Um, I'm 59.
I'm looking to retire in about five and a half years.
I keep getting emails from Vanguard, um, to consider using
(17:22):
a human advisor. Um, they're saying it would be about
$30 for every $10,000, so 0.30%. And I just don't
know if I should do it or not if it's
worth the cost of doing that. We do have other investments.
I don't know if it would be helpful to know
that information before you answer my question, but that's my
(17:44):
question today. Rob.
S1 (17:45):
Well, it's a good one, Alan, I appreciate you asking. Yeah.
Tell me a little bit about the other investments that
you have and how you're selecting them.
S4 (17:53):
Okay. Um, we have a Roth through Schwab, which we
contribute $200 a month to, and it's got about 76,000
in it. Um, my wife retired. She's really conservative. So
we opened an annuity, a fixed indexed annuity, um, about
seven years ago, and it has about 280,000 in it.
(18:16):
And then we have, um, my wife got an inheritance
and again, we put it in a money market. It's
got 34,000. In it we have an emergency fund with
30 in it, and we have one other annuity, a
small one with about 50,000 in it.
S1 (18:34):
Okay, excellent. Well, listen, you guys are doing great and
I can understand, you know, you have different kind of
risk profiles, if you will. And the good thing is
you can have a variety of investments that when you
put it all together, you know, is appropriate for each
of your ages and risk tolerance and then jointly for
your goals and objectives. As you think about the fourth
quarter of life and what God might have for you,
(18:56):
you know, the the need potentially to transition away from
paid work to whatever God has as you stay productive
in service to our Lord, but using your time, talent,
and treasure for his glory that may or may not
involve pay. And so the ability to convert these assets,
which you know, you've accumulated quite a nest egg here,
which is great to be able to convert these to
(19:18):
income is going to be really important. I don't think
there's anything wrong with having that guaranteed fixed annuity as
a part of this. I mean, I'm seeing here, you know,
as much as, uh, you know, 800,000 plus somewhere between
8 and 900,000 all in and, you know, with a
guaranteed fixed annuity is 280 of that. And then you've got, uh,
you know, the 134 invested really conservatively as well. Um,
(19:42):
you know, I like the idea of you using an advisor, uh,
for this nest egg, even if it didn't include, you know,
some of this. I mean, maybe the the inheritance you
still keep, you know, in a, in a fairly conservative,
even somewhat liquid posture, if that, you know, gives your
wife more peace of mind. Uh, the annuity is certainly
(20:02):
in a fixed environment, but you'll be able to access, uh,
I imagine a portion of that every year. But taking
the roughly 500,000 between the 401 K and the Roth
and having an advisor manage those, I think makes a
lot of sense. I probably wouldn't pay the 30 basis points.
Just so you have a human that you can call
in a call center. I'd rather you spend if you're
(20:24):
going to use an advisor. Um, you know, more like 1%,
even though, you know, that's 4000 a year on a
$400,000 portfolio. The idea would be that you've got somebody that,
as you move beyond the target date fund and think
about generating more income, protecting what you have, but also
maximizing that yield. Maybe in the fixed income portion, it's
(20:46):
a mix of bonds and some treasuries, maybe even some CDs. And, uh,
you know, maybe you have a little bit of gold
in there. And then for a smaller portion of the portfolio,
still keeping some stock exposure so you can outpace inflation.
I mean, that's the kind of thing that an advisor
would do alongside probably some comprehensive planning, making sure you
have your estate in order, making sure you're mitigating taxes
(21:09):
once you have required minimums, that you do that in
a tax efficient way, and somebody who understands your values
and can guide you in the most effective ways to
give as well. So that would be the way that
I would go. And I would reach out to a
certified Kingdom advisor, maybe interview 2 or 3 in Indianapolis.
You could go to find a. Com to find who's
(21:30):
in your area. There's some great ones there in Indy,
but let's do this. I want to get your thoughts
on that and just see if you have any follow
up questions. So if you don't mind, Alan, I'm going
to ask you to stay there through the break. I'll
come right back to you and we'll pick up this conversation,
and then we'll head to Iowa, talk to Renee and
out to Washington State. John's waiting patiently there as well.
This is faith and finance live. We'll be right back.
(21:59):
Great to have you with us today on Faith and
Finance live. I'm Rob West. Before the break we were
talking to Alan in Indianapolis. He's got multiple accounts. He's
got a 401 K through his employer. He's been in
a target date fund, about 400,000. He's wondering if he
should move that over to an advisor, either a low
cost advisor at Vanguard that would be just available, I suspect,
(22:22):
for phone calls or some other situation. He's also got
several other accounts. Uh, he's planning to retire in five
and a half years. And, um, you know, is is
just wondering the best option here. Uh, you know, you
can't al and roll this out to an IRA and
have a full discretionary account until you separate from your employer.
(22:42):
So I would say, you know, if that target date
has been doing well, I'd probably just leave it there
for now. I don't think you get a lot of
benefit out of the the 30 basis points for the advisor,
and then just be ready to move over to an
advisor that can take full discretion at retirement. And if
you need some financial planning now, you know, I'd reach
(23:03):
out to an advisor to establish a relationship with. But
apart from that, you know, I don't think there's any
issue with staying with this target date fund. But give
me your thoughts on all that.
S4 (23:14):
Okay. Well, um, that that sounds good to me. Honestly. Um,
I would definitely, you know, maybe six months before I retire,
start interviewing, um, some advisors, but it's been doing really well. And, uh,
you know, I realize that, um, to get professional advice,
(23:37):
you know, I'm a novice. I'm going to need help.
So I wasn't sure if I should go ahead and
pay that fee through Vanguard. Um, for the next five
and a half years until I retire. But, um, if
you suggest, I realize, Rob, ultimately, it's mine and my
wife's decision. But if you suggest that we just ride
the target date, that that definitely, uh, will be a
(23:58):
factor in our decision making.
S1 (24:00):
Yeah. I mean, I don't like I don't have any
problem with that at all. I mean, especially it's been
doing well, those are going to, you know, that's going
to continue to get more conservative. Um, you know, you
may want to look and just see kind of what
the mix is of that target date fund. Uh, you know,
because what is your age right now?
S4 (24:20):
I'm 59. I'll be 60 in April. And I looked
on Sunday, and it's like 60% stock and 40% bonds
right now.
S1 (24:27):
Okay. Yeah. So that's a little more aggressive than you
would typically be, which I don't have any problem with
just given the assets you have. And you all are
living modestly. I mean normally we'd say at 60 you'd
be 5050. Um, but I think being a little bit
more aggressive than that is not a problem for me.
It's certainly not, you know, out of balance whatsoever. I mean,
(24:47):
if you wanted to pull back to a different target
date fund, that is a little, you know, sooner and
where it gets more like 5050. Um, you know, I
think that would be fine, especially given how the market's
done and the fact that a lot of economists think
we're headed into a period where we're not going to
see these kinds of returns. Um, but again, if even
(25:07):
if you stayed right there, I wouldn't have any problem
with it. I'm just not sure with the kind of
relationship you're describing here, uh, at Vanguard for the 30
basis points, I'm not sure you're going to get a
whole lot out of that. That's worth the expense.
S4 (25:21):
Right. Okay. All right. Rob. Well, I appreciate your advice
and your time. It helps us greatly.
S1 (25:27):
Anytime, Alan. Hey, stay on the line. I'm going to
send you a copy of our latest edition of Faithful Steward,
our magazine. Just as a thanks for calling in today.
I think you'll enjoy it. God bless you, sir. Uh,
let's go to Iowa. Hi, Renee. How can I help?
S5 (25:38):
Hi, Rob. Thank you for taking my call. I really
appreciate your program.
S1 (25:42):
Of course. Thank you.
S5 (25:44):
Um, I'm, uh, 54 and still working. I still have about.
I'm still planning on working another 8 or 9 years.
My husband is 62 and he's retired. He's taking he
gets Social Security and he has two 401 s, um,
that are like 40,000 apiece. Um, so we were just
(26:06):
considering wondering if it would be a good idea to
cash those two in and then pay off our mortgage.
And we have a car payment. Our mortgage is 40,
our balance about 40,000. Um, and then his, our truck, um,
we owe about 10,000 on that.
S1 (26:26):
Okay. Yeah. And what is the interest rate on that?
S5 (26:30):
Uh, the interest rate on the mortgage is 3%, and
the truck is like, um, maybe nine.
S1 (26:35):
Okay. Yeah. Uh, yeah. You know, I mean, I think
I appreciate what you're trying to do here. At the
same time, you know, the cashing out that 401 K
is going to trigger trigger taxes. So, you know, there's
no 10% penalty at, uh, at 62 if we're talking
about his account. But the entire withdrawal uh, would be
(26:56):
taxable in one year. So that could push a portion
of that into a higher tax bracket. Um, you know,
that 3% mortgage is what you might consider cheap debt.
I mean, you know, that's a fabulous interest rate that
a lot of people would love to have today doesn't
mean you shouldn't pursue being debt free, even though it's, quote,
cheap debt. I still like the idea of you getting
(27:17):
out of debt completely, but from a financial standpoint, and
that's all it is. There's more to finances than just the,
you know, the numbers. But from a financial standpoint, it's
almost always better to keep the mortgage and leave the
401 K alone. You know, paying off that 3% mortgage
is not a high return move. Any diversified retirement portfolio
(27:38):
is likely to earn more than a 3% long term return,
especially if you're going to need those funds for retirement
income down the road. Um, liquidity matters at your age.
So once you put not saying you're old at all,
I'm just saying as we age, liquidity gets more and
more important. So once you put retirement money into the house,
(27:58):
it becomes illiquid unless you get something like a reverse mortgage.
So if something goes wrong, you know, medical home repair car,
you can't get that money back without debt. Uh, and
the payment is manageable. It sounds like. So I think
bottom line is just, you know, to be able to
continue to keep that growing on a tax deferred basis,
(28:19):
which is a significant value, um, you know, without the
taxes being a drag on the investments, keeping that, you know,
compounding for the future so you can convert it to
an income stream. And just given that you're not telling
me your budget's tight and the interest rate is so low,
I'd probably just, you know, continue to pay this off monthly. Now,
(28:39):
what would kind of trump all of that, if you will,
is if you said, Rob, we really feel a conviction
from the Lord to be debt free immediately. And I'd say, great,
go ahead and don't look back. But apart from that,
I'd probably let this ride.
S5 (28:52):
Okay. All right. I was just wondering what you thought
about it.
S1 (28:56):
Excellent. Well, I appreciate you checking in. If I can
help with anything else along the way. Don't hesitate to call.
Lord bless you. 800 525 7000 is the number to call.
Let's go out to Washington state. John. Go ahead.
S6 (29:08):
Yes, sir. How are you doing?
S1 (29:10):
I'm doing great. Thank you.
S6 (29:13):
Hey, um, as I shared, uh, we are looking at
possibly selling a piece of property that we've had probably
for around 6 or 7 years. Uh, purchase price was 220,000. Uh,
we owe nothing. Uh, selling price. Asking price will be
probably around 400, 440,000 based on, uh, comparable properties.
S1 (29:41):
Yeah. Okay. And so what what's the main thing you're
wondering about?
S6 (29:49):
Main thing that I'm wondering about is I'm on Social Security. Okay. Um,
approximately 36,000 annual. Their, um, retirement accounts drawing approximately 21,000
out of that annually, and my wife is working at
a self-employed approximately 16,000 annual. So a total gross around 73,000. Uh,
(30:15):
so not certain how this is going to affect things
the next year as far as taxes and, uh, my
Social Security.
S1 (30:25):
Got it. Okay. Yeah, that's really helpful background information, John.
So here's what we're going to do. I'm going to
take my final break. As soon as I come back
I've got all these details. We'll talk about you being
prepared for, uh, something called Irma. Uh, income related monthly
adjustment amount. Uh, also, perhaps more taxable income on Social
Security and capital gains. Stay right there. We'll be right back. Hey,
(30:53):
I'm so glad you're joining us today on Faith and finance.
Live here on a Tuesday afternoon. Maybe you have a
financial question you've been wrestling with. Well, now's is a
great time to call. I've got some lines open and
here in our final segment we're going to get to
a few more phone calls. So, uh, beyond those holding,
if you have a question, go ahead and call right
now 800 525 7000. We'll try to get you on quickly.
(31:14):
800 525 7000. With any financial questions? Uh, before the break,
we were talking to John in Washington state. Uh, he
bought a piece of property. It's not a personal residence.
6 or 7 years ago for about 220,000. They paid
it off. They're thinking of selling it. They think based
on the comps in the area, it's worth about 400,000.
He's 70 retired, collecting Social Security. Just wondering how this
(31:38):
might affect affect his taxes and Social Security. Uh, John, yes,
I'm glad you're thinking about this, because you're not going
to want to let this catch you by surprise. Um, so,
you know, a few things. This is going to affect
first capital gains because it's not your primary residence. You
don't get the home sale exclusion. So if you sold
it for 400 cost basis was 220, You'll have roughly
(32:00):
180,000 and a taxable long term capital gain. It's your
income level. I think you mentioned about 73,000 in combined
income plus the capital gain that gets added to it.
That's going to put you probably in the 15% long
term capital gain rate. So just by way of estimate
that could be 27,000 in capital gains. So that'd be
(32:22):
the first thing you want to be ready for. Um,
you could also see your income jump or you will
because of the gain, the IRS will count that toward
your combined income. And that will cause 85% of your
Social Security to become taxable. It doesn't reduce the benefit.
It just means more taxes. So, you know, let's say
(32:42):
I'm just estimating here. Let's say you receive 2000 a month,
24,000 a year. Um, if now 85% is taxable, that
means 20,400 would be added to your taxable income. In
my example, if you're at the marginal tax rate of 12%.
That'd be, you know, a $2,500 in additional tax if
(33:03):
you're at the 22% marginal rate, could be 4400. So
that's the second thing. The third thing to be aware
of would be any trigger to Irma, which is a
higher Medicare premium. They look at your modified adjusted gross
income from two years ago. So this wouldn't be immediate.
But adding to that 180,000 of gain to your usual
(33:24):
73,000 will push you, you know, above that Irma threshold. Now,
that's two years after the sale where your Medicare Part
B and D will increase for one year due to
that spike in income. How much will that be? Um,
you know, it could be, uh, it could be a
couple of hundred dollars more, 230 to $360 more per
(33:48):
month for that year on part D and somewhere between
25 and 50, I would guess. Um, so that could
be between 5 and 10,000 for the year and extra
Medicare costs that you need to be aware of. So
those would be the main issues. I know that's not
great news, but better to be ready for it, you know.
S6 (34:07):
Yes, sir.
S1 (34:09):
Is that all make sense?
S6 (34:13):
Yes, I think uh, other than, um, I'll have to
research the, uh, Irma that you were talking about and, uh,
become more educated in that fact. Yeah.
S1 (34:26):
Yeah. Irma is basically they look at your income to
determine if you go over a certain threshold, they add
additional premium to your Medicare Part B and D. And
so anytime someone has a spike in income and a
capital gain would be included in that, it's just going
to push you above that threshold, and it's just going
(34:46):
to make those premiums more expensive. And and so it's
only temporary. And then the next year when they do
the look back, they'll see your income drop back down
to its normal level and they would drop your premium.
But for that, that one year, a couple of years
from the sale, you are going to have that spike.
So you just need to be ready for it.
S6 (35:06):
Okay. So it's just one year.
S1 (35:08):
That's right. Yeah. But it's based on your modified AGI
two years prior. And then they set the premium for
the year. And then they'll take a look at it
the following year and see that. Wait a minute. The
end comes back down and is an obvious reason for it.
It's because it was only up due to that sale.
S6 (35:26):
Well, thank God it's only one year.
S1 (35:29):
Yes, sir. Hey, thanks for your call, John. We appreciate
you being on the program, sir.
S6 (35:34):
Yes, sir. Thank you for your your faithfulness.
S1 (35:37):
Well, I appreciate that. It's a it's a joy and
a pleasure. Lord bless you. Uh, let's go to Florida. Hi, Dee.
Go ahead.
S7 (35:43):
Hi. Thank you. I really love your show. Thank you.
I thank you. No. Thank you. I have, um, been
helping friends, and it's sort of turned into a side business,
which wasn't anticipated per se, but I've had cash payments
made throughout the summer months, and, um, I have a
(36:07):
full time job as well. I'm just not sure from
a tax perspective how I have to treat that. If
there's a special schedule or how you know how much
is considered just friends or income after, you know, a
certain threshold. Um, beyond that, I also was just given
(36:30):
my performance review, and I believe I'm getting a raise.
I have not been able to do very well with
my retirement. Um, you know, adding to it, um, in
many cases I've had to detract from it. So I'd
like to be strategic about perhaps where I put that
increase and wondered what you think.
S1 (36:51):
Yeah. Well, it's a great question and I appreciate it.
So first part let's deal with that. So even if
the payments come from friends, if you did work for
them and could be anything from, you know, babysitting to,
you know, anything else crafts, whatever it is, the IRS
still treats it as taxable income. And it doesn't matter
who paid or whether it was cash, Venmo or a
(37:11):
gift card. If you were paid for work, it counts
as income. Um, and so it'd be self-employment income. So
what you would need to do with that is you
add up all the cash you earned for the year,
that becomes your side business income. You subtract any legitimate
expenses related to that work supplies or mileage or tools
or materials. Whatever's left is called your net self-employment income.
(37:35):
And you'll owe income tax and self-employment tax, which is,
you know, normally when you get wages, half of your
Social Security and Medicare is covered by your employer. When
you're self-employed, you got to cover both sides. So it's 15.3%.
So you just need to make sure you keep a
list of what you earned and any expenses, and then
(37:58):
plan for that side income, side job income to be
taxed at, you know, roughly 20 to 25% total depending
on your bracket. And then, you know, you'll you'll have
to file that self-employment income. Does that make sense?
S7 (38:15):
It does make sense. Will I be able to do
both on the same, you know, form, um, or is
there a separate schedule like to call myself self-employed? In part.
S1 (38:29):
Yeah. No, you'll you'll be able to handle all of
that in one return. A tax return can handle both
the W-2 wages and the self-employment income. So your W-2
job goes on the 1040 the lines for wages. Your
self-employment income gets reported on a schedule C, as in Charlie,
and then any self-employment tax you owe is on schedule SE,
(38:52):
and then that's going to flow back to the 1040.
So everything will be there. Same form. It all gets
filed together.
S7 (38:58):
Perfect. Thank you for that.
S1 (39:00):
Yep. And then tell me again that second part of
the question.
S7 (39:04):
Yeah. Just thoughts of where I can make up some
ground with a little raise that I'm getting. Um, in
the New year for retirement.
S1 (39:14):
Okay. Got it. Yeah. So do you have a retirement
plan at work? Your current employer?
S7 (39:19):
We do. We're limited as to the percentage that we
can contribute.
S1 (39:25):
Okay. Are you maxing that out currently?
S7 (39:27):
Uh, yes. On one. And then you just made me remember.
I think there's a deferred plan that I could put
the funds to.
S1 (39:35):
Okay. Yeah. You're going to want to get more information
on that, because anything we can do to get you,
you know, uh, into your retirement account is great. Um,
and so if you've got a deferred compensation plan, if
your employer offers what's called a 457 B, uh, or
other deferred comp plan, that's the next best place to save.
(39:56):
So it's going to let you save beyond your 401
K limits or whatever you have. It's going to reduce
your taxable income, and there's no penalties for withdrawal after
separation from service in a 457 plan. So it's a
great tool for catching up if you, you know, have more.
Beyond that, you could open a Roth IRA which would
(40:18):
have tax free growth. But if you're, um, you know,
you'd have to meet the income requirements for that. But
I'd say either of those options could be great.
S7 (40:26):
Wonderful. I appreciate your time today. Thank you so much.
S1 (40:30):
Absolutely. Thanks for listening to the program, D and for
your kind remarks. Lord bless you. We appreciate it. Uh
800 525 7000. Uh, you know, Mary and Victor, unfortunately,
I am out of time today, so I would love
to get you all scheduled to be first up tomorrow. Uh, Mary,
I would love to tackle that. Uh, 529 for your
great grandchild. And Victor, as a question about some credit
(40:53):
card debt and, uh, perhaps a hardship situation. So, uh,
let's see Mary and Victor, if we can get get
you scheduled to be, uh, on the program tomorrow. Uh,
first two callers. Thanks for, uh, for calling today, folks.
I've got two requests for you before we wrap up today.
One is, if you are a client of a certified
Kingdom advisor, I could use your help in a nationwide
(41:14):
survey we're conducting with a research partner. Um, if you'll
just head to Faith B-complex, it's going to take ten minutes,
but it'll be a big favor to me. I need, uh,
according to our latest data, about 175 more surveys completed. Again,
this is for clients of certified Kingdom advisors. This national
(41:36):
study is going to help us better understand the outcomes
of working with a certified Kingdom advisor versus not working
with a certified Kingdom advisor. We're getting some early data.
It's really exciting about how they're helping God's people give
more and invest in a way according to their values,
and think about preparing the next generation. But we need
(41:56):
a full lineup of surveys in order to make this
statistically valid. So if you're a client of a k
faith complications. Now as we head toward year end, we're
getting close to December 31st, but we're not yet there
in meeting our listener support goal. So if you love
the program, you listen regularly and you'd consider being a
(42:18):
part of our funding team. Here's why. It's a great time.
Every gift is doubled between now and December 31st, and
every gift will ensure you get my new devotional. Go
to Faith. Com. Big thanks to Josh Taylor, Omar and Lisa.
Faith and finance lives a partnership between Moody Radio and
Faith by. We'll see you tomorrow. Bye bye.
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